Copyright 2014

Arkansas Attorney General Announces Settlement With Online Payday Lender

On June 24, 2016, Arkansas Attorney General Leslie Rutledge announced a settlement agreement with payday lender, Western Sky Financial LLC, and loan servicer, CashCall Inc., to resolve allegations that the companies conspired to offer illegal online loans to Arkansas consumers while claiming to be shielded by tribal sovereign immunity.

According to the Arkansas Attorney General, Western Sky and its affiliates violated the Arkansas Deceptive Trade Practices Act and the state constitution by charging loans with interest rates far beyond the 17 percent annual rate allowed under state law.  Arkansas residents were offered loans by the defendants ranging from $850 to $10,000, with annual percentage rates in a range between 89 percent and 342 percent, according to the statement.

Western Sky, which claimed to be affiliated with the Cheyenne River Sioux Tribe, was involved in the loan scheme in an effort to use tribal sovereign immunity to avoid state jurisdiction, according to the settlement. While Western Sky identifies itself as a tribal entity protected by sovereign immunity, it does not have that immunity because it is not owned or operated by a tribe, the state said in the statement.

Under the terms of the settlement, Western Sky Financial, CashCall, WS Funding, CashCall and WS Funding owner J. Paul Reddam, and Western Sky owner Martin A. Webb will pay $500,000 to state consumers and $250,000 to a state fund that supports consumer protection education and enforcement.  The entities may not offer, fund or collect upon any loan with an interest rate in excess of the maximum rate set out in Arkansas law.  Additionally, the settlement voids all current, delinquent, defaulted, charged-off or outstanding lending transactions entered into with Arkansans.  The deal settles a suit filed by former state Attorney General Dustin McDaniel in state court in October 2013.

The deal is one of several Western Sky and its affiliates have reached with state authorities in recent months.  In May, the state of Nebraska announced it had reached an over $1 million settlement agreement with Western Sky, CashCall and others that will require the companies to pay restitution to borrowers for charging illegally high interest rates.

You can follow the Consumer Financial Services Law Monitor for continued updates on this and other news stories.

The Troutman Sanders’ Consumer Financial Services Law Monitor blog offers timely updates regarding the financial services industry to inform you of recent changes in the law, upcoming regulatory deadlines and significant judicial opinions that may impact your business. To view the blog, click here

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Before the Loan: 13 Myths to Bust About Online Small Business Lending

Think you cant get funding for your small business online?

While there are pros and cons to any small business lending option, the fear of online lending is usually due to myths about the process itself.

Here are 13 of the most common myths about online lending for small businesses and the facts about the actual process.

1. It Takes too Long to Get Approved

This is no longer the case when it comes to getting a small business loan. Depending on the type of loan you are applying for you can get funding in as quick as 24 to 48 hours.

Related Article: Applying for an SBA Loan vs. Funding From an Alternative Online Lender

2.  Startups Can't Get a Loan            

Startups are generally classified as businesses that have been in business for less than two years. If you are a brand new business you can qualify for business lines of credit if you have a good personal credit and history before you open the doors to your business. If you have already been in business you can get a loan in as soon as three months.

3. Online Lending Is a Scam

The online small business lending space has grown significantly over the last few years. The majority of the online lenders are now backed by large venture capitalist and hedge funds. The online lending space is as good as going to your bank and getting a loan.

4. All Online Lending Is Expensive

Depending on the type of loan you apply for and your risk classification it can be expensive. There are online lenders that offer rates in the mid to high single digits if you qualify.

5. It's All Based Off Your Credit Score

A credit score is not the main determining factor in getting you qualified. The overall health of your business is taken into consideration. If your business is generating the minimum monthly revenue of what a particular lender requires. You can qualify for a loan with a credit score as low as 500.

6. A Computer Decides if I Qualify

There are some lenders who do use an algorithm to decide who qualifies. This is not the case for all online lenders. Many still use a person to underwrite their loans and will have a phone interview with the borrower to make sure it is a good fit, lender that use an algorithm will do this as well. 

7.  I Can't Get a Small Loan

There really isn't a loan amount that you can't get online. When getting loans with daily payments you can get loans as low as $3,000. If you need a loan lower than that you can apply for business lines of credit, which start as low as $500. 

Related Article: Bank Loan Request, Denied: Who Will Help Fund Your Business Now?

8. If One Online Lender Denies Me They All Will

Just like your local banks, online lenders all have different criteria and risk assessments they are willing to accept to lend money. If one lender denies you there is often another lender that will have a lower risk tolerance that will be willing to lend you money.

9. Online Lenders Don't Care if I Can't Make a Payment and Won't Work With Me

There are lenders that offer daily payments that can increase and decrease with your daily sales. This flexibility allows you to pay more when you're doing well and pay less when business is slow.

10. I Need a Business Plan to Get a Loan

The days of applying for a loan and being asked for a business plan are virtually over. Unless you are applying for an SBA loan the chances of you being asked for a business plan are very slim. Lenders really just need to see that the revenue your business is generating is enough to cover your businesses operating expenses and pay back the loan in the desired term.

11. I Can't Get a Term Loan Online.  All Loan Are Only a Few Months

There are several online lenders that offer one to five-year term loans online. You can even apply for an SBA loan online with business loan terms up to 10 years or 25 years if real estate is involved. You might not be able to apply for these loans after only being in business a few months, but after two years in business, you can apply for just about every loan product you can find offered online.  

