Michigan’s Department of Insurance and Financial Services is asking the Michigan Credit Union League and other trade associations in the Michigan financial sector to help make sure their members know about refunds that may be due them from Western Sky Financial LLC.
The Michigan Attorney General’s Corporate Oversight Division and DIFS have negotiated a $2.2 million settlement with South Dakota-based Western Sky and California-based CashCall Inc. The lawsuit settlement resolves allegations of unlicensed loans made to approximately 17,500 Michigan consumers bearing illegally high interest rates.
The settlement will automatically reduce the interest rate on all loans still owned by Western Sky and CashCall to Michigan’s legal rate of 7 percent. Refunds for illegal interest charges will also be available for consumers who file a valid claim before Sept. 19.
At the MCUL & Affiliates’ Annual Convention and Exposition in Traverse City in early June, DIFS Director Patrick McPharlin said Western Sky had been charging rates that could add up to 300 percent annually. The multi-state legal settlement requires the company to reduce rates to 7 percent.
According to the Michigan attorney general’s office, Western Sky assigned the loans it made to Michigan consumers to CashCall Inc., which serviced and collected the loans directly or through its affiliates. Interest rates charged on Western Sky’s Internet-based loans ranged from 89 percent to 169 percent, exceeding both the 7 percent interest rate legally permitted in Michigan for unlicensed lenders and the 25 percent interest rate legally permitted for licensed lenders.
“Unlicensed lenders” are corporations or individuals making private loans, according to a DIFS spokesperson. If the loan agreement is in writing, the interest rate is limited to 7 percent; if there is no written contract, the maximum interest rate is 5 percent.
According to Michigan Attorney General Bill Schuette, the settlement “is a victory for the thousands of Michigan consumers who took out Western Sky loans and serves as a warning to only do business with licensed entities.”
Western Sky also charged processing fees of up to $500 on numerous loans, exceeding the $300 cap allowed for licensed lenders, according to the attorney general’s office. As a result of these high fees and interest rates, a consumer who borrowed $1,000 from Western Sky would have to repay more than $4,000 during the loan’s two-year term, representing an annual percentage rate of nearly 200 percent. Other Western Sky loans with a six-month repayment term carried an APR of higher than 350 percent.
In July 2013, DIFS commenced a cease-and-desist action under the Regulatory Loan Act against Western Sky to stop the company from making unlicensed and high-interest loans to Michigan consumers. That proceeding led to intensive negotiations resulting in a settlement announced in May.
Western Sky discontinued any new lending in Michigan in September 2013.
The New York attorney general also reached a settlement with Western Sky, requiring it to pay a $1.5 million fine and refund interest payments to borrowers there. The potential refunds in New York were estimated to be as much as $35 million.
According to The Wall Street Journal, Western Sky had argued in the New York courts that it was immune from state action because the firm’s principal, Martin “Butch” Webb, was affiliated with a Native American tribe and operated the business from tribal reservation land in South Dakota.
Western Sky ran frequent television commercials in Michigan.
McPharlin said to receive refunds, people who took out Western Sky loans need to file a claim with Western Sky. Credit union members can watch for Western Sky to pop up on members’ credit reports and help them file claims.
The attorney general’s office said Western Sky agreed to stop making loans of any kind to Michigan residents unless the loans are fully compliant with Michigan law, including any applicable licensing requirements.
The company must also cease and desist from making any negative credit reports to credit bureaus and, within 14 days of the settlement, request the removal of all pre-existing credit reports made by Western Sky, CashCall, or their subsidiaries, with respect to any Western Sky loans made to Michigan residents.
Dahl Administration LLC is the claim fund administrator that will conduct the claim process and administer Michigan’s $2.2 million settlement fund. By July 20, 2015, anyone who took out a Western Sky loan while a Michigan resident should have received a notice in the mail from Dahl Administration explaining the process for filing a claim. Consumers not receiving notice through the U.S. Postal Service should contact the fund administrator at (866) 336-5756 or visit miwesternskysettlement.com.
State officials said the deadline to file a claim is Sept. 18, and all Michigan residents who were Western Sky borrowers should watch the mail for the Dahl Administration letter. All should consider filing a claim in order to take advantage of the additional relief that may be available to them under the legal settlement.
Western Sky Financial still has a website offering online applications for “payday loans.” The website states “we’re guaranteeing 99 percent instant approval” and “get cash within 2 hour” (sic). It does not mention any interest rates.