As we debate Initiated Measure 21, the real 36% rate cap on payday loans, we hear some concern that capping interest on short-term loans will only drive storefront lenders to harder-to-monitor Internet lending. But if Chuck Brennan and Rod Aycox run for the Web, Minnesota provides precedent that will help us hold them to our new rate cap.
Minnesota Attorney General Lori Swanson just got California online lender CashCall cough up $11.7 million and cease operations in Minnesota to settle a lawsuit over violations of state lending laws:
“The company engaged in an elaborate scheme to collect payments far higher than allowed by state law,” Swanson said in announcing the settlement. CashCall must cancel all outstanding loans, pay back consumers and “undo any adverse reporting to the credit bureaus.”
…The settlement is among the largest involving the controversial payday credit industry in Minnesota. The state’s leverage was strengthened by a 2015 Minnesota Supreme Court decision that held that out-of-state lenders have to follow Minnesota’s law for online loans [Paul Walsh and Neal St. Anthony, “State Bars Internet Lender, Wins $11.7M Settlement over ‘Rent-a-Tribe’ Loans,” Minneapolis Star Tribune, 2016.08.18].
CashCall tried to hide behind the tribal sovereignty of the Cheyenne River Sioux Tribe by having former Timber Lake tele-lender Western Sky line up the loans, then sell them to CashCall. Western Sky closed in September 2013 under the pressure of lawsuits from Minnesota and other states over violations of their lending laws. CashCall remains incorporated to do business in South Dakota.
Minnesota and other states have set precedent for tackling predatory lenders who try to evade state laws through online lending. If we pass Initiated Measure 21 and Dollar Loan Center continues to ply South Dakotans with 574%-interest loans online, Attorney General Marty Jackley should be able to prosecute them for violating the 36% rate cap… assuming A.G. Jackley is willing to challenge his campaign financiers.