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STATEOFNORTHCAROLINA INTHEGENERALCOURTOFJUSTICE
SUPERlORCOURTDIVISION
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COUNTYOFWAKE
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STATEOF NORTHCAROLINA,ex ret. )
RoyCOOPER,Attorney Generdi )
RAYGRACE, CommissionerofBanks, )
)
Plaintiff, )
)
v. ) COMPLAINT
)
WESTERNSKYFINANCIAL,LLC, )
CASHCALL,INC., )
WS FUNDING,LLC, )
DELBERTSERVICESCORPORATION, )
andJOHNPAULREDDAM, )
)
Defendants. )
----------------------------)
I. INTRODUCTION
1. Thisis anactionfor injunctivereliefto restrainDefendants WesternSky
Financial,LLC("WesternSky"),CashCall,Inc. ("CashCall"), WS Funding,LLC("WS
Funding"),DelbertServicesCorporation("Delbert"),andJohnPaul Reddam("Mr. Reddam"),
(collectively,"Defendants")fromoffering,funding, servicingandcollectingonillegalusurious
consumerloansmadetoNorthCarolinaborrowers,inviolationof NorthCarolina'sConsumer
FinanceAct,N.C. Gen. Stat. 53-164,et seq.; NorthCarolina'susurylaws,N.C. Gen. Stat.
24-1, et seq.; andNorthCarolina'sUnfairandDeceptivePracticesAct,N.C. Gen. Stat. 75-1.1,
et seq.; andto obtainrestitutionandotherrelief.
2. CashCall, WS Funding,andDelbertareaffiliatedcompaniesthatmake,fund,
purchase,service,andcollectonillegalloanstoNorthCarolinaconsumersthataccrueinterestat
ratesfarinexcessof thoseallowedunderNorthCarolinalaw. TheseDefendantsseekto evade
the Stateof NorthCarolina'slicensure,usury, andconsumerprotectionlawsbyusingas afront
anunrelatedfourthcompany, WesternSky. WesternSkyfalselyholdsitselfoutas anIndian
tribalentitythatpurportstobeexemptfrom statelawsunderthedoctrineoftribalsovereign
immunity. Inreality, WesternSkyisafor-profitSouthDakotacompanythatisownedbyan
individualwhohappenstobeamemberof anIndiantribe. WesternSkyisnotownedor
operatedbyanyIndiantribeorforthebenefitofanytribe;therefore,thedoctrineof tribal
sovereignimmunitydoesnotapplytotheloansmadetoNorthCarolinaborrowers.
3. CashCallistherealor"de facto" lenderintheseloantransactions,anditcontrols
virtuallyallaspectsof thetransactions. PursuanttoitsarrangementwithWesternSky,among
otheractivities,CashCall,itselforthroughitssubsidiaries, createsanddistributesadvertising
materialsfortheloans;reviewsallloanapplicationsforunderwritingrequirements;fundsthe
loans;assumesallriskofloss ontheloans; receivesallpaymentsontheloans;servicesthe
loans; andindemnifiesWesternSkyfor allcostsandanyliabilityassociatedwiththeloans.
4. Basedonthesefacts, regulatorsandcourtshaveconcludedthat"WesternSkyis
nothingmorethanafront to enableCashCalltoevadelicensurebystateagenciesandtoexploit
IndianTribal SovereignImmunitytoshielditsdeceptivebusinesspracticesfrom prosecutionby
stateandfederal regulators." In re Cash Call, Inc., John Paul Reddam, President and CEO of
Cash Call, Inc. and WS Funding, LLC, Stateof NewHampshireBankingDepartment,CaseNo.:
12-308(June4,2013).
5. Since2010,atleastfourteenstates,onrelationof therespectiveState'sAttorney
GeneralorthroughtheState'sbankingorconsumercreditregulator,havetakenactionagainst
Defendantsforunlawfullymakingloanswithoutproperstatelicensureandinviolationofstate
usuryandconsumerprotectionlaws.
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II. PARTIES
6. Plaintiffisthe Stateof NorthCarolina,actingonrelationofitsAttorneyGeneral,
RoyCooper,pursuantto authoritygrantedbyChapters75 and 114of theGeneralStatutes,and
onrelationof itsCommissionerofBanks,RayGrace,pursuantto authoritygrantedbyChapter
53 of theGeneralStatutes.
7. WesternSkyisafor-profitSouthDakotalimitedliabilitycompanywitha
principalplaceofbusinessat612E Street,TimberLake,SouthDakota57656. WesternSky
doesnotholdanylicenseissuedbytheNorthCarolinaCommissionerofBanks.
8. CashCallisafor-profitCaliforniacorporationwithaprincipalplaceof businessat
1600SouthDouglassRoad,Anaheim,California92806. CashCallisengagedinthebusinessof
offering,making,purchasing,servicing,andcollectingonconsumerloans. CashCallmakes
mortgageloansinNorthCarolinaandsince2010,hasbeenlicensedasamortgagelenderwith
theNorthCarolinaCommissionerofBanksundertheNorthCarolinaSecureandFair
EnforcementMortgageLicensingAct,N.C.Gen. Stat. 53-244.010,et seq. CashCalldoesnot
holdanyotherlicenseissuedbytheNorthCarolinaCommissionerofBanksanddoesnotholda
licensetomakeconsumerloansinNorthCarolina.
9. WSFundingis afor-profitDelawarelimitedliabilitycompanyandisawholly-
ownedsubsidiaryofCashCall. WSFundinghas aprincipalplaceof businessat1600South
DouglassRoad,Anaheim,California92806,thesameofficeaddressas CashCall. WSFunding
doesnotholdanylicenseissuedbytheNorthCarolinaCommissionerof Banks.
10. DelbertisaNevadacorporationwithplacesof businesslocatedat7125Pollock
Drive,LasVegas,Nevada89119andat1600SouthDouglassRoad,Anaheim,California92806,
thesameofficeaddressas CashCall. Delbertisengagedinthebusinessof purchasing,servicing,
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and collecting on consumer loans made by CashCall; and Delbert currently holds and/or services
loans made to North Carolina borrowers by CashCall and WS Funding through Western Sky.
