On November 16, 2017, the CFPB filed suit in Montana federal court against Think Finance for activities connected to its tribal-affiliated internet lending business. Think Finance worked with lenders owned by Native American tribes to offer small-dollar loans to consumers that the Bureau alleges are void under state law. This suit came on the same day that the upcoming departure of Director Richard Cordray became public, an indication perhaps that Bureau leadership may believe that the aggressive theories of the case (discussed below) would not be pursued under new leadership. Think Finance declared bankruptcy in Texas federal court three weeks ago, so the CFPB filed may have filed suit to ensure that it could be a creditor. As indicated by the recent bankruptcy action, Think Finance may not have the resources to defend itself in this action.
The CFPB’s complaint initially follows the same basic theory that the Bureau relied on for its 2013 suit against CashCall, which is being litigated in federal court in California. Specifically, the complaint alleges that the loans made by Think Finance were void under state usury or licensing laws, and therefore it was an unfair, deceptive, and abusive act or practice for Think Finance to collect on such loans.
However, in a departure from the CashCall case, the Bureau added a fourth count, arguing that Think Finance, based on its extensive role in controlling and administering the lending program, aided and abetted the tribal entities in those entities’ commission of UDAAP violations. The “substantial assistance” count rests on a conclusion by the Bureau that the tribal entities are “covered persons” under Dodd-Frank and that the Bureau could prove that the tribal entities themselves (who are not named as defendants) violated the law by collecting on debts made without regard for state usury and licensing laws.
This is the second recent case where the Bureau has pursued a theory that online tribal lenders must comply with state law, the first being an April action against four California-based tribal lenders. The Bureau appears eager to establish precedent on this question, but it is unclear whether a new Director would agree with these arguments in future cases, or even continue litigating these pending cases.