Lender News

Cash Funneled from Tribal Lending Firm

BY DARREN WAGGONER InsideARM

SEP 9, 2014 4:14pm ET

Encore Services LLC of Henderson, Nev., hired to manage an online payday loan business owned by Montana’s Chippewa Cree Tribe, secretly funneled 7% of the gross revenues to three tribal members, according to a $13.1 million lawsuit filed by the tribe.

The secret payments were made to Neal Rosette, Billi Anne Morsette and James Eastlick Jr., former executives at Plain Green Loans, one of two online lending companies owned by the tribe, an arbitration order attached to the lawsuit revealed.

Encore Services and the tribal leaders hid an agreement that sent 5% of Plain Green’s gross revenues to a company called Ideal Consulting owned by Rosette and Morsette. Eastlick received a share of that money, plus another 2% of revenues funneled to a company he owned called Trio Consulting. They allegedly concealed the payments from the rest of the tribe by not disclosing them in Encore’s fee agreement, the arbitrator in the case ruled.

Plain Green has made $25 million since 2011. Encore had an agreement to receive 15% of Plain Green’s gross revenues. The funneled money was provided to the consulting companies from that 15% share.

Plain Green has been a healthy business for the tribe located on the Rocky Boy’s Indian Reservation in northern Montana. The company charges borrowers annualized interest rates of up to 379%, and the tribe’s status as a sovereign nation allows it to ignore a Montana law that caps interest rates of 36%.

The arbitrator awarded the Chippewa Cree $1.1 million and voided the fee agreement after ruling that Encore was aware the terms of its fee agreement with the tribe were meant to conceal the facts and deceive tribal members who might have objected.

The tribe had sought $13.1 million from Encore, which amounted to the full amount the company allegedly took from Plain Green plus what the tribe claims was siphoned by Encore from another online lending company called First American Capital Resources.

Encore helped set up and manage First American Capital Resources for the tribe starting in 2010. The tribe claimed Encore’s owners didn’t deliver on promised investments, mismanaged the company and awarded contracts to shell companies that performed no services.

But the arbitrator ruled the tribe was owed only the money passed on from Encore to the tribal members, and denied their other claims.

The tribe then filed a lawsuit in U.S. District Court seeking the full $13.1 million. The lawsuit names Encore and its owners as defendants, but not Rosette, Morsette or Eastlick. Tribe attorney Richard Zack has declined to comment on the case other than, in a prepared statement, saying that the tribe will vigorously pursue the court action.

Eastlick will be sentenced this month after pleading guilty in May to bribery and theft in separate criminal cases involving kickbacks to tribal leaders. Rosette and Morsette could not be immediately reached for comment.

Cash Funneled from Tribal Lending Firm

BY DARREN WAGGONER

SEP 9, 2014 4:14pm ET

Encore Services LLC of Henderson, Nev., hired to manage an online payday loan business owned by Montana’s Chippewa Cree Tribe, secretly funneled 7% of the gross revenues to three tribal members, according to a $13.1 million lawsuit filed by the tribe.

The secret payments were made to Neal Rosette, Billi Anne Morsette and James Eastlick Jr., former executives at Plain Green Loans, one of two online lending companies owned by the tribe, an arbitration order attached to the lawsuit revealed.

Encore Services and the tribal leaders hid an agreement that sent 5% of Plain Green’s gross revenues to a company called Ideal Consulting owned by Rosette and Morsette. Eastlick received a share of that money, plus another 2% of revenues funneled to a company he owned called Trio Consulting. They allegedly concealed the payments from the rest of the tribe by not disclosing them in Encore’s fee agreement, the arbitrator in the case ruled.

Plain Green has made $25 million since 2011. Encore had an agreement to receive 15% of Plain Green’s gross revenues. The funneled money was provided to the consulting companies from that 15% share.

Plain Green has been a healthy business for the tribe located on the Rocky Boy’s Indian Reservation in northern Montana. The company charges borrowers annualized interest rates of up to 379%, and the tribe’s status as a sovereign nation allows it to ignore a Montana law that caps interest rates of 36%.

The arbitrator awarded the Chippewa Cree $1.1 million and voided the fee agreement after ruling that Encore was aware the terms of its fee agreement with the tribe were meant to conceal the facts and deceive tribal members who might have objected.

The tribe had sought $13.1 million from Encore, which amounted to the full amount the company allegedly took from Plain Green plus what the tribe claims was siphoned by Encore from another online lending company called First American Capital Resources.