Delbert does not hold any license issued by the North Carolina Commissioner of Banks. Delbert
is currently licensed as a collection agency by the North Carolina Department of Insurance.
11. John Paul Reddam is a resident of California. At all times relevant herein, Mr.
Reddam is and was the sole owner and shareholder, President, and Chief Executive Officer of
CashCall; the President and sole member, manager, and owner ofWS Funding; and the Director
and owner of Delbert. At all times relevant herein, Mr. Reddam directed, controlled, and had
managerial responsibility for the activities of CashCall, WS Funding, and Delbert, including the
unlawful practices alleged herein.
III. FACTUAL ALLEGATIONS
A. Defendants' Loan Activities in North Carolina
12. Since at least 20 I 0, Defendants have regularly offered, made, collected, and are
continuing to collect on, illegal unsecured loans to North Carolina consumers. Defendants have
promoted these consumer loans through Western Sky's website, www.westernsky.com. and
through national television advertising broadcast in North Carolina in the name of Western Sky.
A copy of Western Sky's former website homepage is attached hereto as Exhibit A, and is
incorporated herein.
13. On its website, Western Sky has offered North Carolina consumers personal loans
ranging in amounts from $850 to $10,000. On these loans, Defendants have charged North
Carolina consumers interest rates from 89.68% to 342.86% per annum. In addition to these
exorbitant rates of interest, borrowers are charged loan origination fees from $75 to $500, which
are added to the loan principal. The loan agreements require borrowers to re-pay the loans in
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monthly installments, with re-payment periods ranging from twelve (12) to eighty-four (84)
months. Below is a chart from Western Sky's website,
http://www.westernsky.comlGenerallRates.aspx on May 3, 2013, setting forth the loan amounts
and rates offered by Western Sky to North Carolina consumers:
What state do you live in? ,North Carolina 'Y
Loan Product
BorrowerProceedsILoanFee
APR Number of Payments Payment Amount
$10
1
000 $9
1
925 89.68% 84 $743.49
$5
1
075 $5
1
000 $75 116.73% 84 $466.58
$2
1
600 $2
1
525 $75 139.22% 47 $294.46
$1,500 $1,000 $500 234.25% 24 $198.19
$850 $500 $350 342.66% 12 $150.72
A copy of Western Sky's webpage showing these rates of interest is attached hereto as Exhibit B,
and is incorporated herein.
14. To obtain the loans, consumers are invited to submit an on-line application
through Western Sky's Internet website or to call an advertised toll-free telephone number to
apply. Western Sky communicates its approval or denial of the borrower's loan application by
Internet or by phone. Once approved, loan funds are electronically disbursed to consumers' bank
accounts. Under the loan agreements, North Carolina consumers are required to authorize that
their monthly payments be electronically debited from their bank accounts.
15. After a consumer executes a loan agreement, the loan is immediately sold and
transferred from Western Sky to WS Funding. Consumers are then informed that the loans will
be serviced by Cash Cal 1. In some instances, WS Funding or CashCall have subsequently sold or
transferred the loans to Delbert, an affiliate of Cash Call , for servicing and collections.
16. Thus, North Carolina consumers never make any loan payments to Western Sky.
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Instead, CashCallandits affiliates,includingDelbert, collectallpaymentsontheloans,service
theloans,andhandleallcommunicationswithborrowersregardingtheloans.
B. Defendants' Arrangement with Western Sky
17. InaceaseanddesistorderrecentlyissuedbytheNewHampshireBanking
DepartmenttoDefendantsCashCall,WSFunding,andMr. Reddam,theBankingCommissioner
laidbaretheDefendants' arrangementwithWesternSkyandconcluded,underboththefacts and
thelaw,thatthearrangementis asubterfugeusedbytheDefendantsto makeillegalloansand
usurpstatelendinglaws. In re Cash Call, Inc., John Paul Reddam, President and CEO of
Cash Call, Inc. and WS Funding, LLC, CaseNo.: 12-308(June4, 2013).
18. TheNewHampshireBankingCommissioner'sOrderfollowed anexaminationof
thecontractualagreementsbetweenCashCall,WS Funding, andWesternSkyandother
documentsrelatingto CashCall'srelationshipwithWesternSky. TheCommissioner'sfindings
showthatCashCallhasthepredominanteconomicinterestintheloanspurportedlyoriginatedby
WesternSky, andthatCashCallcontrolsvirtuallyall aspectsof the lendingprocess.
19. Amongotherdeterminations,theNewHampshireBankingCommissionermade
thefollowing salientfindings offact, whichtheStateof NorthCarolinaadoptsandallegeshere:
(a) CashCallcreatesall advertisingandmarketingmaterialsforWesternSky;
(b) CashCallprovideswebsitehostingandsupportservicesforWesternSky;
(c) CashCallreimbursesWesternSkyforallcostsof maintenance, repair
and/orupdatecostsassociatedwithWesternSky'sserver;
(d) CashCallreimbursesWesternSkyforitsoffice,personnel,andpostage,
andprovidesWesternSkywithatollfreetelephoneandfaxnumber;
(e) Onceaconsumerappliesforaloan, CashCallreviewstheapplicationfor
underwritingrequirements;
(f) Oncealoanapplicationis approved, WesternSkyexecutesapromissory
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noteanddebitsa so-called"ReserveAccount"tofundthepromissory
note;
(g) CashCallisrequiredtosetup,fund, andmaintainthebalanceinthis
ReserveAccount;
(h) Aftera loanis funded, CashCallisobligatedtopurchasethepromissory
notefromWesternSky;
(i) CashCallbearsallriskof lossontheloans;
G) CashCallgenerallymakescontactwiththeconsumerwithinonebusiness
dayof theconsumerfiling anapplicationfortheloanandoncetheloan
hasbeenmade;
(k) WesternSkyacceptsnopaymentsfromconsumersontheloans;
(1) CashCallservicestheloans;
(m) CashCallisresponsiblefortrackingallconsumercomplaintsregardingthe
loans;
(n) CashCallhasagreedto indemnifyWesternSkyforallcostsarisingor
resultingfromanyandallcivil,criminaloradministrativeclaimsor
actionsrelatingto theloans,includingbutnotlimitedto fines, costs,
assessments,and/orpenaltieswhichmayariseinanyjurisdiction;
(0) Ascompensationfor servicesprovided,WesternSkypaysCash Call
2.02%of thefacevalueof eachapprovedandexecutedloantransaction
plusanyadditionalcharges,withanetminimumpaymentof$100,000per
month;and
(P) CashCallpaysWesternSky5.145%ofthefacevalueof eachapproved
andexecutedloancreditextensionand/orrenewal,aswellasaminimum
monthlyadministrationfeeof$10,000.
