By the Division of Banks


COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
SMALL LOAN LICENSING
Docket No. 2013-011

CEASE ORDER

In the Matter of
WESTERN SKY FINANCIAL, LLC
a/k/a WESTERN SKY FUNDING, LLC
a/k/a WESTERN SKY
a/k/a WESTERNSKY.COM

Timber Lake, South Dakota


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. Pursuant to the authority granted by Massachusetts General Laws chapter 140, the Commissioner has reviewed information relative to the activities of WESTERN SKY FINANCIAL, LLC, a/k/a WESTERN SKY FUNDING, LLC, a/k/a WESTERN SKY, a/k/a WESTERNSKY.COM (collectively known as Western Sky or the Company) located at 612 E Street, Timber Lake, South Dakota, to determine if Western Sky has engaged in the business of, or is about to engage in, acts or practices constituting violations of Massachusetts General Laws chapter 140. 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. Western Sky is, and at all relevant times, has been a foreign corporation doing business in the Commonwealth of Massachusetts with a principal office located at 612 E Street, Timber Lake, South Dakota

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

  3. 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.
  4. 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[.]

  5. 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].

  6. 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. Regulatory Background

  7. Beginning on or about June 1, 2011 and continuing on through February 21, 2013, the Division’s Consumer Assistance Unit received at least eight consumer complaints regarding the activities of Western Sky.
  8. The Division’s review of information provided in conjunction with seven of the consumer complaints revealed that Western Sky was engaged in the business of making unsecured personal loans to Massachusetts consumers. A review further revealed that the loan terms for all seven loans made to Massachusetts consumers, 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 as further detailed in this Cease Order.
    1. Consumer A
      1. On June 11, 2011, Consumer A filed a complaint with the Division regarding the activities of Western Sky.
      2. Consumer A 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 135 % per annum.
    2. Consumer B
      1. On November 21, 2011, Consumer B filed a complaint with the Division regarding the activities of Western Sky.
      2. Consumer B 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 135 % per annum.
    3. Consumer C
      1. On May 9, 2012, Consumer C filed a complaint with the Division regarding the activities of Western Sky.
      2. Consumer C 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 135 % per annum.
    4. Consumer D
      1. On May 21, 2012 Consumer D filed a complaint with the Division regarding the activities of Western Sky.
      2. Consumer D obtained a loan in the amount of $1,500, and had made 19 payments of $166 for a total of $3,154. The consumer was still obligated to make 10 more payments on the personal loan for a total of $4,814. Based upon the information reviewed, the consumer would be paying an interest rate of 220.93% per annum.
    5. Consumer E
      1. On May 30, 2012, Consumer E filed a complaint with the Division regarding the activities of Western Sky.
      2. Consumer E 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 135 % per annum.
    6. Consumer F
      1. On February 12, 2013, Consumer F filed a complaint with the Division regarding the activities of Western Sky.
      2. Consumer F 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.
    7. Consumer G
      1. On February 21, 2013, Consumer G filed a complaint with the Division regarding the activities of Western Sky.
      2. Consumer G obtained a loan in the amount of 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.
  9. On November 13, 2011 and May 15, 2012, as a result of the extensive number of complaints, the Division sent Western Sky Cease Letters (Cease Letters) directing the Company to cease engaging in the small loan company business until such time as Western Sky had obtained the relevant small loan company license in Massachusetts.
  10. The Cease Letters stated that the Division remained concerned with the lending activities being conducted by Western Sky, and their applicability to small loan statutory licensing requirements of Massachusetts General Laws chapter 140 section 96.
  11. The Cease Letters further required Western Sky to complete affidavits certifying that the Company would cease engaging in the small loan company business until Western Sky obtained the requisite small loan company license and/or provided satisfactory evidence that the entity was exempt from the requirements.
  12. By letters dated December 2, 2011 and May 29, 2012, counsel for Western Sky submitted responses to the Cease Letters issued by the Division and claimed that Western Sky was operating solely and exclusively under Federal Indian Law and the laws and regulations of the Cheyenne River SiouxTribe, a position that the Division disputes.
  13. To date, Western Sky has failed to complete the affidavits.

    ii. Investigation of Unlicensed Activity

  14. 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 Delbert Services’ compliance with the laws, regulations, and regulatory bulletins applicable to the conduct of the debt collector business in Massachusetts (2012 examination).
  15. 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 by unlicensed small loan companies including Western Sky.
  16. 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 several unlicensed entities purchased unsecured personal loans from Western Sky. Delbert Services has been collecting on at least 23 accounts for unsecured personal loans made by Western Sky.
  17. The Division’s review of detailed account information provided by Delbert Services revealed that the loans were unsecured personal loans made to Massachusetts residents with loan amounts under $6,000 and interest rates exceeding 12% per annum.
  18. The Division’s examiner reviewed the loan terms for the loans made by Western Sky and determined that the terms 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. The interest rates for all loans ranged from 120% to 169%, with annual percentage rates ranging from 194.01% to 337.97% in violation of 209 CMR 26.01.
  19. According to the Division’s records, as of the date of this Cease Order, Western Sky 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.

    II. Violation of the Massachusetts Criminal Usury Statute

  20. 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.
  21. Based upon information and belief, Western Sky has not registered with the Office of the Attorney General.

    III. CEASE ORDER

  22. Western Sky is hereby directed to CEASE AND DESIST from engaging in the small loan company business until such time that the Company has obtained a license issued by the Commissioner of Banks for the small loan company business in Massachusetts.
  23. Western Sky is hereby directed to immediately CEASE AND DESIST from collecting or attempting to collect, directly and 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.
  24. Within forty-five (45) days of the effect date of this Cease Order, Western Sky is 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, Western Sky shall submit to the Commissioner a list of all consumers to whom a reimbursement is owed by Western Sky in accordance with this Paragraph of the Cease Order; and
    2. Within ninety (90) days of the effective date of this Cease Order, Western Sky 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.
  25. Western Sky is hereby directed to immediately CEASE AND DESIST from selling, assigning, or transferring to any third party its interest in any loans which Western Sky previously made to Massachusetts consumers.
  26. Within 15 days of the receipt of this CEASE ORDER, Western Sky is directed to produce the following:
    1. Information or documents setting forth the total number of loans made and/or serviced by Western Sky 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 Western Sky 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 Western Sky 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 Western Sky 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 Western Sky has assigned or sold any of the loans referenced above (i.e., loans made by Western Sky 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 Western Sky to the debt buyer; the total amount paid by the debt buyer or by any other party to Western Sky for the sale or assignment of the Loans to the debt buyer; the date that the Western Sky 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 Western Sky.

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