A federal district court has refused to dismiss the lawsuit filed by the CFPB in December 2013 against CashCall, several related companies and their principal, which asserted UDAAP violations based on the defendants’ efforts to collect loans that were purportedly void in whole or in part under state law. The companies allegedly funded, purchased, serviced and collected online high-rate installment loans made by a tribally-affiliated lender the CFPB did not sue.
In its original complaint filed in federal district court in Massachusetts, the CFPB alleged that the loans in question were void in whole or in part as a matter of state law because the lender charged excessive interest and/or failed to obtain a required license. The original complaint identified eight states with laws of this kind—Arkansas, Arizona, Colorado, Indiana, Massachusetts, New Hampshire, New York and North Carolina—and alleged that the effort to collect amounts in excess of the amounts lawfully due under state law was “unfair,” “deceptive” and “abusive” as a matter of federal law. In April 2014, the CFPB amended its complaint to add eight more states with similar laws that purportedly made the loans the defendants sought to collect void in whole or in part. The eight states were Alabama, Illinois, Kentucky, Minnesota, Montana, New Jersey, New Mexico and Ohio.
The case was subsequently transferred to a California federal district court. Last week, that court entered an order denying the defendants’ motion for judgment on the pleadings. In their motion, the defendants argued that the CFPB (1) exceeded its authority under the Consumer Financial Protection Act (CFPA) by basing its claims solely on state law violations, and (2) seeks to establish a federal usury limit, which is prohibited by the CFPA.
In its decision, the court indicated that the defendants’ first argument was “based on a mischaracterization” of the CFPB’s complaint. According to the court, the CFPB had not alleged, as defendants contended, that a state law violation constituted a per se violation of the CFPA’s UDAAP prohibition. Instead, the court accepted the CFPB’s characterization of its complaint as not alleging that the defendants violated the CFPA because they violated state law but because their conduct in attempting to collect debts consumers did not owe satisfied the requisite elements for “unfair,” “deceptive,” and “abusive” acts and practices under the CFPA.
In the court’s view, while the defendants’ alleged state law violations were “necessary to” the CFPB’s claims, “that does not necessarily mean that the Bureau is ‘ federalizing’ state law.” The court concluded that “the proper question in the context of a CFPA claim is whether the plaintiff has alleged an action that falls within the broad range of conduct prohibited by the CFPA.” The court found that the defendants had failed “to argue or meaningfully demonstrate that the alleged conduct does not fall within the broad range of conduct prohibited by the CFPA.”
The court also ruled that the CFPB was not seeking to establish a usury limit and instead was “seeking to enforce a prohibition on collecting amounts that consumers do not owe.”
While this decision addresses the conduct of CashCall in attempting to collect supposedly void loans, we worry that it will embolden the CFPB to continue to aggressively expand its reach to service providers and others that partner with, and provide legitimate services to, consumer finance companies.
On January 25, 2016, from 12 p.m. to 1 p.m. ET, Ballard Spahr attorneys will hold a webinar: CFPB v. CashCall: The CFPB’s Enforcement of State Law and Expansive View of Dodd-Frank’s UDAAP Prohibition. A link to register is available here.