20. TheNewHampshireBankingCommissionerfurtherfoundthatCashCall, WS
Funding,andMr. Reddam"havetakensubstantialstepsto concealthisbusinessschemefrom
consumersandstateandfederalregulators,"andthatDefendants' scheme"preventsconsumers
fromunderstandingwhichentityismakingtheloans." Additionally,theCommissionerfound:
(a) WesternSkydoesnotidentifyitsrelationshipwithCashCallorWS
Fundingonitswebsiteorinanymarketingmaterials;
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(b) Thepromissorynotesidentifythelenderas WesternSkywithanaddress
ofTimberLake, SouthDakota;and
(c) Thepromissorynotes statethattheloanagreementis"subjectsolelytothe
exclusivelawsandjurisdictionof theCheyenneRiverSiouxTribe,
CheyenneRiverIndianReservation."
21. Baseduponthiscarefulreview,theNewHampshireBankingCommissioner
concluded: "[I]tappearsthatWesternSkyisnothingmorethanafrontto enableCashCallto
evadelicensurebystateagenciesandtoexploitIndianTribalSovereignImmunitytoshieldits
deceptivebusinesspracticesfromprosecutionbystateandfederalregulators." The
CommissionerorderedCashCall,WS Funding,andMr. Reddamto ceaseanddesistfromtheir
unlawfullendingactivities,includingmakingfurtherloansthroughWesternSkyorcollectingon
existingloans. TheCommissionerfurtherorderedCashCall,WS Funding,andMr. Reddamto
payrestitutionto allNewHampshireborrowers, andassessedanadministrativefine againstthem
intheamountof$1,967,500forknowinglymakingillegalloansto 787NewHampshire
borrowers.
22. AsobservedbytheNewHampshireBankingCommissioner,andas long
recognizedbyappellatecourtsinNorthCarolinaandthroughoutthecountry,inconsidering
usuryclaims,courtsandregulatorslookto thesubstanceofatransactionratherthanitsformto
detenninewhetherthetransactionisaloan. Ifdeterminedtobealoan, courtsandregulators
thendeterminetherealorde facto lenderof theloan. State ex reI. Cooper v. NCCS Loans, Inc.,
174N.C.App. 630(2005);In re Advance America, NorthCarolinaCommissionerof Banks,
DocketNo. 05:008 (Dec. 22,2005);Goleta National Bank v. Lingerfelt, 211 F.Supp.2d711
(E.D.N.C. 2002).
23. Inall substantiverespects, CashCall,throughandinconjunctionwithitswholly-
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ownedsubsidiaryWS Funding,is engagedinthebusinessoflending,andistheactualorde
facto lenderandtherealpartyininteresttotheloantransactionswithNorthCarolinaconsumers.
C. Impact ofDefendants'Loans on North Carolina Consumers
24. TheloansmadebyWesternSkyand servicedbyCashCall,WS Funding,and
DelberthaveimposedsubstantialhardshipsonNorthCarolinaconsumersdueto the oppressive
termsoftheloans. Todate, theAttorneyGeneral'sConsumerProtectionDivisionandtheOffice
oftheCommissionerofBankshavereceivedapproximately100complaintsfromNorthCarolina
consumersabouttheDefendants' loans. Mostoftheconsumerswhohavetakentheloansare
financiallydistressedandmanyarelivingpaycheck-to-paycheck. Manyconsumershave
assertedintheircomplaintsthatafterre-payingtheloanamountplusadditionalsums,they
believedtheywereclosetopayingofftheloans; however,aftercontactingCashCallorDelbert,
orreceivingcollectioncallsornoticesfromCashCallorDelbert, consumerslearnedthatdueto
theloans'exorbitantinterestrates,virtuallyalloftheirpaymentswereallocatedtointerest- thus
makingitimpossibleformanyconsumerstore-paytheloans, andfurtherensnaringthemina
cycleofdebt.
25. Forexample, inJuly2011,NorthCarolinaconsumerCorettaClarkofGreensboro
sawanadvertisementfor WesternSkyontelevision. Ms:'Clarkcalledthephonenumberinthe
advertisementand, aftersheprovidedtheinformationrequested, WesternSkyissuedheraloan
of$2,600.00,outofwhichshereceived$2,525.00, afterpaymentof anoriginationfee of$75.00.
TheinterestrateonMs. Clark'sloanwas 139.12%. Herpaymentscheduleconsistedof one
paymentof$263.25,tobefollowedby47 monthlypaymentsof$294.46,foratotalrepaymentof
$14,102.87onanamountfinancedof$2,525.00. PursuanttotheDefendants' arrangement,the
loanwasimmediatelysoldtoWSFunding,andCashCallbeganservicingtheloan. Ms. Clark
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struggledtomakepaymentsontheloan. FromAugust2011 throughSeptember2012,shemade
paymentstotaling$4,395.98. However,inSeptember2012,aftermakingpaymentsforovera
year,shelearnedthattheremainingprincipalbalanceonherloan- excludinginterest- totaled
$2,529.39. Atthattime,Ms. Clarkrealizedthatvirtuallynoneofherpaymentshadbeenapplied
totheloanprincipal. Therefore,sheceasedmakingpayments. However,Delbertcontinuedto
contacther,demandingimmediaterepaymentontheloan. Ms. Clark'saffidavit,togetherwith
theaffidavitsof NorthCarolinaconsumersHaroldAnderson,JacquelineBrown,EdwinR.
