On January 31, the Virginia Attorney General issued a press release announcing a settlement with CashCall, Inc., a small-dollar online lender that allegedly engaged in illegal lending practices.

According to the Virginia Attorney General’s complaint , CashCall engaged in a “rent-a-tribe” scheme, using a South Dakota company with a purported Native American tribe affiliation called Western Sky Financial, LLC as a front for marketing and offering high-cost installment loans. CashCall used the tribal affiliation to deceive Virginia consumers into believing that neither state nor federal laws applied to its loans and that its excessive interest rates were lawful. According to the Virginia Attorney General’s complaint, CashCall allegedly charged consumers interest as high as 230% annually, well above Virginia’s maximum annual interest rate of 12%.

The Virginia Attorney General argued that CashCall is subject to Virginia’s usury laws and that CashCall cannot lawfully collect interest in excess of 12% per annum. As such, the complaint alleges that CashCall violated the Virginia Consumer Protection Act by misrepresenting that:

Western Sky is a Native American business entity;

Western Sky loans are not subject to federal laws or the laws of Virginia;

Western Sky loans were subject only to the laws and jurisdiction of a Native American tribe;

Western Sky was the true lender on CashCall’s Virginia loans; and

Western Sky and CashCall could lawfully charge more than 12% annual interest in Virginia.

Under the terms of the settlement , CashCall must pay $9.435 million in restitution to approximately 10,000 Virginia consumers who were charged illegal interest. CashCall must also forgive approximately $5.9 million in outstanding loans and take appropriate steps to make credit reporting corrections for affected consumers. In addition, CashCall is required to pay $100,000 in civil penalties and attorney’s fees to the Commonwealth of Virginia. Finally, CashCall is permanently barred from charging more than 12% annual interest without qualifying for a usury law exception.

According to the Virginia Attorney General, the settlement is the largest settlement that its Predatory Lending Unit has secured against an online lender.