The Assignment and Its Relationship to Connecticut Borrowers
  

Common Characteristics of the Western Sky Loan Agreements
Executed With Connecticut Borrowers
 

Interest Rates Charged to Connecticut Borrowers on the
Western Sky Loans Assigned to CashCall, Inc.
 

Interaction With the CashCall, Inc. Website by Department Personnel
  

Jurisdiction and Procedure
  

The Amended Order contains two factual allegations relating to the alleged violation of Section 36a-555:  1) From at least March 2012 forward, CashCall, Inc. offered, via various media in Connecticut, including the Internet, unsecured consumer loans in amounts less than $15,000 with annual interest rates of greater than 12%; and 2) CashCall, Inc.’s website offered those loans to consumers, not excluding Connecticut residents, by soliciting such consumers.

CashCall, Inc.’s business was multi-faceted.  It is and was a Connecticut licensed mortgage lender; it performed loan servicing activities on behalf of Western Sky Financial, LLC in conjunction with an assignment and servicing agreement involving its subsidiary, WS Funding; and it also hosted a website which provided information on its unsecured lending activities.

CashCall, Inc.’s performance of loan servicing activities for Western Sky Financial, LLC, would not, without more, rise to the level of brokering or assisting borrowers in Connecticut to obtain loans, arranging loans through a third party or acting as an agent for a third party since there is insufficient evidence in the record that CashCall, Inc. took proactive steps to perform these functions.  Rather, the record indicates that the services that CashCall, Inc. performed pursuant to the agreement with Western Sky Financial, LLC occurred after Western Sky Financial, LLC had funded the loans in question.

Baren testified that, in handling incoming telephone calls, Western Sky would transfer the excess calls it was understaffed to handle “to a CashCall person for the express and only purpose of collecting the application and submitting it back to Western Sky, so that Western Sky can make the underwriting decision.”  This statement and additional details regarding CashCall, Inc.’s “back office” function, however, were not fleshed out during the hearing or corroborated by additional evidence.  Footnote 4 to Respondent’s brief attempts to “correct” Baren’s testimony by providing a two page description of how CashCall, Inc.’s support functions worked.  However, the purported facts set forth in Footnote 4 were not brought out at the hearing and, for that reason, cannot be considered.  In addition, no evidence was presented at the hearing that CashCall, Inc. was an alter ego of Western Sky Financial, LLC.

The next question is whether CashCall, Inc. “offered” unsecured loans in Connecticut through its website or any other electronic means.  On its face, the website indicates that the first step to obtaining a loan from CashCall, Inc. is to either call 866-590-cash or, alternatively, fill out an online form and have CashCall, Inc. call you.  The form does not require a physical address but only a telephone number.  By submitting the form, the user consents to receiving any live or prerecorded telephone call for CashCall.  As an apparent alternative to initiating contact by telephone, the website also permits the user to click on a separate “Apply Now” button.  Nowhere is the consumer advised that the only way he or she can obtain a loan is to click the “Apply Now” button.  Indeed, the “Contact Us” page invites would-be borrowers to apply by phone.

CashCall, Inc. argues that it is not offering unsecured loans to Connecticut residents because clicking the “Apply Now” button results in a drop-down menu and a “Not Supported” computer system message when Connecticut is selected from the menu.  CashCall, Inc. also maintains that since there is no evidence in the record that any Connecticut resident obtained an unsecured loan from CashCall, Inc. directly, no “offer” was made.  The fact that an offer or business solicitation was unsuccessful, however, does not make a communication any less of an offer.

Although CashCall, Inc. claims to have installed a firewall to prevent Connecticut residents from using the Apply Now drop down menu, CashCall, Inc. was remiss in otherwise restricting what on its face is a generic website.  None of the pages contains a disclaimer that unsecured loans may only be made to residents of specified states.  Moreover, although Baren claimed in his testimony that only those individuals who provided a California driver’s license would be loan candidates, the website contains no such restriction.  In fact, the website uses the driver’s license requirement to prove that the applicant is at least 21 years old – not to establish where the applicant resides (“Provide proof that you are at least 21 years of age with a valid form of ID such as a driver’s license.”)  Thus, aside from the nonfunctioning (for Connecticut) Apply Now button, CashCall, Inc. did not dissuade website visitors from applying for unsecured loans based on their residency but held itself out as being able to provide unsecured loans without restriction.

