By the Division of Banks


COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
SMALL LOAN LICENSING
Docket No. 2013-010

CEASE ORDER

In the Matter of
CASHCALL, INC.
Anaheim, CaliforniaAnaheim, California

&

WS FUNDING, LLC
Anaheim, California


The Commissioner of Banks (Commissioner) is charged with the administration of Massachusetts General Laws chapter 140, sections 96 through 114A, inclusive and applicable regulations found and 209 CMR 20.00 et seq., and 209 CMR 26.00 et seq., relating to the licensing and regulation of small loan companies. The Commissioner is also charged with the administration of Massachusetts General Laws chapter 93, sections 24 through 24G and the Division’s regulation 209 CMR 18.00 et seq., relating to the registration of third party loan servicers. Pursuant to the authority granted by Massachusetts General Laws chapter 140 and Massachusetts General Laws chapter 93, sections 24 through 24G, the Commissioner has reviewed information relative to the activities of CASHCALL, INC., (CashCall) located at 1600 South Douglas Road, Anaheim, California and its wholly owned subsidiary WS FUNDING, LLC (WS Funding) to determine if CashCall and WS Funding have engaged in the business of, or are about to engage in, acts or practices constituting violations of Massachusetts General Laws chapter 140, and Massachusetts General Laws chapter 93, sections 24 through 24G. Based upon such review, the Commissioner hereby issues the following CEASE ORDER as a result of the findings alleged herein.

A. FINDINGS OF FACT

  1. The Division of Banks (Division), through the Commissioner, has jurisdiction over the licensing and regulation of persons and entities engaged in the small loan company business in Massachusetts pursuant to Massachusetts General Laws chapter 140, sections 96 through 114A inclusive and its implementing regulation 209 CMR 20.00 et seq.
  2. The Division also has jurisdiction over the registration and regulation of persons and entities engaged in the business of third party loan servicing in Massachusetts, pursuant to Massachusetts General Laws chapter 93, sections 24 through 24G inclusive and its implementing regulation 209 CMR 18.00 et seq.
  3. CashCall is, and at all relevant times, has been a foreign corporation doing business in the Commonwealth of Massachusetts with a principal office located at 1600 South Douglas Road, Anaheim, California.
  4. WS Funding is, and at all relevant times, has been a foreign corporation doing business in the Commonwealth of Massachusetts.
  5. Based upon information and belief WS Funding is a wholly owned subsidiary of CashCall.
  6. According to the Division’s records, at all relevant times John P. Reddam was and is the sole director and 100% owner of CashCall.
  7. Based upon information and belief, John P. Reddam was and is the sole member and 100% owner of WS Funding.

    I. Regulatory Background

  8. On or about December 6, 2010, CashCall submitted a Massachusetts mortgage lender license application to the Division.
  9. On November 21, 2011 and April 20, 2012, the Division’s Consumer Assistance Unit received one consumer complaint on each date (Complaints) against CashCall regarding the Corporation’s business activities in Massachusetts.
  10. The Complaints filed by two Massachusetts consumers indicated that CashCall was engaged in the business of servicing small loans on behalf of its wholly owned subsidiary WS Funding.
  11. Upon review of the Complaints, it was revealed that the loan terms for both loans triggered the licensing requirements of the small loan law, violated the small loan rate order and are void subject to the provisions of Massachusetts General Laws chapter 140, section 110. Additionally, based upon the Division’s records, CashCall was not registered as a third party loan servicer.
  12. On May 8, 2012, as a result of information received through the Complaints, the Division sent CashCall a Cease Letter (Cease Letter) directing CashCall and WS Funding to cease engaging in the small loan company business and as a third party loan servicer until such time as the Corporation obtained the relevant small loan company license and loan servicer registration.
  13. The Cease Letter referenced a February 15, 2012 telephone conversation with Daniel Barren, General Counsel of CashCall and stated that the Division remained concerned with the activities being conducted by CashCall and WS Funding, and their applicability to small loan statutory licensing requirements of Massachusetts General Laws chapter 140 section 96.
  14. The Cease Letter further required CashCall and WS Funding, to complete affidavits certifying that neither entity would engage in the small loan company business or loan servicer business until both entities obtained the requisite small loan company license or loan servicer registration and/or provided satisfactory evidence that both entities were exempt from the requirements.
  15. By letters dated January 1, 2012 and May 29, 2012, CashCall submitted responses to the November 21, 2011 and April 20, 2012 Complaints in which the Corporation agreed to reduce the interest rates for the unsecured personal loans to 20% and 15% respectively.
  16. By letter dated June 4, 2012, counsel for CashCall submitted a letter in which the Corporation claimed that upon examination of Massachusetts General Laws chapter 140, section 96, CashCall was "not aware of any provision that require[d] a company that is not located in the Commonwealth, and that purchases or services loans made on a federally recognized Indian Reservation…to obtain any license in the Commonwealth."
  17. On June 27, 2012, CashCall submitted a request to withdraw the Corporation’s pending mortgage lender license application. On July 2, 2012, the Corporation’s pending mortgage lender license application was withdrawn.
  18. To date, CashCall and WS Funding have failed to complete the affidavits requested in the Division’s correspondence referenced in paragraph 14 of this Cease Order.

