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Iowa Department of Inspections and Appeals Division of Administrative Hearings Wallace State Office Building Des Moines, Iowa 50319 ____________________________________________________________ In the Matter of: ) ) DIA Nos. 12IDB002, 13IDB001 CASHCALL, INC. ) IDOB Nos. 2012-NRR 2003-0154 1600 South Douglass Road ) 2012-NRR-2012-0099 Anaheim, CA 92806 ) ) RULING ON WHETHER Respondent. ) LOANS AT ISSUE ARE ) SUBJECT TO IOWA LAW ____________________________________________________________ Pursuant to a joint motion of the parties, hearing on the Statement of Charges filed against Respondent CashCall, Inc. by the Iowa Division of Banking (the Division) was consolidated with the hearing requested by Respondent on the denial of its applications for Nonresident Regulated Loan Company licenses. The State later filed an unresisted Motion to Sever Proceedings, resulting in the division of this proceeding into two parts: 1) a hearing regarding the threshold question of whether loans made and/or serviced by Respondent are subject to Iowa law; and 2) a hearing regarding application of Iowa laws (if the loans at issue are found to be subject to Iowa law), any remaining issues regarding grounds for discipline and/or license denial, and the appropriate level of discipline and amount of restitution owed by Respondent, if any. The parties later agreed to submit the first issue – whether the loans made and/or serviced by Respondent are subject to Iowa law – without evidentiary hearing pursuant to 187 Iowa Administrative Code 11.30. At a status conference on May 30, 2013, the parties agreed upon the documents to be included in the record. Each party submitted an initial brief and a reply brief.1 After submission of the briefs, oral argument was held on July 26, 2013. The parties included exhibits with their briefs, some of which had not been included at the time of the May 30 status conference when the parties agreed upon the documents to be admitted into the record. The parties agreed at oral argument that the record would consist of: 1) the parties’ joint Stipulation and Exhibits A through M; 2) State’s Exhibits 1 through 9; and 3) Respondent’s Exhibits 1 through 4.2 Several of the exhibits submitted are affidavits. The parties represented 1 Respondent captioned its initial brief as a Motion to Dismiss. Both parties previously agreed, however, that the issue of whether the loans at issue are subject to Iowa law is not necessarily dispositive for purposes of these actions. Additionally, the parties agreed to submit the threshold issue of the applicability of Iowa law on stipulated facts after briefing and oral argument. Consequently, CashCall’s document entitled Motion to Dismiss is not being treated as such. As the State correctly notes, the Motion to Dismiss here goes beyond the pleadings. Finally, one of the actions here – the appeal of the license denial – was actually initiated by CashCall. CashCall presumably does not wish to have that action dismissed. 2 Respondent’s exhibits were numbered differently when they were submitted for purposes of the May 30 status conference. For convenience, the numbering used for purposes of this DIA Nos. 12IDB002, 13IDB001 Page 2 that the facts in any affidavits submitted are not uncontested. The parties agreed that the affidavits would be considered in the context of the stipulation and other documents in the record in order to make a determination regarding the accuracy or veracity of the facts asserted therein, if necessary. FINDINGS OF FACT Relationship between CashCall, Inc., Western Sky Financial, LLC, and WS Funding, LLC Western Sky Financial, LLC (“Western Sky”) is a limited liability company organized under the laws of the State of South Dakota. Western Sky is wholly owned by Martin Webb, an enrolled member of the Cheyenne River Sioux Tribe (“Tribe”). The Tribe is a federally recognized Indian tribe. Western Sky maintains a Cheyenne River Sioux business license.3 The Tribe does not have a corporate organizational statute. Western Sky is not owned or operated by the Tribe or any of its political subdivisions. (Stip. ¶ 8). Western Sky does not maintain a physical presence in Iowa. Western Sky’s facilities are located entirely within the external boundaries of the Tribe’s reservation. (Stip. ¶¶ 10, 11). All of Western Sky’s employees, facilities, and operations are located on the Tribe’s reservation. (Stip. ¶ 11; Resp. Exh. 3 ¶¶ 6-9, 14). Western Sky has approximately 53 employees, many of whom are enrolled tribal members. (Resp. Exh. 3 ¶ 9). WS Funding, LLC (“WS Funding”) is a wholly-owned subsidiary of CashCall. Pursuant to Western Sky’s agreements with CashCall and WS Funding, WS Funding purchases all of the loans made by Western Sky and CashCall