Sevits,andShirleyH. Smith,are attachedheretoasExhibitCandincorporatedherein.
26. Incontrast,ifMs. Clark'sloanof$2,600.00hadbeenmadeunderapplicable
NorthCarolinalaw,pursuanttoN.C. Gen. Stat. 53-176(a)(1),themaximumrateshecould
havebeenchargedin2011 wouldhavebeenablendedrateof24.49%perannum.
Hypothetically,usingthesamepaymentscheduleof47months(whichlikelywouldhavebeen
shorteratthislowerinterestrate),Ms. Clarkwouldhavebeenrequiredto makepaymentsof
$86.54permonth,foranapproximatetotalof paymentsof$4,067.38.
27. MultipleconsumershavecomplainedaboutthecollectionpracticesofCashCall
andDelbert,includingthattheirrepresentativesrepeatedlycalledatallhoursof thedayand
night; usedobsceneandabusivelanguage;threatenedwagegarnishmentorotherlegalaction;
contactedconsumers'employersorcalledthematwork,despiterequestsnotto do so,which
placedsomeconsumersinjeopardyoflosingtheirjobs;andcontactedotherthirdparties, suchas
consun1ers' familymembers,regardingcollectionontheloans.
28. CashCallandDelbertregularlyreportconsumers'paymenthistoriestonational
creditreportingagencies,includingExperianandEquifax. Whereconsumershavefailed to
maketimelypaymentsorhavehaddifficultypaying,CashCallandDelberthaveurgedand
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coerced consumers to continue making their payments in order to prevent further damage to their
credit histories.
29. The Consumer Protection Division of the Attorney General's Office and the
Office of the Commissioner of Banks have notified Defendants of the State of North Carolina's
laws prohibiting usurious consumer loans. In response to these notices, Defendants contend that
the loans are subject only to tribal law, and that their loan activities are not subject to North
Carolina law. Specifically, Defendants contend that Western Sky is "a wholly Cheyenne River
Sioux Tribal Member owned business [that] is located and operates within the exterior
boundaries of the Cheyenne River Indian Reservation;" that Defendants' Western Sky loans are
made "within the confines of the Cheyenne River Indian Reservation;" and that the choice oflaw
provision in the loan agreement states that the laws ofthe Cheyenne River Sioux Tribe apply.
CashCall further contends that, as an assignee of the loans, it is permitted to "stand in the shoes"
of Western Sky to claim tribal sovereign immunity and to enforce the choice-of-Iaw provisions
in the loan agreements. A copy of a response letter by Cash Call, asserting that the loans are not
subject to North Carolina law, is attached hereto as Exhibit D and is incorporated herein.
D. WesternSkyIsNotaTribalEntity,andDefendants' LoanActivitiesAreNot
ShieldedByTribalSovereignImmunity
30. Although Western Sky allegedly has an office located within the boundaries of
the Cheyenne River Sioux Reservation, the Cheyenne River Sioux Tribe has absolutely no
ownership interest in Western Sky, nor does the Tribe play any role in the operation of Western
Sky. Western Sky is not a tribal enterprise, or in any sense an entity formed by or controlled by
the Cheyenne River Sioux Tribe or its tribal government; and Western Sky is not an arm of the
Tribe.
31. Instead, Western Sky is a for-profit limited liability company created under South
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Dakotalaw. A copyofWesternSky'sCertificateof Organizationisattachedheretoas
E,andisincorporatedherein. ThesolememberofWesternSkyisanindividualnamedMartin
Webb. AlthoughMr. Webbisamemberof theCheyenneRiverSiouxTribe,Mr. Webb isnota
tribalofficialorotherrepresentativeof theTribe'sgovernment. Thus,Mr. Webbdoesnot
operateWesternSkyinanyofficialtribalcapacity. Further,WesternSkydoesnotoperateinany
wayforthebenefitof theTribe. Instead,allprofitsmadebyWesternSkyinuretothebenefitof,
andaredistributedsolelyto,Mr. Webb.
32. NotwithstandingDefendants'claimsthattheloansinquestionaremadeunder
triballaw,inactuality,Defendants'loanactivitiesareprohibitedbytheverylawswhich
Defendantsseektouseasashield. Thelawsof theCheyenneRiverSiouxTribeexpresslyban
usury,andprovidethattheviolationof theTribe'susurystatuteisacriminaloffense.
Specifically,Section3-4-52of theCheyenneRiverSioux'sLawandOrderCodeprohibitsthe
chargingofinterestgreaterthan 18%perannumforloansinexcessof$100.00. Acopyof
Section3-4-52of theCheyenneRiverSiouxTribeLawandOrderCodeisattachedheretoas
==:.::..::....:;:.., andisincorporatedherein. Allof theloansinquestionmadetoNorthCarolina
borrowers,andonwhichCashCallandDelbertarecurrentlycollecting,grosslyexceedthe
maximumrateallowedbyTriballaw.
33. TheDefendantsemploywhatisknownasa"rent-a-tribe"scheme,inwhichthe
unlicensedlenderCashCallmakesusuriousconsumerloans,heedlessof stateregulation,by
purportingtoaffiliatewithanIndiantribeto claimfederaltribalsovereignimmunity. Eventhe
paydaylendingindustryhasdecried"rent-a-tribe"lendingas improper. InFebruary2011,the
CommunityFinancialServicesAssociationof America,atradeassociationwhichrepresentsthe
paydaylendingindustry,condemnedthepracticeof affiliatingwithIndiantribesto circumvent
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stateregulationandannouncedthatitwouldexpelmemberswho engagedinsuchschemes. See
PressRelease,CommunityFinancialServicesAssociationof America, StorefrontPayday
LendersRejectNativeAmericanPartnerships(Feb. 10,2011).