    II. Engaging in Unlicensed Activity and Violation of the Small Loan Rate Order

  19. Massachusetts General Laws 140, sections 96 through 114A, inclusive, the "Small Loans Law," requires entities to be licensed by the Commissioner of Banks if they are engaged, directly or indirectly, in the business of making loans of $6,000.00 or less and the interest and expenses paid on the loan exceed in the aggregate 12% per annum of the loan amount.
  20. Massachusetts General Laws chapter 140, section 96 relative to the licensing requirements for entities engaged in the small loan business states:

    No person shall directly or indirectly engage in the business of making loans of six thousand dollars or less, if the amount to be paid on any such loan for interest and expenses exceeds in the aggregate an amount equivalent to twelve per cent per annum upon the sum loaned, without first obtaining from the commissioner of banks, in sections ninety-six to one hundred and fourteen, inclusive, called the commissioner, a license to carry on the said business in the town where the business is to be transacted... The buying or endorsing of notes or the furnishing of guarantee or security for compensation shall be considered to be engaging in the business of making small loans within said sections[.]

  21. Massachusetts General Laws chapter 140, section 110 states in part:

    Whoever, not being duly licensed as provided in section ninety-six on his own account or on account of any other person not so licensed, engages in or carries on, directly or indirectly, either separately or in connection with or as a part of any other business, the business of making loans or buying notes or furnishing endorsements or guarantees, to which sections ninety-six to one hundred and eleven, inclusive, apply, shall be punished by imprisonment in the state prison for not more than ten years or in a jail or house of correction for not more than two and one half years, or by a fine of not more than ten thousand dollars, or by both such fine and imprisonment. Any loan made or note purchased or endorsement or guarantee furnished by an unlicensed person in violation of said sections shall be void. [emphasis added].

  22. The Division’s regulation at 209 CMR 26.01(a) establishes the Small Loan Rate Order and states in part:

    All persons subject, in whole or in part, to the provisions of M.G.L. c. 140, §§ 96 through 113, may charge, contract for, and receive the following maximum interest charges for loans not in excess of $6,000:
    (a) 23% per annum of the unpaid balances of the amount financed calculated according to the actuarial method plus an administrative fee of $20 upon the granting of a loan. An administrative fee is not permitted to be assessed to a borrower more than once during any 12 month period.

    i. Massachusetts Consumer Complaints

  23. Between February 12, 2013 and February 21, 2013 the Division’s consumer assistance unit received at least two additional consumer complaints regarding the activities of CashCall and WS Funding.
  24. A review of one of the consumer complaints filed included correspondence from CashCall which identified Western Sky Funding, LLC (Western Sky) as the lender. A review of the complaint indicated that CashCall was servicing the loan made by Western Sky, and was a loan that had been purchased from Western Sky by WS Funding. (Consumer A).
  25. A review of the documents provided by Consumer A revealed that the loan terms triggered the licensing requirements of the small loan law and also violated the small loan rate order. The consumer obtained a loan in the amount of $2,525 and was charged an origination fee of $75 for a total amount financed of $3,000 at an interest rate of 139.12 % per annum.
  26. A review of the second consumer complaint filed included a loan agreement which identified Western Sky as the lender. A review of the complaint indicated that CashCall was servicing the loan made by Western Sky, and based upon information and belief the loan had been purchased from Western Sky by WS Funding. (Consumer B).
  27. A review of the documents provided by Consumer B revealed that the loan terms triggered the licensing requirements of the small loan law and also violated the small loan rate order. The consumer obtained a loan in the amount of $1,000 and was charged an origination fee of $500 for a total amount financed of $1,500 at an interest rate of 149% per annum.
  28. Both consumers referenced in the paragraph 23 of this Cease Order stated that they were being contacted by CashCall.
  29. The Division’s review of the information reflected in the consumer complaints indicated that CashCall is currently engaged in the business of servicing small loans on behalf of WS Funding. The loan terms in each of the loan agreements trigged the small loan licensing requirements and violated the small loan rate order.

