In a significant decision, on August 31, the US District Court for the Central District of California held that a tribal bank originating loans for a non-bank lender was not the “true lender”—making the loans subject to state usury limits.

Background

In December 2013, the Consumer Financial Protection Bureau (CFPB) commenced litigation against CashCall (a payday lender in a partnership with a tribal bank) and other defendants, claiming that they had violated the federal law prohibition on unfair, deceptive, or abusive acts or practices (UDAAP) for financial services providers by servicing and collecting on loans that were wholly or partially void or uncollectible under state law.

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On July 28, the Consumer Financial Protection Bureau (CFPB) released a detailed summary of regulations it is considering imposing on third-party debt collectors. These proposals, once finalized, stand to potentially form the basis of significant “unfair, deceptive, or abusive acts or practices” (UDAAP) enforcement and regulatory actions against large bank and non-bank financial institutions that use third-party debt collectors to collect debts on their behalf or sell charged-off debt to third-party debt collectors.

Read our LawFlash for further information on the CFPB’s action.