In the carnival that is the U.S. financial services industry, a product has to be pretty rickety before it is shut down by regulators. After all, any schmoe with a couple of Benjamins to rub together can still sign up for some Bitcoins, a timeshare, or an adjustable rate mortgage.
So our interest was piqued this week when New York Attorney General Eric Schneiderman sued to shut down a lender called Western Sky Financial. The legal battle promises to be complex and interesting because Western Sky claims to be owned by a member of the Cheyenne River Sioux Tribe and thus not subject to U.S. laws. Schneiderman, in turn, argues it’s simply a corporation registered in South Dakota.
So how rickety are Western Sky loans? Very, according to a quick Web search this morning.
Its $10,000 loan has a listed annual interest rate of 89.68 percent; 89 percent of the gangsters watching the Whitey Bulger verdict yesterday would likely give better terms. If a borrower were to pay it off over the seven-year period Western Sky prescribes, they would fork out $62,453 for the $10,000. (Well, for the $9,925 loan, once the $75 processing fee is factored in.)
That’s the company’s “best” offer. Its smallest listed loan carries a 343 percent annual interest rate. Under Western Sky’s terms—and once a $350 processing fee is factored in—borrowers would pay $2,159 for $500 up front.
In comparison, New York’s interest rate cap is 25 percent. Here’s the sad thing: People are taking these terms. Schneiderman’s filing says at least 17,970 New Yorkers have borrowed of $38 million from Western Sky. In total, they owe $185 million. Schneiderman, however, is looking to cancel those debts and even claw back all interest payments over 16 percent.
