A judge in the U.S. District Court for the Central District of California recently ordered the defendants in CashCall, Inc. (which included CashCall Inc.’s CEO Paul Reddman) to pay $134 million in restitution and $33 million in civil penalties. The decision comes after the Ninth Circuit affirmed the district court’s 2016 award of summary judgment to the CFPB, finding the defendants had violated the Consumer Financial Protection Act [CFPA].  

Specifically, the district court held that the defendants had engaged in deceptive practices by making unsecured high-interest loans to consumers through a tribal lending program in an effort to avoid state usury and licensing laws. The district court held, and the Ninth Circuit agreed, that the attempts to make the loans subject to the law of the Tribe was invalid at inception because “the Tribe had no substantial relationship to the transactions,” thereby subjecting the loans to the laws of the consumer’s resident state. The Ninth Circuit also affirmed the district court’s ruling that CashCall’s CEO was individually liable under the CFPA because he participated directly in and had the ability to control the corporate defendants’ conduct.

On remand from the Ninth Circuit, the district court was instructed to: (1) impose a tier-two civil penalty award (rejecting the initially assessed $10 million tier-one penalty) for every day after the point at which it determined the defendants’ violation was at least reckless; and (2) reconsider the availability of restitution.  Accordingly, the district court performed the same exercise it had when assessing a tier-one penalty (applying the maximum available for each day of violation) by using the maximum tier-two per diem amounts from the date identified and calculated a civil penalty of $33,276,264.  

The district court also held that an award of restitution was appropriate and sufficiently calculable by the evidence the CFPB provided, but declined to award the $197 million in restitution requested by the CFPB.  In so doing, the district court did not allow restitution as to interest and fees for any consumer “who paid CashCall less than the consumer received in principal,” characterizing such restitution as a “windfall” that would “overcompensate them for their loss.”  Over the defendants’ objection, the district court adopted the CFPB’s calculation of restitution, absent such “windfall” interest and fees, and awarded $134,058,600 in restitution.

The defendants also unsuccessfully tried to raise the argument, previously rejected by the Ninth Circuit as untimely raised, that the CFPB’s enforcement action should be enjoined because the agency’s funding contravenes the Constitution’s separation of powers by violating the Appropriations Clause, encouraging the district court to follow the Fifth Circuit’s ruling in Community Financial Services Association of America, Limited v. Consumer Financial Protection Bureau.  

The district court denied the defendants’ request, holding that the Ninth Circuit determined that the constitutional challenge “can be and has been forfeited,” and the law of the case doctrine precluded the district court’s review of the issue. Notwithstanding this determination, the district court went on to posit that, if properly presented with the issue, it would reject the Fifth Circuit’s ruling as inconsistent with “’every other court to consider’ the validity of the CFPB’s statutory funding provisions.”


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