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CashCall to refund $125 on thousands of personal loans in California
In June, the department alleged that CashCall violated the California Finance Lenders Law when it made and serviced certain personal loans. It said it would seek to suspend CashCall’s licenses issued under that law, which would have halted the company’s lending business in California. Based in Orange, CashCall also makes mortgage and small business loans.
CashCall used “deceptive sales pitches and marketing practices to dupe consumers into taking out personal loans of $2,500 or more even though the customers didn’t need or want to borrow that much money,” the department said in a press release Thursday.
State law does not limit the interest rate lenders can charge on loans of $2,500 or more. On loans below that amount, it generally caps the interest rate at about 30 percent.
In ads, CashCall said it provided personal loans of “up to” $2,600, $5,000 or $10,000. But when consumers called or visited CashCall’s website, they were told the firm did not make loans of less than $2,600,” the department alleged.
If consumers said they wanted a loan for less than $2,600, CashCall allegedly told them they could just give back the amount they did not want in the form of a prepayment, which would net them substantial savings on interest payments. However, CashCall failed to tell consumers that since the loan was for $2,600, it could charge unlimited interest rates. On the loans at issue, CashCall typically charged annual rates of 135 percent to 179 percent, the department said.
In addition, the department alleged that CashCall often failed to withdraw scheduled monthly payments from customers’ bank accounts, which lengthened the loan term and reduced any interest savings they could have gotten from a prepayment.
Under the settlement, the department will no longer seek to suspend the company’s licenses. In return, CashCall will rebate $125 on certain loans, pay the department $1 million in costs and penalties and change certain business practices.
The company must identify all non-mortgage loans made to California borrowers between Jan. 1, 2008 and Aug. 31, 2014 in which:
(1) a prepayment was authorized by the borrower within 14 days of the funding date,
(2) the borrower had sufficient funds to make the prepayment when withdrawn; and
(3) following the prepayment, CashCall failed to apply one or more of the first three scheduled monthly payments to the loan balance.
These loans will be eligible for the $125 refund, which can be paid in cash or applied to an outstanding loan balance. One borrower could get more than one payment if he or she had more than one loan that meets all the criteria.
The first criteria above is designed to identify borrowers who wished to borrow less than $2,600, said Tom Dresslar, a spokesman for the department. However, these borrowers will not be eligible for a refund unless CashCall also failed to apply one of their first three payments.
That means some borrowers who got roped into a bigger loan than they wanted will not get restitution. That’s because “the law doesn’t really allow us in this case to get them (CashCall) for evading the interest rate caps,” Dresslar said. Instead, the department had to go after the “overall scheme” and failure to apply payments.
The department guessed that 5,000 to 10,000 California borrowers could get payments, but that is a very ballpark estimate, Dresslar said. CashCall will be responsible for finding borrowers and making the payments.
CashCall will also change certain advertising and business practices on non-mortgage, non-auto loans, including making it clear that its minimum loan amount is $2,600.
Neither CashCall nor its attorney returned calls seeking comment.
This is not the first time CashCall has gotten in trouble with regulators. In October, Iowa revoked CashCall’s state lending license and ordered it to pay compensation for more than 3,400 illegal loans made to Iowa borrowers.
I n December 2013, the Consumer Financial Protection Bureau alleged that CashCall and its affiliates engaged in unfair, deceptive, and abusive practices, including illegally debiting consumer checking accounts for loans that were void. It said that the companies violated licensing requirements or interest-rate caps in at least eight states: Arizona, Arkansas, Colorado, Indiana, Massachusetts, New Hampshire, New York, and North Carolina.