    ii. Investigation of Unlicensed Activity

  30. Pursuant to Massachusetts General Laws chapter 93 section 24D, beginning November 27, 2012 and continuing through February 11, 2013, the Division conducted an examination of the books, accounts, papers, records, and files maintained by Delbert Services Corporation (Delbert Services), a licensed debt collector, to evaluate the Delbert Services’ compliance with the laws, regulations, and regulatory bulletins applicable to the conduct of the debt collector business in Massachusetts (2012 examination).
  31. According to the Division’s records, at all relevant times John P. Reddam was and is the sole director and 100% owner of Delbert Services.
  32. Books and Records reviewed by the Division’s examiner during the 2012 examination revealed that Delbert Services failed to maintain the financial responsibility character, reputation and integrity to conduct the debt collector business in the Commonwealth by conducting its business in an unsafe and unsound manner by collecting consumer debt that was made, owned and or serviced by unlicensed small loan companies including CashCall and WS Funding.
  33. Books and records reviewed during the 2012 examination revealed that WS Funding purchases small loans from Western Sky, an unlicensed small loan company and thereafter assigns those loans to CashCall for servicing.
  34. Based upon information and belief, CashCall also sells those loans made by Western Sky to other debt purchasers.
  35. During the 2012 examination, the Division’s examiner reviewed consumer loan agreements (loan agreements) for accounts currently in collection by Delbert Services. A review of a sample of loan agreements revealed that Delbert Services has been collecting on at least 17 accounts on behalf of CashCall (CashCall accounts).
  36. The Division’s review of detailed account information provided by Delbert Services revealed that the CashCall accounts reviewed were consumer loans owned by WS Funding. The review indicated that the loans were unsecured consumer loans made to Massachusetts residents with loan amounts under $6,000 and the interest rate exceeded 12% per annum.
  37. The Division’s examiner reviewed the loan terms for the CashCall accounts and determined that the interest rates for all accounts ranged from 59% to 169%, with annual percentage rates ranging from 59.88% to 337.97% in violation of 209 CMR 26.01.
  38. According to the Division’s records, as of the date of this Cease Order, CashCall is not licensed as a small loan company nor has the Corporation filed an application with the Division to obtain a small loan company license.
  39. According to the Division’s records, as of the date of this Cease Order, WS Funding is not licensed as a small loan company nor has the Company filed an application with the Division to obtain a small loan company license.

    III. Violation of Loan Servicer Registration Requirements

  40. Massachusetts General Laws chapter 93 sections 24 through 24G and its implementing regulation 209 CMR 18.00 et seq., requires all entities engaged in the business of receiving scheduled periodic payments from Massachusetts consumers pursuant to the terms of a loan and making those payments to the owner of the loan or other third party with respect to the amounts received from the consumer to be registered as a loan servicer.
  41. Based upon the information reflected in paragraphs 8 through 39 of this Cease Order, CashCall appears to be engaged in the business of a loan servicer by servicing small loans owned by its wholly owned subsidiary WS Funding.
  42. According to the Division’s records, as of the date of this Cease Order, CashCall is not registered as a loan servicer nor has the Corporation filed an application with the Division to register as a small loan servicer.

    IV. Violation of the Massachusetts Criminal Usury Statute

  43. Massachusetts General Laws chapter 271, section 49 establishes that it is usury in Massachusetts to hold a loan contract which calls for an interest rate exceeding a twenty percent annual percentage rate (APR). However, said section 49 further states that loans in excess of twenty percent are permissible provided that the lender registers with the Office of the Attorney General.
  44. Based upon information and belief, neither CashCall or WS Funding have registered with the Office of the Attorney General.

