Krista O’Donovan, et al. v. CashCall, Inc., et al.

The case of Krista O’Donovan, et al. v. CashCall, Inc., et al. arose from allegations that CashCall engaged in predatory lending by offering unsecured consumer loans with high interest rates and enrolling borrowers in electronic fund transfers (EFT’s) for repayment. The plaintiffs argued that these practices violated California’s Unfair Competition Law (UCL), the Consumer Legal Remedies Act (CLRA), and other statutory protections.

CashCall, in its defense, argued that its lending model complied with the law and that borrowers knowingly entered into agreements with clear disclosures of interest rates and repayment terms. The company maintained that it was transparent about loan terms and that its practices did not constitute deception or illegality. Additonally, CashCall argued that EFT’s are routine in the banking industry and that their customers preferred to make repayments digitally.

Manatt, Phelps & Phillips, representing Cash Call, asked The Bureau to analyze the quality of the disclosures made to customers by CashCall and study consumer behavior with respect to the servicing of loans. Additionally, The Bureau was asked to evaluate the policy of automatic enrollments into making payments via EFT. 

The opinion proffered by the Bureau regarding EFT enrollment was ultimately cited by the court (link). Enrollment into EFT’s involved a policy of libertarian paternalism, where borrowers were placed into repayment by EFT (the default option) with the ability to opt out at any time and make payment through other channels. Later, CashCall changed its policy to involve an active decision at initiation of the loan, in which customers were not placed into EFT by default, but were rather given the choice of which payment method to use. The Bureau performed an analysis that showed that whether libertarian paternalism or an active decision was used, the same very high fraction of borrowers utilized EFT.