Cfpb v. Cashcall, Inc.
35 F.4th 734
| 9th Cir. | 2022Background
- CashCall partnered with Western Sky Financial, a Cheyenne River Sioux Tribe-associated entity, to originate high-interest unsecured consumer loans online to out-of-state borrowers; loan agreements specified Cheyenne River tribal law and disclaimed state law.
- CashCall funded, purchased days-later, serviced the loans, and indemnified Western Sky; borrowers never visited the reservation and made payments from their home states.
- CFPB sued alleging CashCall and affiliates (and CEO J. Paul Reddam) engaged in an unfair or deceptive act under the CFPA by collecting on loans that were invalid under borrowers’ state law.
- The district court granted summary judgment to the CFPB on liability, found loans void under state law, imposed a tier-one civil penalty (~$10.3M), declined restitution, and held Reddam individually liable.
- On appeal the Ninth Circuit affirmed liability, concluded the CFPB action was valid despite removal-structure challenges, rejected CashCall’s invocation of tribal choice-of-law, held part of the civil-penalty period should be treated as reckless (tier two), and vacated the denial of restitution for further proceedings.
Issues
| Issue | Plaintiff's Argument (CFPB) | Defendant's Argument (CashCall) | Held |
|---|---|---|---|
| Constitutionality of CFPB enforcement (removal/ratification) | Actions valid; Director ratified filings; Collins/Seila Law allow validation | Bureau unconstitutionally structured; ratification ineffective if after appeal or statute of limitations; raised Appropriations Clause | Actions valid: Collins controls—appointments lawful so filings/appeal valid; Appropriations Clause argument forfeited |
| Choice-of-law (tribal vs. state law) | Tribe lacked substantive relationship; choice-of-law provision was a sham; apply borrowers’ state law | Loan agreements specify Cheyenne River law—loans therefore valid | Apply federal common-law choice rules; tribal law not given effect because no substantial relationship or reasonable basis; state law governs and loans are invalid |
| CFPA liability based on state-law invalidity | CFPA proscribes deceptive acts regardless of whether the underlying illegality arises under state law | CFPA cannot predicate deception liability on state-law violations (would federalize state law) | CFPA covers deceptive misrepresentations about legal enforceability; statute’s text and precedents (FDCPA analogies) permit such claims |
| Civil-penalty tier (recklessness) | District should impose tier-two penalties for reckless conduct, at least from heightened scrutiny date | No reckless or knowing violation; tier-one appropriate | District’s no-recklessness finding not clearly erroneous for early period, but from Sept 2013 conduct was reckless; vacate penalty and remand to compute tier-two penalty from that date |
| Individual liability (Reddam) | Reddam had authority and requisite knowledge or recklessness | Reliance on advice of counsel shields him | Advice-of-counsel is not a per se defense; continuing to collect after Sept 2013 was reckless—individual liability affirmed |
| Restitution availability/amount | District erred in denying restitution; restitution may be appropriate and must follow net-revenue framework | Restitution discretionary; Liu limits equitable disgorgement; district acted within discretion | Vacated denial of restitution; district misapplied law (erred treating lack of bad faith or receipt of loan proceeds as dispositive); remand to decide restitution consistent with CFPA and established burden-shifting/net-revenue principles |
Key Cases Cited
- Collins v. Yellen, 141 S. Ct. 1761 (2021) (unconstitutional removal restriction does not retroactively void actions taken by properly appointed directors)
- Seila Law LLC v. CFPB, 140 S. Ct. 2183 (2020) (single-Director removal protection violates separation of powers; severability and ratification issues discussed)
- Liu v. SEC, 140 S. Ct. 1936 (2020) (limits on equitable disgorgement to a wrongdoer’s net gains)
- Gordon v. CFPB, 819 F.3d 1179 (9th Cir. 2016) (standards for CFPA individual liability and material deceptive acts)
- Huynh v. Chase Manhattan Bank, 465 F.3d 992 (9th Cir. 2006) (federal common-law choice-of-law rules when jurisdiction rests on a federal question)
- Currier v. First Resolution Investment Corp., 762 F.3d 529 (6th Cir. 2014) (FDCPA liability may attach when debt-collection actions are invalid under state law)
- Kaiser v. Cascade Capital, LLC, 989 F.3d 1127 (9th Cir. 2021) (attempts to collect debts invalid under state law can violate federal consumer-protection statutes)
- Borden v. United States, 141 S. Ct. 1817 (2021) (definition of recklessness for culpability determinations)