Encore helped set up and manage First American Capital Resources for the tribe starting in 2010. The tribe claimed Encore’s owners didn’t deliver on promised investments, mismanaged the company and awarded contracts to shell companies that performed no services.

But the arbitrator ruled the tribe was owed only the money passed on from Encore to the tribal members, and denied their other claims.

The tribe then filed a lawsuit in U.S. District Court seeking the full $13.1 million. The lawsuit names Encore and its owners as defendants, but not Rosette, Morsette or Eastlick. Tribe attorney Richard Zack has declined to comment on the case other than, in a prepared statement, saying that the tribe will vigorously pursue the court action.

Eastlick will be sentenced this month after pleading guilty in May to bribery and theft in separate criminal cases involving kickbacks to tribal leaders. Rosette and Morsette could not be immediately reached for comment.
Secret Network Connects Harvard Money to Payday Loans

Cleveland Heights lifts payday loan moratorium, pushes state to keep interest rates low

A customer enters a Payroll Advance location in Cincinnati in this 2008 photo. Cleveland Heights is lifting a moratorium on new businesses that issue payday loans without a license under the state’s Short-Term Loan Act, which caps interest limits at 28 percent.

By Chanda Neely, Northeast Ohio Media Group 
September 02, 2014 at 1:55 PM

CLEVELAND HEIGHTS, Ohio –- The city council on Tuesday plans to vote to lift a moratorium of more than a year on new businesses that issue payday loans without a license under the state’s Short-Term Loan Act, which caps interest limits at 28 percent.

City Manager Tanisha Briley said the city is forced to lift the moratorium after the Ohio Supreme Court in June ruled companies could issue payday loans using a mortgage lending license, under which they can charge triple-digit interest rates — an average of 367 to 390 percent, according to the city.

Council on Tuesday also will vote on a resolution requesting the state legislature to require all payday lenders to operate under the Short-Term Loan Act.

“In 2008, the lenders went to the voters and tried to get that Short-Term Loan Act repealed and the voters told them no. They thought the limit should be set at 28 percent,” Mayor Dennis Wilcox said.

Payday loans are short-term loans usually due on the borrower’s next payday. Council declared the moratorium in June 2013 while the Ohio Supreme Court weighed whether a payday loan company was fraudulently operating using a mortgage lending license in the Neighborhood Finance vs. Scott case.

In 2008, Rodney Scott took out a $500 loan from a Cashland store in Elyria. When he didn’t repay the loan within two weeks, Cashland sued him. Fees and interest on the loan totaled an annual percentage rate of 245 percent.

But Ohio Neighborhood Finance wasn’t doing business under that law. Like many other payday loan businesses, Ohio Neighborhood Finance registered under the Mortgage Lending Act.

“Payday lenders are predatory by nature. They prey on those of us that have less. They prey on those of us that can least afford to be taken advantage of,” councilman Jason Stein said when the city enacted the moratorium last year. “Payday lenders are not welcome in Cleveland Heights.”

Stein could not be reached for comment Tuesday.

At least two short-term loan companies operate in Cleveland Heights — Check Into Cash on South Taylor Road and Loan Max on Cedar Road –- neither of which offers payday loans, employees said Tuesday afternoon. Both offer title loans, charging as much as 24.9 percent interest. Check Into Cash also offers installment loans with up to 8.5 percent interest.

Regulatory staff urges no ban for Missouri payday lenders accepting utility payments

BY STEVE EVERLY  THE KANSAS CITY STAR

The push in Missouri to ban payday lenders from accepting utility bill payments has suffered a setback.

In a report filed this week, the staff of the Missouri Public Service Commission recommended no ban, saying that legal authority to stop the practice was questionable. The report also said no specific evidence was presented that consumers were being harmed.

“Staff recommends it not promulgate or initiate a rule making” said Natelle Dietrich, director of tariff, safety, economic and engineering analysis at the agency, which regulates utilities.

Those pushing for a ban contend that utility customers who fall behind on bills are vulnerable to payday lenders who charge exorbitant interest rates. They blasted the staff report and now hope that a majority of the agency’s five commissioners, who are not required to accept staff recommendations and sometimes don’t, will decide to proceed with a ban.

Some payday lenders in Missouri are authorized to accept utility payments, a practice that critics see as harmful to poor customers. | File photo/The Kansas City Star

John Coffman, an attorney for the Consumers Council of Missouri, said the staff was mistaken in believing that state regulatory authority was questionable. After all, he said, it oversees the billing practices of utilities that are authorizing payday lenders to accept payments for them.

“I think they’re off base, and I think the commission will see it the same way,” he said.