34. Notably,priortoenteringintoitscurrent"rent-a-tribe"arrangementwithWestern
Skyinlate2009,CashCallpreviouslyenteredintoanidentical"rent-a-bank"arrangementwith
atleasttwostate-charteredbanks,onebasedinSouthDakotaandanotherinDelaware states
thathaveno usurylawsandthereforenointerestratelimitations inanefforttocircumvent
statelicensureandstatelawrestrictionsonconsumerloans. TheStateofWestVirginia,which
hasusurylaws, filed suitagainstCashCallin2008,formakingillegalloansto WestVirginia
consumers. Followingatrial,theWestVirginiacourtagreedwiththeState,andfoundthat"the
purposeof thelendingprogramwastoallowCash CalltohidebehindtheBank'scharterandits
righttoexportinterestratesunderfederalbankinglaw,asameansforCashCalltodeliverits
loanproductto stateslikeWestVirginiawithusurylaws." West Virginia v. CashCall, et al.,
CivilFileNo. 08-C-1964,KanawhaCountyCircuitCourt,FinalOrderonPhaseIIoftheTrial;
theState'sUsuryandLendingClaims,at25. TheCourtfoundthatCashCallwasthedefacto
lenderof suchloansandenjoineditfrommakingloansinWestVirginiawithoutalicenseand
frommakingorcollectingonusuriousloans,imposedacivilpenaltyof$730,000,awardeda
judgmentof$1(1,045,687,anddeclaredallloansmadebyCashCallinWestVirginianulland
void.
35. InadditiontotheStateofWestVirginia'SactionagainstCashCall,otherstates,
includingNorthCarolina,tookactionagainstotherillegal"rent-a-bank"paydaylending
schemes. See In re Advance America, NorthCarolinaCommissionerof Banks,DocketNo.
05:008; State ofNorth Carolina ex rel. Cooper v. Ace Cash Express, Inc., No. 02-CVS-330
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(WakeCountySup. Ct.). Theseactions,togetherwithwarningsandenforcementactionsbythe
OfficeoftheComptrolleroftheCurrency("OCC")andtheFederalDepositInsurance
Corporation("FDIC")atthefederal levellargelyended"rent-a-bank"or"rent-a-charter"
schemesusedbyCashCallandotherpaydaylendersorhighinterestrateinstallmentlenders.
Withthedemiseof the"rent-a-bank"schemeinthewakeof federal andstateenforcement
actions, CashCallnowpartneredwithWesternSkyundera"rent-a-tribe"arrangement- thus,
retainingtheexactsamebusinessmodelasbeforeof makingunlicensedhighinterestrateloans.
E. Numerous Other States Have Rejected Defendants' Unlawful Schemes
36. InadditiontotherecentOrderissuedbytheNewHampshireBanking
Commissioner,numerousotherstateshavetakenactionagainstDefendantsforunlicensed
lendingactivitiesandforviolationofstates'usuryandconsumerprotectionlaws. Eachand
everycourtorregulatorthathasaddressedDefendants' contentionthattheirloansareshielded
fromstatelawsundedhedoctrineof tribalsovereignimmunityhasrejectedthisclaim.
37. InacasebroughtbytheStateof Colorado,theCourtgrantedtheState'smotion
forsummaryjudgment,holdingthatMr. Webb, as anenrolledmemberof theTribe,"isnot
individuallyentitledtoimmunity,nordoeshismembershipintheTribeconfersuchimmunity
uponWesternSky." InadditiontograntingColorado'smotionforsummaryjudgment,theCourt
orderedWesternSkytopayColorado'sattorneys' fees incurredinlitigatingthesovereign
immunityissue. State ofColorado v. Western Sky Financial, LLC and Martin A. Webb, No. 11
CV638 (StateofColorado,DenverCountyDistrictCourt,April 15,2013.)
38. InasimilarOpinionandFinalOrderissuedonMay22,2013,theMaryland
CommissionerofFinancialRegulationorderedWesternSkytoceaseanddesistfrommaking
unlicensedloansinMaryland,fromcollectingonloansmadeto Marylandconsumers,andtopay
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acivilpenalty. InissuinghisOrder,theCommissionerrejectedWesternSky'sdefenseof
sovereignimmunity,holdingthatit "isundisputedthattribalsovereignimmunitydoesnot
protectindividualtribalmembers."Commissioner v. Western Sky Financial et al., CaseNo.
CFR-FY2011-182,OARNo.DLR-CFR-76A-47146(May22,2013).
39. Similarly,inarecentorderissuedbythe WashingtonDepartmentof Financial
Institutions,theHearingOfficerheldthatWesternSkyisnotprotectedbytribalsovereign
immunity. (OAHDocketNo.2012-DFI-0027,DFINo. C-II-0810-12-SCOI,August 16, 2013).
InapreviousorderissuedagainstCashCallinJanuary2013,theDepartmentof Financial
InstitutionsheldthatCashCall'sWesternSkyloansweresubjecttotheState'susurylaw, stating:
"CashCallfailedto establishthatfederal IndianlawinsulatedWesternSkyandCashCall from
WashingtonusurylawwhentheyreachedintoWashingtonandmadeloanstoandtransacted
loanswithWashingtonresidents."Orderatp. 6. TheorderfurtherrequiredCashCalltocease
anddesistcollectingusuriousinterest. (In the Matter of Cash Call, Inc., OARDocketNo.
2011-DFI-0041,DFINo.C-ll-0701-12-SC03,January30,2013).
40. InyetanotherrecentrulinginanactionbroughtbytheIowaDivisionof Banking
againstCashCall,anAdministrativeLawJudgeheldthatIowalaw,nottriballaw,appliedto
CashCall'sWesternSkyloans. In the Matter of Cash Call, Inc., DIANos. 12 IDB002,
l3lIDB001,IDOBNos., 2012-NRR2003-0154,2012-NRR-2012-0099,RulingOnWhether
LoansAtIssueAreSubjecttoIowaLaw(September26,2013).
