Cashcall, Inc. et al.
Massachusetts Division of Banks No. 131356
MEMORANDUM OF DECISION AND ORDER ON PLAINTIFFS' CONSOLIDATED MOTION FOR JUDGMENT ON THE PLEADINGS AND THE DEFENDANT'S MOTION FOR ORDER OF ENFORCEMENT
DENNIS J. CURRAN, Associate Justice.
The plaintiffs seek judicial review under G.L.c. 30A and G.L.c. 249, of the Massachusetts Division of Banks' finding that the plaintiffs' actions violated G.L.c. 140, § § 96 and 110, G.L.c. 271, § 49 and G.L.c. 93, § § 24 through 24G. The plaintiffs now move for judgment on the pleadings, arguing that the Massachusetts Division of Banks lacked jurisdiction and failed to hold a hearing. For the following reasons, the plaintiffs' motion is ALLOWED in part and DENIED in part.
Western Sky is a loan originator that is wholly owned by a member of the Cheyenne River Sioux Tribe, licensed by the tribe and located on its reservation in South Dakota. Western Sky advertises small loans to Massachusetts residents, directing those interested in applying for a loan to do so through Western Sky's internet address. A number of Massachusetts residents applied for and obtained loans through the internet or telephone. The loan agreements all contained similar terms, including:
This Loan Agreement is subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe, Cheyenne River Indian Reservation. By executing this Loan Agreement, you, the borrower, hereby acknowledge and consent to be bound to the terms of this Loan Agreement, consent to the sole subject matter and personal jurisdiction of the Cheyenne River Sioux Tribal Court, and that no other state or federal law or regulation shall apply to this Loan Agreement, its enforcement or interpretation.
The agreements further stated:
This Agreement is governed by the Indian Commerce Clause of the Constitution of the United States of America and the laws of the Cheyenne River Sioux Tribe . . . Neither this Agreement nor [Western Sky] is subject to the laws of any state of the United States of America. By executing this Agreement, you hereby expressly agree that this Agreement is executed and performed solely within the exterior boundaries of the Cheyenne River Sioux Indian Reservation, a sovereign Native American Tribal Nation. You also expressly agree that this Agreement shall be subject to and construed in accordance only with the provisions of the laws of the Cheyenne River Sioux Tribe, and that no United States or federal law applies to this Agreement.
They also contained an arbitration clause requiring disputes " to be resolved by [a]rbitration, which shall be conducted by the Cheyenne River Sioux Tribal National by an authorized representative in accordance with its consumer dispute rules."
The Agreements went on to note the interest rate--often 139% per annwm --and authorized Western Sky to debit electronic funds transfers from the borrower's checking account to make scheduled payments. After accepting the loan applications, Western Sky sold the loans to CashCall Inc.'s wholly-owned subsidiary, WS Funding, LLC. CashCall then serviced the loans for WS Funding. Both CashCall and WS Funding are California corporations.
Between 2011 and 2013, the Division of Banks received complaints from individuals about the extremely high interest rates and fees to which they were being subjected on these loans. The Division contacted the plaintiffs and advised them that their actions may violate Massachusetts law, and requested that they sign affidavits declaring that they would stop making and collecting on these loans with Massachusetts residents. The plaintiffs retorted that Western Sky is not subject to Massachusetts state regulation, that it operates solely and exclusively under Federal Indian law and the laws of the Cheyenne River Sioux, that CashCall does not issue loans, and that both CashCall and WS Funding stand in the shoes of Western Sky and are not subject to state regulation. The plaintiffs refused to sign the proposed affidavits.
Thereafter, the Division, without a hearing, sent a cease and desist letter to each plaintiff stating that each had engaged in the small loan business without a license in violation of G.L.c. 140, § § 96, 110, that CashCall acted as a debt servicer without registering as a third-party servicer in violation of G.L.c. 93, § § 24-24G, and that each plaintiff violated the state criminal usury statute, G.L.c. 271, § 49. The cease and desist orders specifically directed the plaintiffs to cease collecting on loans made to Massachusetts borrowers, refrain from transferring the loans, refund all interest charges and fees received from borrowers during the last four years, and submit a list of borrowers to whom reimbursement is owed.
Under G.L.c. 30A, the Court may only set aside an agency decision if it is legally erroneous, procedurally defective, unsupported by substantial evidence or is arbitrary and capricious. G.L.c. 30A, § 14; Brackett v. Civil Service Comm'n, 447 Mass. 233, 241-42, 850 N.E.2d 533 (2006). The ...