CashCall, a heavily-advertised small-loan business entered a settlement with the California Department of Business Oversight, the department announced on February 5, 2015. The press release from the DBO, which can be found here, states that the lender will be required to provide restitution to California borrowers, reform its practices, and pay $1 million to the DBO in penalties and cost reimbursement. According to the release:
…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. Here’s how the alleged scheme worked:
-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.
-If consumers informed CashCall they wanted a loan of less than $2,600, CashCall told them they could just give back the amount they did not want in the form of a prepayment. That way, CashCall told consumers, they could net substantial savings on interest payments.
-However, CashCall failed to tell consumers that since the loan was for $2,600, the firm could charge unlimited interest rates. On loans of less than $2,500, in contrast, state law generally caps interest rates at about 30 percent. On the loans at issue, CashCall typically charged annual interest of 135 percent or more, and sometimes up to 179 percent.
-To make matters worse in these cases, the DBO alleged CashCall often failed to withdraw scheduled monthly payments from customers’ bank accounts. That had the effect of lengthening the loan term and reducing any interest savings.
“CashCall engaged in a large-scale predatory lending scheme,” said DBO Commissioner Jan Lynn Owen. “This settlement holds the company accountable for its unlawful conduct and compensates the victims of these unscrupulous practices.”