Monday, May 23, 2022

CFPB v. CashCall (9th Cir. - May 23, 2022)

CashCall wants to make loans with interest rates of between 89 and 169 percent. The problem is those pesky state usury laws. So it contracts with a front company set up by a member of an Indian Tribe to make the loans. CashCall buys 100% of the loans and none of the borrowers on on the reservation, but CashCall says that this structure exempts it from state usury laws.

CashCall's own expert, by the way, tells CashCall that "lower courts will shun our model and . . . if we reach the Supreme Court, . . . we will lose." But CashCall feels like making a profit, so goes with the strategy. And, indeed, it's a financial success, and CashCall obtains over a quarter billion dollars in fees and interest from the program.

Ultimately, however, the Consumer Financial Protection Board sues them, and obtains a civil penalty of a little over $10 million. Both sides appeal; the CFPB wants a higher penalty plus a chance at restitution of at least part of the quarter billion dollars, and CashCall wants out of the $10 million penalty.

The CFPB wins in the Ninth Circuit. The penalty gets increased and the case remanded back to the district court to reconsider whether to order restitution.

Personally, I couldn't be happier with the result. Yeah, yeah, I know that all those free market types love usurious loans. But that ain't me. Sorry about that.

I wondered who CashCall hired as their attorney on the case (and who'd take it), so checked out the caption and immediately recognized the first name listed for CashCall -- Reuben Cahn. Full disclosure: I knew Reuben briefly when I was on the Board of Directors of the Federal Defenders down here in San Diego and he was the Executive Director. Incredibly smart -- and stunningly nice -- guy.

But from running a program designed to protect the constitutional rights of indigent criminal defendants to advocating on behalf of a company that's using an Indian front company to make usurious loans to indigent and working-class individuals -- well, at a minimum, that's quite a pivot, no?

(And it's not that I don't understand the libertarian argument that the two are consistent; I just find it entirely unpersuasive.)