provides certain services to Western Sky. CashCall services the loans made by Western Sky and owned by WS Funding. Under the agreements between these entities, Western Sky sells all of its Iowa loans to WS Funding. WS Funding receives the notes in “like-new” condition – the agreement stipulates that no payments will have been received on the notes and that the balances due are equal to face value. The sales generally occur within three days of the loan date, but can take up to seven days. (Stip. ¶¶ 5, 7; Exh. A ¶ 7(c)). The agreements between these entities require WS Funding to maintain a reserve account at a balance sufficient to fund two days’ worth of purchased notes (as determined by the last month’s daily average), and to fund the account with an initial $100,000 deposit. Western Sky debits the account daily “for payment of purchased notes assigned to [WS Funding] and to fund any unpurchased or unfunded Notes which were executed by makers prior to [the end of the Agreement].” (Exh. A ¶ 8). decision will reflect the numbering Respondent used when attaching the exhibits to its briefs. 3 The Cheyenne River Sioux Tribe Business License which was submitted by the parties provides on its face that, “[h]aving made proper application[,] [t]his business license is hereby issued to the person named. This Business License enables this person to transact whatever business or activity is specified on application until this Business License expires or is cancelled.” (Stip. Exh. I). DIA Nos. 12IDB002, 13IDB001 Page 3 Under the agreements, WS Funding also provides Western Sky with money ($10,000/month minimum) to cover operating expenses. Additionally, WS Funding is obligated to reimburse Western Sky for “any and all fees associated with such assignment and purchase, including but not limited to any additional office or personnel costs to Western Sky Financial, ACH, wiring or other bank fees, if any, upon presentation of invoice.” WS Funding also covers costs associated with Western Sky’s server and indemnifies Western Sky. (Exh. A ¶¶ 5, 6, 8, 11). Iowa Loans Issued by Western Sky The Iowa Division of Banking issued Iowa Nonresident Regulated Loan Company license No. NRR 2003-0154 to CashCall, Inc. on October 23, 2003. The license is active through December 31, 2013. (Stip. ¶ 1). Division examiner Randy Johnson conducted an examination of CashCall’s business pursuant to Iowa Code section 536.10. Johnson reviewed loans made from January 1, 2009 through July 5, 2012. There were 1,231 loans to Iowa consumers in CashCall’s portfolio for that time period; Johnson reviewed 52 of the loans. All of the loans reviewed were originated by Western Sky Financial and became part of CashCall’s portfolio as a result of the agreements between Western Sky, CashCall, and WS Funding described above. (Stip. ¶¶ 2-4). In a typical loan transaction, a potential Iowa borrower contacts Western Sky over the telephone or via the internet to apply for a loan. Western Sky communicates its approval or denial of a borrower’s loan application – based on its own underwriting system – by phone or internet. If a borrower decides to accept the loan terms proposed by Western Sky, the borrower signs the loan agreement with Western Sky electronically. When the loan is approved, Western Sky deposits money into the borrower’s bank. All communications between Iowa borrowers and Western Sky, CashCall, and WS Funding occur via mail, over the telephone, or through the internet. (Stip. ¶¶ 20-24). A standard Western Sky loan agreement, of the type found in the portfolio serviced by CashCall, provides as follows regarding choice of law and jurisdiction: 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 further agree that no other state or federal law or regulation shall apply to this Loan Agreement, its enforcement or interpretation. Governing Law. This Agreement is governed by the Indian Commerce Clause of the United States of America and the laws of the Cheyenne River Sioux Tribe. We do not have a presence in South Dakota or any other DIA Nos. 12IDB002, 13IDB001 Page 4 states of the United States. Neither this Agreement nor Lender is subject to the laws of any state of the United States of America. (Stip. ¶ 25; Exh. C, pp. 1, 3). Complaint A customer, Customer A, filed a complaint with the Division regarding the terms of his loan with CashCall. Using a computer in Iowa to submit the loan application, Customer A borrowed $2,525 from Western Sky on March 9, 2011. The loan carried an interested rate of 135% which, when combined with additional costs of the loan, came to an annual percentage rate of 139.32%. On March 12, 2011, Customer A was notified that his loan had been transferred to WS Funding and would be serviced by CashCall.

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