Division Of Banks Told That Hearings Are Not Optional

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A Superior Court judge recently expressed little patience with the Massachusetts Division of Banks’s (the “Division’s”) failure to hold a hearing prior to issuing cease and desist letters, calling it “disturbing” that two statutes requiring hearings “were completely ignored by an absolutist and overbearing executive department.”

In Cashcall, Inc. v. Massachusetts Division of Banks, 2015 WL 517531 (Superior Court, September 1, 2015), the Plaintiffs challenged the Division’s letters, which stated that the Plaintiffs had: (i) engaged in a small loan business without a license (see G.L. c. 140, §§ 96, 110); (ii) acted as a debt servicer without registering to do so (see G.L. c. 93, §§ 24-24G); and (iii) violated the criminal usury statute (see G.L. c. 271, § 49). The letters directed the Plaintiffs to stop collecting on loans to Massachusetts residents, refrain from transferring the loans, refund all interest charges and fees from the loans received during the last four years, and submit a list of borrowers to whom reimbursement was owed. See id.

The Court first grappled with jurisdictional questions related to the originating lender’s status as: (i) wholly owned by a member of the Cheyenne River Sioux Tribe (the “Tribe”), (ii) licensed by the Tribe, and (iii) situated on a South Dakota reservation. See 2015 WL 5173531 at **1. The loan agreements, including interest rates as high as 139 percent per annum, stated that the loans were governed by the Indian Commerce Clause of the United States Constitution and the laws of the Tribe. Additionally, the borrowers, who had applied for and obtained the loans over the Internet or by telephone, contractually consented to jurisdiction of the Cheyenne River Sioux Tribal Court and agreed to arbitration by the Cheyenne River Sioux Tribal National. See id.

Plaintiffs WS Funding LLC and CashCall, Inc., the California corporations who had respectively bought and serviced the loans, claimed that the Division had no regulatory authority in the context presented. See id. at *2. The Court was unconvinced, and held that Massachusetts statutes applied to the subject loans because: (i) “[a]ll the loans were applied for, paid from, and collected from Massachusetts,” (ii) the originating lender had “reached well beyond the reservation’s boundaries to transact business with Massachusetts residents,” and (iii) the relevant statutes were non-discriminatory and apply to all conducting business in Massachusetts. Id. at *3. Moreover, the borrowers’ consent could not contractually confer jurisdiction on tribal courts, which “utterly lack jurisdiction” over matters unrelated to either “on-reservation activity” or protection of tribal self-government or internal relations. See id. at *3.

Having held that the Division had jurisdiction to act, however, the Court swiftly determined that it was nonetheless without authority to do so without first holding a hearing as required by the plain language of G.L. c. 140, § 106 and G.L. c. 93, § 24(j)(c).

“A hearing in this context is a fundamental, statutorily-created procedural right,” the Court wrote. Unimpressed by the Division’s argument that a hearing was unnecessary because no facts were in dispute, the Court held: “The plaintiffs were entitled to a hearing, and they shall have one.” In conclusion, the Court “respectfully suggest[ed] that such a hearing be held as expeditiously as possible.” Id. at *4.


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