41. InanearlierproceedingbroughtbytheWestVirginiaAttorneyGeneralto enforce
anadministrativesubpoenaagainstWesternSky,theWestVirginiaCourtheldthatWesternSky
wasnotprotectedbythedoctrineoftribalsovereignimmunity. State o/West Virginia v. Payday
Loan Resource Center, LLC, KanawhaCountyCircuitCourt,WestVirginia,No. 10-MISC-372
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(October28,2011). Thecasewassettledin2012,withWebbpromisingtopermanentlystop
lendinginWestVirginiaandtopayrestitutionof$135,000forexcessfees chargedtoborrowers.
WestVirginiaAttorneyGeneral,In theMatterofPaydayFinancialLLCd/b/aLakotaCashand
MartinA. Webb, AssuranceofDiscontinuance(October5, 2012).
42. Otherstateregulators,includingthoseinIllinois,Massachusetts,andOregonhave
issuedceaseanddesistordersto WesternSkyand/orCashCall,orderingthemto stopmakingor
collectinguponloansin theirrespectivestates. Inaddition,Arkansas,Georgia,Minnesota,
Missouri,andNewYorkallhavependingenforcementactionsagainstWesternSkyand/or
CashCall.
43. Asaresultof theseenforcementactions,WesternSkyannouncedonitswebsite
that, as ofSeptember3,2013,itwassuspendingbusinessoperations. WesternSky's
announcementdoes notstatethedurationof thissuspension,orwhetherthissuspensionis
temporaryorpermanent.
44. NotwithstandingWesternSky'sannouncement, CashCallandDelbertcontinueto
collectoniUegalloansmadetoNorthCarolinaconsumers,includingservicingtheloans,
contactingNorthCarolinaconsumers,anddemandingpaymentontheloans.
IV. CLAIMS FOR RELIEF
COUNT!:
VIOLATIONSOFTHENORTHCAROLINACONSUMERFINANCEACT:
NORTHCAROLINAGENERALSTATUTES 53-164,etseq.
45. TheStatereallegesandincorporateshereintheallegationsof paragraphs 1
through44above.
46. TheNorthCarolinaConsumerFinanceAct,N.C. Gen. Stat. 53-166(a),requires
thatanypersonengagedin thebusinessoflendingcannot"directlyorindirectly"contractforor
16
receive consideration greater than that allowed by Chapter 24 without being licensed by the
Commissioner of Banks as a consumer finance lender. Specifically, N.C. Gen. Stat. 53-l66(a)
provides, in pertinent part:
No person shall engage in the business of lending in amounts of
fifteen thousand dollars ($15,000) or less and contract for, exact, or
receive, directly or indirectly, on or in connection with any such
loan, any charges whether for interest, compensation,
consideration, or expense, or any other purpose whatsoever, which
in the aggregate are greater than permitted by Chapter 24 of the
General Statutes, except as provided in and authorized by this
Article, and without first having obtained a license from the
Commissioner.
47. The maximum rate allowed by Chapter 24, N.C. Gen. Stat. 24-1.1, on contract
loans of $25,000 or less, is 16% per annum.
48. The North Carolina Consumer Finance Act provides an exception to the 16% cap
on interest rates set forth by Chapter 24, and allows consumer fmance lenders licensed by the
Commissioner of Banks to make consumer loans of up to $15,000 at interest rates permitted by
the Act.
49. For loans made on or after July 1,2013/ pursuant to N.C. Gen. Stat. 53-176, the
maximum interest rate that may be charged for consumer loans in North Carolina under the Act
is 30% per annum.
50. For loans made prior to July 1,2013, pursuant to former N.C. Gen. Stat. 53-173,
the maximum interest rate that may be charged by licensed lenders to North Carolina consumer
borrowers is 36% per annum.
51. In an effort to address "illicit lending schemes" devised by lenders seeking to
1 Session Law 2013-162 (SB 489), which became effective on July 1,2013, made amendments to the
Consumer Finance Act, which included increasing the maximum loan amount permitted under the Act
from $10,000 to $15,000; altering the brackets governing the blended interest rates authorized by the Act;
and reducing the maximum interest rate from 36% per annum to 30% per annum.
17
evadestateusurylaws,in2006,theNorthCarolinaGeneralAssemblyamendedtheConsumer
FinanceActtoaddanewprovision,N.C. Gen. Stat. 53-l66(b),whichexpresslyprovidesthat
theprohibitionsof N.C. Gen. Stat. 53-l66(a)"applyto anypersonwhoseekstoavoidits
applicationbyanydevice, subterfuge,orpretensewhatsoever."
52. CashCallandWSFunding,inconjunctionwithWesternSky,haveengagedinthe
businessoflendingandarethereforesubjecttotheprovisionsof theConsumerFinanceAct,
includingN.C. Gen. Stat. 53-166. Defendantsarenotlicensedasconsumerfinancelendersby
theCommissionerof Banks,andhaveneverbeenso licensed.
53. CashCallandWSFunding,inconjunctionwithWesternSky,haveregularly
madeconsumerloanstoNorthCarolinaborrowersatratesfarinexcessof theallowablelimitsin
theConsumerFinanceAct.
54. PursuanttoN.C. Gen. Stat. 53-166(d),allWesternSkyloansmadetoNorth
CarolinaborrowersinviolationoftheConsumerFinanceActandheldorcollectedonby
CashCall,WS Funding,Delbert,oranyof theiraffiliatesarevoid. Defendantsareexpressly
prohibitedundertheActfromcollecting,receiving,orretaininganyprincipalorchargesmadeor
collectedonbyDefendantsfromNorthCarolinaborrowers. Specifically,N.C. Gen. Stat. 53-
166( d)provides,inpertinentpart:
Anycontractof loan,themakingorcollectingofwhichviolates
anyprovisionof thisArticle,orregulationthereunder,exceptasa
resultofaccidentalorbonafideerrorofcomputationisvoid,and
thelicenseeoranyotherpartyinviolationshallnotcollect,
receive,orretainanyprincipalorchargeswhatsoeverwithrespect
totheloan.
