Based on his findings of fact and conclusions of law, a federal district court judge for the Central District of California recently determined that although the Consumer Financial Protection Bureau was entitled to a judgment in its enforcement action against defendants CashCall, Inc., WS Funding, LLC, Delbert Services Corporation, and J. Paul Reddam for their joint and several liability in connection with a tribal-lending enterprise, the CFPB was entitled only to a “First Tier” civil money penalty of $10.28 million, not the $51.61 million statutory penalty the Bureau requested. Moreover, despite the CFPB’s requests for nearly $235.6 million in restitution and for injunctive relief, the judge concluded that the Bureau “failed to meet its burden of proving that either restitution or a permanent injunction is an appropriate remedy.”
In keeping with the judge’s factual findings and legal conclusions in Consumer Financial Protection Bureau v. CashCall, Inc., a “joint judgment” submitted by the litigants was subsequently signed by the judge and filed with the court on Jan. 26, 2018.
Backdrop. The CFPB initiated its enforcement action in December 2013, and amended its complaint in March 2014, alleging that the defendants engaged in unfair, deceptive, and abusive acts or practices (UDAAP) in violation of the Consumer Financial Protection Act (CFPA)—included in the Dodd-Frank Act. Generally, the Bureau contended that the defendants violated the CFPA by collecting high-cost, high-interest loans. In August 2016, the California federal district court judge ruled that these consumer loans ostensibly made by a Cheyenne River Sioux Tribe-licensed lender actually were made by CashCall. As a result, the credit agreements and the servicing and collection efforts by CashCall’s corporate affiliates all violated the CFPA’s ban on UDAAP.
Granting the Bureau’s request for partial summary judgment on the defendants’ liability for the CFPA violations, the court held that, because CashCall was the “true lender,” CashCall, WS Funding, and Delbert engaged in deceptive practices when servicing and collecting on Western Sky loans “by creating the false impression that the loans were enforceable and that borrowers were obligated to repay the loans in accordance with the terms of their loan agreements.” In addition, defendant Reddam was found to be individually liable for his participation.
Court’s determination. Against this backdrop, in October 2017, the court then held a non-jury trial on the remaining issues pertaining to the appropriate remedy for the defendants’ UDAAP violations of the CFPA. In keeping with that trial and the post-trial briefing by the litigants, the court rendered its Jan. 19, 2018, “Findings of Fact and Conclusions of Law.” In ascertaining and crafting the appropriate remedies to accompany the established CFPA violations, the court determined that the CFPB:
- did not sufficiently show that the defendants intended to defraud consumers, or that the consumers did not receive the benefit of their bargains;
- did not present sufficient evidence to support its request for $235.59 million in restitution because any restitution amount must “approximate defendants’ unjust gains;”
- failed to prove “by a preponderance of the credible evidence” that restitution would be an appropriate remedy;
- did not present sufficient evidence to support its request for injunctive relief by showing that the defendants are currently purchasing loans from Western Sky or continuing to service those loans;
- in connection with a statutory civil money penalty, failed to prove by a preponderance of the evidence that the defendants knowingly violated the CFPA, or that the defendants knew at the time they decided to implement the “Western Sky Loan Program” that the structure of the program would subject them to CFPA liability; and
- was entitled to a “First Tier” civil money penalty of $10.28 million, not the $51.61 million statutory penalty the Bureau requested.
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