When department employees Cappelli and Costa filled out a separate online form, CashCall, Inc. representatives initiated contact with them by telephone and e-mail.  CashCall, Inc.’s position appears to be that the representatives (both Senior Loan Agents) believed Cappelli and Costa were California residents.  CashCall, Inc. maintains that this is the case even though both Costa and Cappelli provided a Connecticut area code and an e-mail address bearing the State of Connecticut domain name.  In fact, Cappelli’s March 5, 2012 e-mail was signed “Anne Cappelli  State of Connecticut.”  It is hard to fathom why CashCall, Inc.’s senior loan officials would persist in believing that Costa and Cappelli were from California (as Respondent contends) when the communications were from the State of Connecticut’s governmental domain, the telephone numbers bore a Connecticut area code and Cappelli added the words “State of Connecticut” to the body of her March 5, 2012 e-mail.  In addition, a third Senior Loan Agent sent e-mail messages to Cappelli’s State of Connecticut e-mail account following the entry of the Original Order exhorting her to “Get Your Money Today” since there was a “strong chance” she would be preapproved for a loan.

Therefore, since CashCall, Inc. extended loan offers through its unrestricted website and through e-mailed communications to State of Connecticut employees at their State of Connecticut e-mail accounts, CashCall, Inc. violated Section 36a-555(2) of the Connecticut General Statutes.

The applicability of Section 36a-555(2) to out-of-state lenders was confirmed in an opinion by the State of Connecticut Attorney General who concluded that because 36a-555 was amended in 2009 to “expressly” cover small loans offered to Connecticut consumers “through any method, including, but not limited to, mail, telephone, Internet or any electronic means,” it applied to out-of-state small loan lenders using these methods to make small loans to in-state consumers."

The Amended Order alleged that CashCall, Inc. charged and received interest at a rate greater than 12% on at least 3,800 consumer loans to Connecticut residents in amounts less than $15,000, and that, in so doing, CashCall, Inc. violated Section 36a-573(a) of the Connecticut General Statutes.

It is beyond dispute that the Western Sky loans which were the subject of complaints introduced into evidence and the Western Sky loans listed on Department Exhibits 19 and 20 bore interest rates well in excess of 12%.  Equally clear, CashCall, Inc. received interest on those loans.  Therefore, CashCall, Inc. violated Section 36a-573(a) of the Connecticut General Statutes.  In addition, on at least two occasions, CashCall, Inc. attempted on its own to negotiate a loan modification in excess of the 12% interest cap with Western Sky borrowers located in Connecticut.

Significantly, as a licensed mortgage lender in Connecticut, CashCall, Inc. had a responsibility to comply with Connecticut law governing all aspects of its business operations – including the statutory interest rate cap.  The fact that it did not do so reflects adversely on its character and fitness to operate in the lending industry.
  

The Amended Order alleged that CashCall, Inc. violated Section 36a-53b by 1) failing to identify a third party (i.e. Western Sky) as the entity making consumer loans in Connecticut when offering such loans to Connecticut residents, and 2) stating on its website that all loans were made pursuant to its California lender license, when in fact such loans in Connecticut are not made pursuant to such license.

The record is not clear on the factual context in which CashCall, Inc. failed to identify a third party as the maker of the loans, and therefore the claim based on this factual predicate cannot stand.  Indeed, each loan agreement identified Western Sky Financial, LLC as the lender.

