Oh what a tangled web we weave when lenders practice to deceive (but that's an oxymoron).
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Last month, for example, the New York attorney general followed other states’ regulators in suing Western Sky Financial and its affiliate Cash Call Inc. The lawsuit contended that rates charged to borrowers by the companies — from 89 to 343 percent, depending on loan size — far exceed the caps determined by the state’s civil and criminal usury laws. A borrower receiving $1,000 could wind up owing almost $5,000 in finance charges, fees and principal over two years, the complaint said.
Last Tuesday, Western Sky suspended operations, saying it was a victim of regulatory overreach, though its affiliate, Cash Call, was still functioning. Katya Jestin, a lawyer at Jenner & Block who represents the companies, said that because Western Sky operated on the Cheyenne River Indian Reservation in Eagle Butte, S.D., New York officials had no jurisdiction over it.
“We will be moving to dismiss the suit against Cash Call and the other parties,” Ms. Jestin said in an interview on Thursday. “Consumers voluntarily entered into the loans and agreed when they signed the loan agreements to be bound by the laws and the courts of the Cheyenne River tribe. The A.G.’s lawsuit is an attempt to sidestep these agreements and is an infringement on the tribe’s inherent sovereign rights and the rights of its members.”
It is unclear what more might happen with the New York attorney general’s case. But here’s a suggestion: When prosecutors pursue payday lenders, why not go further? Investigators should track down — and disclose — the institutions and individuals who make these operations possible by providing the capital that such companies need to conduct their business.
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I’ve found a preliminary answer. Documents from a 2007 lawsuit show who was providing financing assistance to Cash Call in previous years. The institutions included Deutsche Bank Securities and a unit of Citigroup, known as the CIGPF 1 Corporation.
That lawsuit was brought by Cash Call against CIGPF in Federal District Court in New York. It related to a dispute over the bank’s financing arrangement with Cash Call. The suit was subsequently dismissed, but the court documents remain — and they provide a glimpse of the relationships between Cash Call and its bankers, Deutsche Bank and Citigroup.
Cash Call, the lawsuit said, obtained financing for its lending business from two credit facilities. The so-called senior facility, totaling as much as $1 billion, provided capital for about 90 percent of Cash Call’s consumer loans, the lawsuit said; a junior facility covered the rest.
Deutsche Bank Securities led the senior facility, or line of credit, which was backed by a variety of lenders, including CIGPF. The lawsuit said that this Citigroup unit had $20 million invested in this lending facility.
The smaller line of credit also involved both Deutsche Bank and the Citigroup unit. According to the suit, CIGPF invested $30 million in this facility.
Under these credit agreements, money repaid to Cash Call by its consumer borrowers first went to Deutsche Bank, which deducted “its interest and other earned fees.” It is unclear what Deutsche Bank earned from this arrangement.
After the bank deducted what it was owed, the lawsuit said, the remaining money was divvied up among other investors in the credit facility, including CIGPF.
I asked representatives of Citigroup and Deutsche Bank why the banks would want to provide backing for companies making high-cost and possibly predatory loans. Renee Calabro at Deutsche Bank said only that the bank ended the relationship with Cash Call in 2007. That was before the Cash Call unit began operating on the Indian Reservation.
More of this disgusting tale, here:
2 pages:
http://www.nytimes.com/2013/09/08/business/find-the-loan-behind-the-loans.html?_r=0
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