    V. CEASE ORDER

  45. CashCall and WS Funding are hereby directed to CEASE AND DESIST from engaging in the small loan company business until such time that both entities have obtained a license issued by the Commissioner of Banks for the small loan company business in Massachusetts.
  46. CashCall is hereby directed to CEASE AND DESIST from engaging in the business of a loan servicer until such time that the Corporation has obtained the appropriate registration to engage in the business of a loan servicer in Massachusetts.
  47. CashCall and WS Funding are hereby directed to immediately CEASE AND DESIST from collecting or attempting to collect, directly or indirectly on any loans previously made to Massachusetts consumers, including but not limited to collecting or attempting to collect any principal, interest, finance charges, or any other fees related to transactions involving Massachusetts consumers.
  48. Within forty-five (45) days of the effect date of this Cease Order, CashCall and WS Funding are hereby directed to refund any interest, finance charges, or any other fees including but not limited to, administrative fees, origination fees, late fees and returned check fees collected from Massachusetts consumers within four years of the issuance of this Cease Order.
    1. Within forty-five (45) days of the effective date of this Cease Order, CashCall and WS Funding shall submit to the Commissioner a list of all consumers to whom a reimbursement is owed by CashCall and WS Funding in accordance with this Paragraph of the Cease Order; and
    2. Within ninety (90) days of the effective date of this Cease Order, CashCall and WS Funding shall submit evidence of all reimbursements issued to consumers pursuant to this Paragraph of the Cease Order, including the consumers’ names, check numbers, the amount of the reimbursements and certified mail receipts to illustrate the consumers’ receipt of the reimbursement.
  49. CashCall are WS Funding are hereby directed to immediately CEASE AND DESIST from selling, assigning, or transferring to any third party its interest in any loans which CashCall and/or WS Funding previously made to Massachusetts consumers.
  50. Within 15 days of the receipt of this CEASE ORDER, Cashcall and WS Funding are directed to produce the following:
    1. Information or documents setting forth the total number of loans made and/or serviced by CashCall and/or WS Funding to Massachusetts consumers within four years of the issuance of this Cease Order, broken down by calendar year.
    2. Information or documents describing the following for each loan made or serviced by CashCall and/or WS Funding to Massachusetts consumers within four years of the issuance of this Cease Order:
      1. the name of the consumer;
      2. the consumer's phone number(s), home address, and e-mail address;
      3. the date that the agreement with CashCall and/or WS Funding was executed;
      4. the name of the lender, and the lender's account number;
      5. the original principal amount of the loan;
      6. all fees and other interest payments that the consumer was required to make on the loan;
      7. the total annual interest rate on the loan;
      8. the APR on the loan;
      9. the date that the funds were originally disbursed to the consumer;
      10. the date that initial payment was due on the loan;
      11. the number of times that the loan was renewed, refinanced or extended;
      12. for each renewal, refinancing, or extension of the loan, information or documents describing the following: each new loan or account number, all fees and other interest payments that were required, and the dates those payments were due;
      13. the payment history for each loan transaction, including the date and amount of each payment made by the consumer, and how that money was applied to the loan balance (i.e. whether it was applied to interest, to principal, to late fees or other penalties, etc.);
      14. the total amount of money paid by the consumer on the loan, including any principal, finance charges, interest, or any other fees that were paid;
      15. the status of the loan, including the following for each transaction:
        1. whether the loan was paid in full, or if still open, whether it is current or allegedly in default,
        2. whether the account was referred to a third party collection agency (if so, provide the name of the collection agency);
        3. whether the loan (i.e., the debt) was sold to another party (if so, information or documents detailing the name of the party to whom it was sold); and
      16. information or documents detailing whether CashCall, WS Funding or any third party collection agency has ever submitted any negative or adverse information pertaining to the loan to any consumer reporting agency.
    3. Information or documents which provide the following for any business entity or individual (hereinafter, debt buyer) to whom CashCall or WS Funding have assigned or sold any of the loans referenced above (i.e., loans made by CashCall or WS Funding to Massachusetts consumers within four years of the issuance of this Cease Order; hereinafter, the Loans): the name of the debt buyer; the total number of Loans sold or assigned by CashCall or WS Funding to the debt buyer; the total amount paid by the debt buyer or by any other party to CashCall or WS Funding for the sale or assignment of the Loans to the debt buyer; the date that CashCall or WS Funding and the debt buyer (the parties) entered into an agreement for the debt buyer to purchase or otherwise acquire Loans; and a copy of all written contracts, agreements, documents, or correspondences between the parties which describe or specify the parties' rights or obligations pertaining to the debt buyer's purchase or acquisition of the Loans from CashCall or WS Funding.

BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS:

Dated at Boston, Massachusetts, this 4th day of April, 2013

By:
David J. Cotney
Commissioner of Banks
Commonwealth of Massachusetts