Similarly, it is unclear from the record whether CashCall, Inc.’s website was a vehicle for would-be borrowers to obtain unsecured and/or mortgage loans exclusively from CashCall, Inc. or whether those borrowers would also be introduced to Western Sky via the website.  From a reading of the website, it would appear that the former is true, particularly since Western Sky Financial, LLC maintained its own website.  In addition, there is no evidence, testimonial or otherwise, that any prospective borrower sought or was directed to Western Sky as a result of the prospect’s interaction with CashCall, Inc.’s website.  Each of the loan agreements specifically referenced Western Sky Financial, LLC as the maker of the loan.  If there was any consumer confusion it might have been because Western Sky Financial, LLC did not fully disclose the identity of CashCall, Inc.  However, that is not the department’s claim.  Consequently, there is insufficient evidence to establish a violation of Section 36a-53b based upon a failure to identify Western Sky Financial, LLC as the originator of the loans.

Next, the fact that the CashCall, Inc. website stated that loans were made pursuant to CashCall, Inc.’s California license does not imply that the California license authorized loans in all states.  (It should also be noted that the Landing Page only references the “Dept. of Corporations Finance Lenders Law” – without any mention of California.)  A reasonable would-be borrower, bent on obtaining a quick, short-term loan, would probably not give the statement a second thought.  What would have been more meaningful to the would-be borrower is a disclaimer that CashCall, Inc. was not authorized or licensed to make loans in States X, Y and Z.  Therefore, the reference to CashCall, Inc.’s California license does not in and of itself establish a violation of Section 36a-53b of the Connecticut General Statutes.

Section 36a-53b also proscribes material omissions.  The web pages introduced into evidence may contain omissions that would have been material to would-be borrowers in deciding whether to pursue a loan through CashCall, Inc.:  1) if CashCall, Inc.’s unsecured lending was indeed limited to California residents, the pages contain no statement that the loans were limited to residents of specific, enumerated states; 2) the interest rates associated with personal loans were not consistently disclosed; 3) there was no  comparative data supporting CashCall, Inc.’s claims that its interest rates were “typically much lower than those of payday lenders”; 4) CashCall, Inc. neglected to state that customers with “excellent credit” would probably qualify for loans having a much lower rate than 35.87% from competing lenders or that the quoted rates present issues under state usury laws; and 5) in representing that CashCall, Inc. unsecured loans would have the potential to help customers rebuild their credit score by making payments on time, CashCall, Inc. failed to disclose the default rate on the loans and the resulting adverse impact on a borrower’s credit score.

The Amended Order, however, did not allege that Respondent made material omissions of the type described in the preceding paragraph, and therefore such omissions cannot support a finding that Respondent violated Section 36a-53b.

However, such lack of disclosure would be relevant to Respondent’s business practices, and, by extension, it character and fitness to conduct lending activity.
   

CashCall, Inc. asserts that 1) Webb is a member of the Cheyenne River Sioux Tribe; 2) because Webb is a member of the tribe, Western Sky Financial, LLC enjoys the privileges of tribal membership; 3) as assignee, CashCall, Inc. steps into the shoes of Western Sky Financial, LLC; and 4) therefore, the department cannot enforce against CashCall, Inc. what it could not enforce against Western Sky Financial, LLC.

This argument is attenuated at best.  In Puyallup Tribe, Inc. v. Department of Game, 433 U.S. 165, 171, 172, the United States Supreme Court held that the sovereign immunity doctrine does not immunize individual tribal members.  Puyallup was cited with approval in State of Colorado ex rel. Suthers v. Western Sky Financial LLC and Martin A. Webb (D. Col., Case No. 11 CV 638, 4/15/12) wherein the court held that “Webb, as an enrolled member of the Tribe, is not individually entitled to immunity, nor does his membership in the Tribe confer such immunity upon Western Sky.”  The court also concluded that Western Sky’s conduct did not involve the regulation of Indian affairs on an Indian reservation.

Similarly, in State ex rel. Suthers v. Western Sky LLC, 845 F.Supp. 2d 1178, 1182  (D. Colo. 2011), the court held that Western Sky’s conduct did not involve the regulation of Indian affairs on a reservation, observing that: “The borrowers do not go to the reservation in South Dakota to apply for, negotiate or entered into loans.  They apply for loans in Colorado by accessing defendants’ website.  They repay the loans and pay the financing charges from Colorado; Western Sky is authorized to withdraw the funds electronically from their bank accounts; and the impact of the allegedly excessive charges was felt in Colorado.”