55. PursuanttoN.C. Gen. Stat. 53-190(a),all suchloansmadetoNorthCarolina
borrowersinviolationof theNorthCarolinaConsumerFinanceActareunenforceableinNorth
CarolinanotwithstandingDefendants'effortstostyletheloansashavingbeenmadeinSouth
18
DakotaoronanIndianreservation. N.C. Gen. Stat. 53-190( a)expresslyprovides:
Noloancontractmadeoutsidethis Stateintheamountorof the
valueoftenthousanddollars ($10,000)orless,forwhichgreater
considerationorchargesthanareauthorizedbyG.S. 53-173 and
G.S. 53-176ofthisArticlehavebeencharged,contractedfor, or
received, shallbeenforcedinthisState. Provided,theforegoing
shallnotapplyto loancontractsinwhichallcontractualactivities,
includingsolicitation,discussion,negotiation,offer, acceptance,
signingofdocuments,anddeliveryandreceiptof funds, occur
entirelyoutsideNorthCarolina.
56. Defendants' loans are therefore unenforceable pursuant to N.C. Gen. Stat. 53-
190(a) because the following contractual activities, among others, undisputedly occur inNorth
Carolina:
(a) DefendantshavesolicitedNorthCarolinaresidentborrowersthroughthe
Internet,televisionadvertisements, andothermeanswhichhavetargeted
andreachedNorthCarolinaborrowersintheirhomes;
(b) DiscussionsbyDefendantswithNorthCarolinaresidentborrowers
regardingtheloanshavebeenconductedovertheInternetorbytelephone
withborrowersintheirhomesorwhilesuchborrowerswerelocatedin
NorthCarolina;
(c) DefendantstransmittedtheloandocumentstoNorthCarolinaresident
borrowersviatheInternettoborrowerswhiletheborrowerswerelocated
inNorthCarolina;
(d) NorthCarolinaresidentborrowerswererequestedbyDefendantsto
electronicallysigntheloandocumentsattheircomputers,andsuch
computerswerelocatedinborrowers'homesorelsewhereinNorth
Carolina;
(e) Defendantshavedisbursedloanfunds toNorthCarolinaborrowersto
borrowers'banksandbankaccountslocatedinNorthCarolina; and
(f) DefendantshavereceivedloanpaymentsfromNorthCarolinaborrowers
fromfunds inborrowers' bankaccountslocatedinNorthCarolina.
57. Further,N.C. Gen. Stat. 53-l80(g)prohibitsdeceptiveactsorpracticesboth
withregardtothemakingof loansandcollectingorattemptingto collectmoneyallegedtobe
19
dueunderloanssubjecttotheAct.
58. Accordingly,Defendants' activitiesareprohibitedbytheNorthCarolina
ConsumerFinanceAct,andtheStateof NorthCarolinais entitledtoinjunctiverelief prohibiting
DefendantsfromofferingormakinganyconsumerloanstoNorthCarolinaborrowersin
violationoftheNorthCarolinaConsumerFinanceActandfromcollectingonorretainingany
principalorchargescollectedfromNorthCarolinaborrowersonsuchloans.
COUNTII:
VIOLATIONSOFNORTHCAROLINAUSURYSTATOTE:
NORTHCAROLINAGENERALSTATUTESCHAPTER24
59. TheStatereallegesandincorporateshereintheallegationsof paragraphs 1
through58 above.
60. Theusurylawsof NorthCarolinamakeclearthattheprotectionofNorthCarolina
borrowersfromillegal,usuriousloansisa"paramountpublicpolicy"of theState,asN.C.Gen.
Stat. 24-2.1 (g)mandates:"It istheparamountpublicpolicyof NorthCarolinatoprotectNorth
Carolinaresidentborrowersthroughtheapplicationof NorthCarolinainterestlaws."
61. NorthCarolinausurylaw,N.C.Gen. Stat.24-1.1,providesthatthemaximum
interestratethatmaybechargedoncontractloansof$25,000orlessis 16%perannum.
62. NorthCarolina'susurylawsmandatethattheyaretobeappliedtoprotectNorth
Carolinaresidentborrowers,"regardlessof thesitusofthecontract,"asN.C. Gen. Stat. 24-
2.1(a)and(b)provide:
(a) ForpurposesofthisChapter,anyextensionof creditshall
bedeemedtohavebeenmadeinthis State,andtherefore
subjecttotheprovisionsof thisChapterifthelenderoffers
or agreesinthisStatetolendtoaborrowerwhoisa
residentof thisstate,orif suchborroweracceptsormakes
theofferinthisStatetoborrow,regardless ofthe situs of
the contract as specified therein.
20
(b) Anysolicitationorcommunicationtoborrow,oralor
written,originatingwithinthisState,fromaborrowerwho
isaresidentofthisState,butforwardedto,andreceivedby
alenderoutsideof thisState,shall be deemed to be an
acceptance or offer to borrow in this State.
(Emphasisadded.)
63. Defendants' consumerloanstoNorthCarolinaborrowersareusuriousbecausethe
ratesandchargesofsuchloansgrosslyexceedtheratesandchargespermittedbyNorthCarolina
usurylaw.
64. PursuanttoN.C. Gen. Stat. 24-2,thepenaltyforusuryistheforfeitureof
interestontheloan,togetherwiththerecoveryof twicetheamountofinterestpaidbythe
borrower. Accordingly,pursuanttoN.C.Gen. Stat. 24-2,theinterestonanyWesternSky
loansmade,held, orcollectedonbyDefendantsshouldbeforfeited, andDefendantsshouldbe
requiredtodisgorgetwicetheamountofallinterestcollectedfromNorthCarolinaborrowerson
suchloans.
COUNTIII:
VIOLATIONSOFNORTHCAROLINAUNFAIRANDDECEPTIVEPRACTICES ACT:
NORTHCAROLINAGENERALSTATUTES 75-1.1
65. TheStatereallegesandincorporateshereintheallegationsof paragraphs 1
through64above.