Related Article: 5 Reliable Tips for Selecting the Right Business Loan

12. If I Ask for Too Much Money They Will Automatically Deny Me

Lenders will not turn you down if you ask for too high of a loan amount. If the request is too high for what the lender thinks you can pay back and all else checks out OK, the lending company will offer a loan amount and terms which they feel you can afford to pay back and still operate your company successfully.

13. Online Loans Are Only for People Who Can't Get a Loan From Their Bank

This is not true. Online lenders often tend to be more flexible than a bank would be and can usually fund much quicker, often within days. The flexibility and speed at which online lenders can operate make them a better option at times for businesses that can also qualify for loans at their local bank, which can take weeks.



ACWF Decries Nude Photo Collateral of Female University Students

Online loan sharks in China have found an unconventional way of guaranteeing loans - they demand female college students send nude photos of themselves holding their ID cards as collateral for high-interest loans, the Southern Metropolis Daily reported on June 27.

The private lenders threaten to make the photos public or send them to the women#39;s parents if they fail to repay their loans on time.

One of the borrowers told the newspaper that she first borrowed 500 yuan (US$ 75) from an online loan provider with a weekly interest rate of 30 percent.

She kept taking out new loans to pay off old ones and her debt snowballed to 55,000 yuan (US$ 8,300) when the lender demanded a nude photo of her as a guarantee for new loans.

The report soon caused a sensation online, attracting a lot of attention.

The All-China Women#39;s Federation (ACWF), the largest women-focused NGO in China, recently issued an announcement about the phenomenon.

Demanding nude photos as loan collateral is illegal and it should be cracked down on, the organization claimed.

Such #39;nude photo collateral#39; reflects that some web-based lenders need strengthened supervision. To force female university students to pay exorbitant interest rates with nude pictures constitutes an invasion of personal privacy and even blackmail,read the document.

Cyberspace is not a lawless place. We call upon public security departments, financial regulation authorities and internet supervision institutions, among many others, to resolutely fight against such illegal online loans among college students, said the ACWF officials.

Meanwhile, female university students should have rational consumption and live within their means, it was suggested. Once finding yourself under threat, ask for help from your teacher, parents or classmates, or call the police when necessary, the announcement instructed.

Furthermore, the ACWF criticized the inappropriate behavior of some media outlets using pictures of the female students without covering their faces and ID information. The officials advocated that media professionals respect the privacy of the victims and protect them from further harm caused by improper reports.

China Women#39;s News, the official newspaper of the ACWF, stressed that loans must be sought from official financial institutions. Females in need may apply for small loans offered by the ACWF to help women#39;s employment and entrepreneurship, the reporter recommended.

As of March 2016, the ACWF#39;s charity project has granted government-subsidized loans totaling around 268 billion yuan (US$ 40.3 billion), benefiting over 5.24 million women around the country.

(Source: Women#39;s Voice/Translated and edited by Women of China)



This Financial Giant Will Challenge Square and OnDeck With Small Business Loans

American Express is expanding into the lending business for small businesses, according to a new report from Bloomberg.

The financial giant will debut a new lending arm, called Working Capital Terms, which will make online loans to small businesses who use American Express credit cards. Loans will range from $1,000 to $750,000, and interest will be tacked on at a rate of 0.5% for a 30-day loan to 1.5% for a 90-day loan, Bloomberg reported.

Online lending is a space that existing financial technology companies where have been attempting to grow, but investors have been skeptical. Square, the San Francisco payments company led by Twitter co-founder Jack Dorsey, has seen growth in Square Capital, its lending arm which provides cash advances to merchants using Square's point of sale service. Square recently announced that it would be expanding into traditional online loans, with fees between 10% to 16% of the amount borrowed.

Square sq previously saw success with cash advances. The company revealed that it made $400 million in cash advances in 2015. But in its first quarter 2016 earnings report, Square admitted it experienced "challenging credit market conditions" and also reported delays in signing new investors to back its fledgling lending business.

OnDeck Capital, which recently inked a deal with JP Morgan jpm to help issue loans for the banks small business customers, also has had trouble convincing investors. OnDecks stock has fallen nearly 60% over the past year.

What American Express axp has in its favor is a wealth of data that can help it make better credit decisions. Because the loans are being issued to existing credit card companies, AmEx can view data such as how quickly balances are being paid and credit worthiness.

"AmEx can do this because they have good credit knowledge," said Karen Mills, the former head of the Small Business Administration and adviser for American Express on its lending program, to Bloomberg.

For more on JP Morgan, watch:

Arkansas Settles Suit Against Online Payday Lenders

By Andrew Westney

Law360, New York (June 27, 2016, 4:58 PM ET) -- Payday lender Western Sky Financial LLC, loan servicer CashCall Inc. and others have agreed to pay $750,000 to resolve allegations they conspired to offer illegal online loans to Arkansas consumers while claiming to be shielded by tribal sovereign immunity, the states attorney general said Friday.

Arkansas Attorney General Leslie Rutledge said in a statement that the state had reached an agreement for Western Sky Financial, CashCall, WS Funding, CashCall and WS Funding owner J. Paul Reddam, and Western Sky owner Martin A. Webb to pay $500,000...