There is no evidence in the record that any Connecticut resident went to the Cheyenne River Sioux Reservation to apply for or negotiate a loan.  Insofar as the Western Sky loans were concerned, the record suggests that the application and repayment process was done electronically as was the case in Suthers.  And certainly, the impact of the high interest charges was deeply felt in Connecticut by borrowers who could ill afford such charges.

In considering a motion to remand in State of Missouri ex rel. Koster v. Webb et al. (D. Mo., Case No. 4:11-cv-01237-AGF, 3/27/12), the court concluded that “Webb, as an enrolled member of the Tribe, is not individually entitled to immunity, nor does his membership in the Tribe confer such immunity upon the Lending Companies [including Western Sky Financial LLC]” and that, as an enabling provision, the Indian Commerce Clause does not completely preempt state law.

Even if Western Sky Financial, LLC were an Indian tribe (which it is not), courts have held that Internet lending does not constitute on-reservation activity (see, e.g., Otoe v. Missouria Tribe of Indians et al. v. New York State Department of Financial Services (SDNY, 9/30/13, Case No. 13-CV-5930-RJS) [consumers not on a reservation when they apply for a loan, agree to the loan, spend loan proceeds or repay those proceeds with interest nor do they travel to tribal land].

There is no evidence in the record that Western Sky Financial, LLC – let alone CashCall, Inc. – was an Indian tribe or that the Cheyenne River Sioux Tribe sanctioned or was otherwise involved with these loans.  In fact, no document was introduced evidencing any license that Western Sky Financial, LLC had with the tribe.  The Cheyenne River Sioux Tribe did not intervene in these proceedings or ask to file an amicus brief.  Although the tribe’s perspective is not included in the record, on August 13, 2013, the Native American Financial Services Association (“NAFSA”), an organization dedicated to preserving the sovereignty of Native American tribes and whose membership consists of federally recognized tribes issued this release:  “Western Sky Loans does not operate under tribal law or abide by tribal regulatory bodies and is not wholly-owned by a federally-recognized tribe.”  On December 16, 2013, NAFSA issued another release which stated:  “CashCall does not abide by these consumer-friendly practices, is not an enterprise wholly owned by a federally-recognized tribe, is not regulated by a tribal regulatory lending authority, does not operate according to tribal law, and breaks the covenants meant to benefit tribal governments and their members.”  (see release at mynafsa dot org) . . . .

Neither CashCall, Inc. nor Western Sky Financial, LLC could legally claim the immunity extended to an Indian tribe.  To conclude otherwise would do a disservice to legitimate Native American lending operations.  In its brief, CashCall, Inc. claims that the Commissioner, in issuing the Amended Order, is attempting to “regulate a reservation” (Respondent’s brief at 20).  This argument misconstrues the Commissioner’s action.  The Commissioner was attempting to regulate California-based CashCall, Inc.’s unsecured lending activity and the exorbitant interest rates charged and/or received by CashCall, Inc.

Therefore, CashCall, Inc.’s tribal immunity defense must fail.

Lest anyone erroneously believe that the extraordinary interest rates charged and/or received by CashCall, Inc. would have been permissible from a Native American perspective, the case of Capital Loan Corporation v. Platero et al. (2000 CP-cv-001) may provide some insight.  There, the District Court of the Navajo Nation (New Mexico) was presented with three unsecured loans for $200, $100 and $500.  The APR on the loans was 191.31%, 233.76% and 89.62% respectively.  Finding the interest rates unconscionable, the court remarked, “these loans certainly appear to be an ‘unconscionable bargain’ which is ‘one which no man in his senses, not under delusion, would make, on the one hand, and which no fair and honest man would accept, on the other’ [citation omitted].  Are these interest rate agreements ones are freely made?  The court takes judicial notice of the very high poverty rates in the Navajo Nation and the smallness of these loans indicate need by the borrowers.  The court also wonders what fair and honest lender would charge interest rates from 89.63% to 233.76%.  This court cannot enforce that kind of agreement.”