| Attorney General Maura Healey and the Division of Banks have reached a settlement agreement with small installment loan lenders and their affiliated companies and owners, following allegations that these businesses made illegal, high-interest loans over the Internet to thousands of consumers without proper license or registration to conduct business in Massachusetts.
The consent judgment, entered Monday in Suffolk Superior Court against Martin Webb and J. Paul Reddam, owners of Western Sky Financial LLC, WS Funding LLC, CashCall Inc. and Delbert Services Corp., permanently enjoins them from doing any business in Massachusetts or collecting exorbitant interest on outstanding loan balances, and requires the lenders to refund all interest charges above the statutory rate and fees paid by consumers beyond their principal loan amount.
According to Healy’s complaint, filed earlier this month in Suffolk Superior Court, the Internet-based companies from South Dakota and California made extremely high interest loans to Massachusetts consumers in amounts ranging from $400 to $9,925. Consumers who took out these loans incurred high up-front fees and were charged interest rates on these products ranging from 89 percent to 135 percent (with even higher annual percentage rates (APR) ranging from 89.26 percent to 355.27 percent), far exceeding the statutory limit of 12 percent interest for small loans of $6,000 or less allowed in Massachusetts.
The smallest loan product of $400 carried a 95 percent interest rate (an APR of 355.27 percent), a $300 origination fee and a six-month term with monthly payments of $151.04.
The settlement resolves the division’s pending actions with the lenders and the AG’s lawsuit alleging violations of the state’s consumer protection laws.
Under the terms of the agreement, consumers will be entitled to a refund if their total payments on their loans exceed the principal loaned to the borrower, plus the statutory maximum 12 percent rate of interest. If the borrower’s total payments do not exceed the sum loaned to the borrower, the companies will modify all outstanding loans in order to help consumers pay down their balance without penalties. All outstanding loans will then be recalculated and payment terms adjusted to reflect a 12 percent rate of interest and two-year maximum term. The settlement applies to all loans made by Western Sky to Massachusetts consumers, including loans made prior to the division’s issuance of its cease orders.
The settlement also orders the companies to be permanently banned from advertising, soliciting, brokering, purchasing or lending in Massachusetts, and they may not apply for any type of license or registration with the Division of Banks. The companies have agreed to pay civil penalties in the amount of $388,231, half of which will be suspended upon full satisfaction of consumer reimbursements and compliance with the consent judgment. The companies have also agreed to pay $65,000 in attorneys’ fees.
The AG’s office estimates that the companies made more than 4,700 loans to Massachusetts consumers. More than 2,000 of those borrowers will be entitled to refunds totaling approximately $2.4 million.
The Division of Banks estimates that, in all, the settlement could provide more than $17 million in debt relief to Massachusetts consumers.