66. Inthecourseof offering,arranging,makingandcollectingontheirillegal
consumerloans,Defendantshaveengagedinunfairanddeceptiveactsorpracticesintradeor
commerceinviolationof N.C. Gen. Stat. 75-1.1.
67. Defendants'unfairanddeceptiveactsorpracticesinclude,butarenotlimitedto,
thefollowing:
(a) Engaginginanunfairbusinessenterpriseofoffering,making,and
collectingonconsumerloanstoNorthCarolinaborrowers,when
21
suchloansareingrossviolationoftheusurylawsofthisStateand
violatethepublicpolicyofthisState;
(b) Continuingtooffer,make,andcollectonconsumerloansinwillful
violationof NorthCarolinalaw, despitebeingadvisedbythe State
thatsuchloansarein violationof NorthCarolinalaw;
(c) Makingandcollectingonloansatoppressiveandunfairrates,and
makingsuchloanswithoutaccountingfortheborrower'sabilityto
repay;
(d) Attemptingto circumventNorthCarolinalendingandconsumer
protectionlawsbydeceptivelyassertingthatsuchloansaremade
byanIndiantribeand arenotsubjecttoNorthCarolinalending
laws,despitethefactthatneitherWesternSkynorDefendantsare
atribalenterprise,andcannotclaimtribalsovereigntyfor their
lendingandcollectionsactivities; and
(e) Deceptivelyassertingthatsuchloansaremadepursuanttothe
triballawoftheCheyenneRiverSiouxTribe,whensuchloansare
prohibitedbyt ~ Tribe'scriminalusurylaw.
68. PursuanttoN.C. Gen. Stat. 75-14,theAttorney Generalhastherightto obtain
injunctivereliefto restrainDefendantsfrom furtherviolationsof N.C. Gen. Stat. 75-1.1.
69. PursuanttoN.C. Gen. Stat. 75-15.1,theAttorneyGeneralhastherighttoobtain
arefundof moneysobtainedbyDefendantsas aresultof violationsofN.C.Gen. Stat. 75-1.1.
70. PursuanttoN.C. Gen. Stat. 75-15.1,theAttorneyGeneralhastherighttoobtain
civilpenaltiesforDefendants'willfulviolationsofNorthCarolinalaw.
v. PRAYER FOR RELIEF
WHEREFORE, theStateofNorthCarolinapraystheCourtforthefollowingrelief:
A. ThatthisverifiedComplaintbetreatedas anaffidavitforallpurposesforwhich
theCourtdeems appropriate;
B. ThatDefendantsandtheirowners,directors,officers,agents, subsidiaries, and
affiliatesbepreliminarilyandpermanentlyenjoinedfromoffering,making,arranging, or
22
collectingonloanstoNorthCarolinaconsumersthatviolatethelendingandconsumerprotection
lawsof thisState;
C. ThatallusuriousloansmadetoorcollectedfromNorthCarolinaconsumersin
violationof theConsumerFinanceAct, andwhichareheldorservicedbyanyoftheDefendants,
bedeclaredvoidpursuanttoN.C. Gen. Stat. 53-166(d),andallmoneycollectedbyDefendants
pursuanttosuchunlawfulloansberefunded,includingprincipal,interest,orothercharges;
D. Thatall loansmadeorcollectedonbyDefendantsatratesinexcessof theinterest
ratesallowedbyChapter24of theGeneralStatutes,andwhichareheldorservicedbyanyof the
Defendants,bedeclaredusuriousandDefendantsbeorderedtoforfeitallinterestandtorefund
twotimestheinterestcollectedfromNorthCarolinaborrowers;
ThatallloansmadeorcollectedonbyDefendantsinviolationof N.C.Gen. Stat.
75-1.1,et seq., andwhichareheldorservicedbyanyof theDefendants,becancelledpursuant
toN.C. Gen. Stat. 75-15.1,andthatDefendantsbeorderedtorefundallmoneycollectedfrom
suchloans;
F. ThatDefendantsbeorderedtonotifyallcreditreportingagenciestowhichthey
havereportedthatallWesternSkyloansmadetoNorthCarolinaconsumersareinvalid,andthat
allreportsorscoresthatreflectsuchloansshouldbecorrected;
G. ThatDefendantsberequiredtopayappropriatecivilpenaltiespursuanttoN.C.
Gen. Stat. 75-8and75-15.2;and
H. ThattheCourtawardthe Stateattorneys' feesandcosts,andsuchotherand
furtherreliefasmaybejustandproper.
23
Thisthe h ~ dayof December,2013.
ROYCOOPER
ATTORNEY GENERAL
By:
M. LynneWeaver
NorthCarolinaBarNo. 19397
~ ~ u L ~
War A.Zimm
NorthCarolinaBarNo.32352
SpecialDeputyAttorneysGeneral
ConsumerProtectionDivision
PostOfficeBox629
Raleigh,NorthCarolina27602
Telephone:(919)716-0000
Facsimile: (919)716-6050
E-mail: lweaver@ncdoi.gov
wzimmennan@ncdoj.gov
RAYGRACE
C09=-NEROFBANKS
By: ......... ~
L. McNeilChestnut
North arolinaBarNo. 9742
arsF.Nance
NorthCarolinaBarNo. 12711
SpecialDeputyAttorneysGeneral
CounseltoN.C. Commissionerof Banks
PostOfficeBox629
Raleigh,NorthCarolina27602
Telephone: (919)716-6803
E-mail: mchest@ncdoj.gov
lnance@ncdoj.gov
24
STATEOFNORTHCAROLINA
COUNTYOFWAKE
VERIFICATION
CharlieFields,Jr.,beingfirstdulysworn,deposesandsays:
That he is the Director ofthe Non-Depository Entities Division ofthe North Carolina
CommissionerofBanksOffice;thatheisauthorizedto makethisVerification;thatheassistedin
the investigation ofthe named Defendants; that he has read the foregoing Complaint, and that
uponhisinformationandbelief,themattersand
Swornandsubscribedbeforeme
this 1cQ.\f" dayof 2013.

MyCommissionExpires: r I 15{"20I (p
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