NC sues online lending companies over interest rates

sgilman@newsobserver.comDecember 16, 2013 

— State Attorney General Roy Cooper said the state has sued four companies involved in online lending that he says were charging illegally high annual interest rates – up to 343 percent.

Cooper announced the lawsuit against CashCall of Anaheim, Calif., Western Sky Financial of South Dakota, and two related companies during a conference call with officials from New Hampshire, Colorado, Indiana and the federal Consumer Financial Protection Bureau, which filed a lawsuit of its own against CashCall.

Western Sky began advertising on television in North Carolina in 2010 and made loans to residents through the company’s website and through a 1-800 number, according to Cooper’s lawsuit. Since then, more than 100 complaints flowed into the Attorney General’s Office about the company, Cooper said.

Borrowers wanting quick cash from these online lenders often fail to notice the high annual interest rates hidden in the fine print, Cooper said. “People sometimes don’t know what they are getting into,” he said.

One Greensboro resident borrowed $2,600 from Western Sky. She made payments of more than $4,000 over 14 months “only to discover that she still owed $2,500 on the principal balance,” according to Cooper.

North Carolina law caps annual percentage rates of loans of $10,000 or less at 30 percent, Cooper said. Loans with rates above that limit are illegal, and borrowers do not have to pay them.

CashCall tried to get around state borrowing laws by teaming up with Western Sky, an online loan company owned by a member of the Cheyenne River Sioux Tribe. Western Sky claimed its loans did not have to comply with state laws because it was based on an Indian reservation, said Richard Cordray, director of the Consumer Financial Protection Bureau.

Cordray and Cooper said that’s not true.

“We believe that lenders who do business with North Carolina consumers should obey North Carolina law, regardless of where they are located and regardless of whether it is done over the Internet,” Cooper said.

In 2001, North Carolina law phased out payday loans, which are short-term loans with high interest rates. Lenders, however, continued to offer them, and state authorities have closed about 300 lenders since then.

The most recent clash was with Regions Bank, an Alabama-based bank that offered payday loans under what it claimed to be protection under federal law. But the bank buckled under pressure from Cooper and other consumer advocates and stopped offering those loans earlier this year.

Cooper advised North Carolina residents to seek financial help from nonprofit debt counselors rather than quick cash from the Internet.

“These oppressive loans often trap borrowers who can never get ahead even though they make payment after payment,” Cooper said. “Getting these loans is like needing a life preserver and being thrown an anvil.”

Charlotte Observer reporter Andrew Dunn contributed to this report.

Gilman: 919-829-8955

News & Observer is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service