Mary Still, a retired state legislator and longtime critic of payday lenders, said she will be disappointed if regulators accept the staff’s recommendation.

“I hope they understand this is very detrimental to working people,” Still said. “Everyone knows this.”

Utilities defend using payday lenders as the best and most convenient option for some customers. And payday loan companies argue that very few utility customers paying their bills also take out a loan.

Most utility customers pay their bill by mail or online. But a small percentage don’t have a bank and have to pay in cash.

KCP&L said 2.6 percent of its customers now use walk-in authorized pay stations, such as grocery and convenience stores. But the utility has an arrangement with eight authorized pay stations in Missouri and one in Kansas that offer check cashing services or payday loans. The utility said they are used because they are the only option in those areas.

The issue has simmered for years in the state. In 2009, the commission staff reviewed the arguments and didn’t recommend that utilities stop using payday lenders. In 2011, regulators said the relationship between the lenders and utilities was a concern, but it wouldn’t seek to ban them. State regulators subsequently said they wanted another review.

This week’s staff report said it was sensitive to concerns about possible abuse by payday lenders, and it did say that pay stations authorized by utilities could arguably be subject to regulation. However, the staff said, it had no specific evidence of harm to consumers, such as complaints to utilities. So why stop a practice that may or may not be a problem in the future?

It also said that payday lenders that are unauthorized pay stations — and there are some not connected to utilities that accept payments and pass them on — are clearly outside the jurisdiction of regulators. They also don’t have authority to address whether payday lenders are predatory.

“Perhaps the greatest single obstacle to regulation by the commission of the use of payday lenders as utility pay stations is the fact that such lenders are engaged in an entirely lawful, even if distasteful, business,” according to the report.

Berta Sailer, co-founder of Operation Breakthrough, a Kansas City social services group, said the staff’s argument about the lack of evidence didn’t make sense. There may not be complaints to utilities, but she has seen what can happen to families in desperate straits who get mired in debt from high-interest loans.

“When you have kids who are cold in the winter, you’ll get a loan you can’t afford,” she said.

Column: New Mexico needs interest rate cap

By Gary K. King, New Mexico Attorney General

UPDATED:   08/23/2014 12:26:58 AM MDT

It is time for New Mexico to enact a usury cap at 36 percent for all loans to protect ourselves against exorbitant interest rates and abusive lending practices. Some time ago, the U.S. Department of Defense adopted a 36 percent annual rate cap to protect the military and their families from abusive and predatory lenders. New Mexico should do no less for its other citizens.

Many people believe that our laws already prohibit high-cost lending and that a usury cap exists to prevent abuse in the credit market; not so. Until 1981, New Mexico did cap interest rates for small consumer loans at the rate of 12 percent per year. However, under pressure from lenders, the legislature changed the law — which gave rise to a burgeoning statewide high cost lending market for payday loans, car title loans, and installment loans — charging 100% to over 1,000 percent — that continues to grow to this day.

As Attorney General, I successfully sued high cost lenders making loans at 580 percent to 1,500 percent; a twelve month loan of $100 cost the borrower $580 to $1,500 in finance charges. In one case recently brought by my office against two specific lenders, the New Mexico Supreme Court declared the companies’ lending practices and the loans themselves — made at annual interest rates in excess of 1,000 percent per year — unconscionable and illegal under state law. The court found that these loans were grossly disproportionate to their price, that the companies took advantage of the borrowers and that the companies tried to made an end run around legal protections. The court ordered that restitution be paid to all borrowers who took out loans from these companies. This landmark case is the first step in stopping the abusive lending practices that are now common here. For the future, the genie can be put back in the bottle; if only our law and policy makers will act to reinstate a usury cap.

State statistics show more than 100 million dollars was paid in interest and fees in New Mexico in 2012. Seventy-five percent of the companies that profit from these fees are out-of-state businesses. These companies target single parents, the working poor, those on fixed income, veterans, and Native Americans. The facts show that most loans are taken out to pay monthly expenses because a family’s income is inadequate to meet basic needs. These lenders also claim that these are “one-time” loans. However, the evidence in our trials and the admissions of industry representatives prove that the companies’ profit depends on keeping borrowers in debt by persuading them to refinance, extend, or renew their loans over a period of years. Training documents produced by one company demonstrate that “cycle of debt” is the company’s business model.

Other states have acted to cap rates to protect their consumers. A poll conducted this year shows high support in New Mexico for a 36 percent interest rate cap. Though we have made significant strides in court, the final solution will require action by the legislature and governor.

Gary King is running for New Mexico governor against incumbent Susana Martinez.

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