The Massachusetts Office of Consumer Affairs and Business Regulation and the Division of Banks this week announced a series of cease orders targeting unlicensed lenders and a licensed debt collector that were not adhering to the state’s loan consumer protections.
The Division of Banks ordered Nevada-based Delbert Services Corporation, a licensed debt collector, and its owner, John P. Reddam, to immediately cease collecting payments on over 100 illegal loans made to Massachusetts consumers. The Division also issued orders to five unlicensed, Internet-based lenders who sold loans to Massachusetts consumers. The payments on those loans were collected by Delbert Services.
The state said the loans are illegal under the Massachusetts small-loan statute because they include excessively high interest rates and fees, in some cases over 150 percent interest. Also, any business that makes loans of $6,000 or less at an interest rate greater than 12 percent in Massachusetts must be licensed as a small-loan company by the Division of Banks. The maximum annual rate of interest for these loans is 23 percent. Third-party debt collectors must also be licensed and supervised by the Division.
Delbert Services is required to cease all collections on loans which violate state law and refund all collection fees received to Massachusetts consumers. Loan amounts ranged from $850 to $5,075.
“There is no place in the Commonwealth for these types of business practices. We believe that these businesses knew that these predatory loans created serious injury to consumers by charging outrageous and illegal fees,” said Consumer Affairs and Business Regulation Undersecretary Barbara Anthony. “The Division uncovered evidence that Delbert was not only collecting on illegal loans, but they were collaborating with a network of predatory lenders that were making loans with annual interest rates ranging from 59 percent to 169 percent, and with origination fees as high as $500.”
The Division issued related orders to the unlicensed lenders, all Internet based companies, requiring them to immediately cease making, offering or purchasing illegal small loans in Massachusetts. These companies are required to refund all interest, finance charges, and fees collected from Massachusetts consumers on the illegal loans. The companies ordered to cease these activities include Cash Call, Inc. and its wholly-owned subsidiary WS Funding, LLC, located in Anaheim, Calif.; GP Investors, LLC, located in Sicklerville, N.J.; Novea Resource Management, LLC, located in Surfside, Fla.; and Western Sky Financial, LLC, a/k/a Western Sky funding, LLC, a/k/a Western Sky, a/k/a westernsky.com, located in Timber Lake, S.D.
“These companies have exhibited a blatant disregard for Massachusetts borrowers and the state’s consumer protection statutes and regulations,” said Commissioner of Banks David J. Cotney. “The Division of Banks will continue to aggressively identify and pursue entities engaging in the solicitation, lending, purchasing and collection of illegal and predatory loans.”
These small-dollar, high-interest rate loans, similar to loans commonly referred to as “payday” loans, are primarily offered to consumers over the Internet and require access to a consumer’s bank account and personal information. Many Internet-based payday lenders provide little or no identifying information about themselves and may operate under several different names. With transactions completed over the internet or phone, often e-mail addresses and toll free telephone numbers are the only means of contacting these companies.
In conjunction with the actions taken this week, the Division issued a letter to the 408 companies currently licensed as debt collectors in the state, advising them that they must ensure that they collect loans only on behalf of properly licensed creditors. The letter also informed these companies of the requirement to collect only on loans that are legally made within Massachusetts’ rate and fee limitations. Any licensee found to be collecting illegal loans to Massachusetts borrowers will be subject to enforcement action and will be required to refund all fees collected.