Arkansas Attorney General Launches Internet Payday Loans Lawsuit

Little Rock, ARThe battle lines are drawn between the state of Arkansas and the operator(s) of an Internet payday loans organization which, according to its website, suspended operations in late summer. At issue are the provisions of Internet payday loans that have been known to carry interest rates as high as 342 percent, and whether or not the company can legally claim tribal immunity based on its ownership and management.

The Internet payday loan has surfaced as a force in the quick-cash financial sector given the availability and growth of the Internet over the last decade. Rather than walking into a storefront operation, consumers can apply online for infusions of quick cash for deposit directly into their bank accounts. To accomplish the latter, consumers divulge their banking information, allowing less-than-reputable operators the capacity to draw interest and other payments directly from a consumer’s account.

Interest rates are another factor, described as predatory by some, and thought to bury consumers already floundering under financial burden even deeper into debt.

While storefront operators can be more easily policed within their jurisdictions, Internet payday loans are harder to regulate and many states are launching Internet payday loan lawsuits in an effort to shut down operators that don’t carry a license to issue loans in the state.

The latest, according to the Southwest Times Record (10/2/13), is the state of Arkansas. On October 1, The Office of Attorney General for the state of Arkansas formally issued writs against Western Sky Financial, WS Funding, CashCall Inc., Martin A. Webb and J. Paul Reddam.

In a statement, Attorney General Dustin McDaniel noted, “Though we have successfully eliminated storefront payday lending in Arkansas, some online lenders continue to offer the kinds of loans that often push consumers further into debt.” McDaniel further noted that some consumers in his state have been offered Internet payday loans ranging from $850 to $10,000, with annual rates of interest ranging between 89 and 342 percent.

Critics of Internet payday loan operators contend that such financial transactions and terms amount to predatory lending.

However, there is also an issue with regard to ownership of Western Sky. Based in South Dakota, the enterprise identifies itself as a tribal entity and thus insulated from regulation by tribal sovereign immunity. A YouTube video posted on the Western Sky website showcases a collection of workers making statements as to their jobs and various lengths of tenure with the company.

It is not clear if any of the operators of Western Sky, WS Funding or CashCall Inc. are themselves members of a tribe. However, McDaniel notes in his lawsuit that Western Sky is not a protected entity due to the fact it is not wholly owned and operated by a tribe. That fact is duly noted at the footer of the Western Sky website, although in the same paragraph, it is noted that Western Sky, while not owned or operated by a tribe per se, “is owned wholly by an individual Tribal Member of the Cheyenne River Sioux Tribe.” The individual Tribal Member is not identified.

The lawsuit also notes that Arkansas consumers who apply for and are granted loans through Western Sky are not themselves on tribal lands when they apply for and sign loan documents outside of tribal jurisdiction.

According to the Southwest Times Record report, WS Funding is a subsidiary of CashCall, both of which are based in California and owned by Reddam, and named as a defendant in the Internet payday loans lawsuit brought by Attorney General McDaniel. Western Sky, located in South Dakota, is owned by Martin “Butch” Webb.

According to documents filed with the lawsuit, there are various agreements between the parties. Western Sky, according to the lawsuit, nominally originates loans that are described as being illegal in Arkansas. Those loans are then assigned to WS Funding, which collects on the outstanding loans. The report also notes that WS Funding, which is affiliated with CashCall, also controls the website of Western Sky.

To that end, the lawsuit alleges that CashCall and its subsidiaries control nearly every aspect of Western Sky’s operations. A statement on the Western Sky website suggests that Western Sky has temporarily suspended its operations as of September 3, while the various allegations and legal cases are at play.

The payday loans lawsuit seeks to prohibit Western Sky and its partners from undertaking Internet payday loans in Arkansas, and looks for the defendants to pay various civil penalties and restitution, as well as attorney’s fees and costs. The Internet payday loans lawsuit was filed in Pulaski County Circuit Court.