New York AG Eric Schneiderman Sues Western Sky Financial For Allegedly Scamming Customers

NEW YORK, Aug 12 (Reuters) - New York Attorney General Eric Schneiderman sued an online lender on Monday that he accused of "scamming" consumers with interest rates so high that a borrower could eventually shell out more than $4,900 to repay a $1,000 loan.

The company, Western Sky Financial LLC, claims ties to the Cheyenne River Sioux Tribe in South Dakota and immunity from state and federal law.

Schneiderman, in a lawsuit filed in New York State court in Manhattan, accused the company of charging interest rates of as much as 355 percent to New Yorkers who took out personal lonas.

New York law prohibits most non-bank lenders not licensed by the state from charging more than 16 percent interest on small, unsecured loans.

Other states also have sued Western Sky Financial.

Western Sky, which targeted New Yorkers through television and Internet advertising, is the lender in name only, according to the lawsuit. CashCall Inc and its affiliate WS Funding LLC offer and arrange for the loans, it said.

"Western Sky and CashCall charged exorbitant interest rates on their loans to scam New Yorkers out of millions of dollars," Schneiderman said in a statement.

The company made some 18,000 high-interest loans to New Yorkers since 2010, with principal amounts ranging from $400 to $9,925, according to the lawsuit.

A $1,000 loan can cost as much as $4,942 in finance charges, fees and principal over two years, the lawsuit said.

Western Sky said in a statement that the allegations are "without merit" and that it would vigorously defend itself.

It stopped lending to New York residents in March, it said, while the legal issues are outstanding.

Western Sky said it is owned by a tribal member of the Cheyenne River Sioux Tribe, and operates within the exterior boundaries of the reservation.

New York attorney Katya Jestin, who represents the company and its owner, Martin Webb, who also is a defendant, said Western Sky "enjoys tribal immunity and is not subject jurisdiction by the state of New York."

California-based Cash Call Inc, and its affiliate WS Funding LLC, and CashCall owner John Paul Reddam, also are defendants in the lawsuit. Efforts to reach them were unsuccessful.

The lawsuit seeks to stop the companies and their owners from engaging in further illegal lending, cancellation of existing loans, restitution of excess payments, illegal profits and monetary penalties.

Separately, on Aug. 5, the New York Department of Financial Services sent letters to 35 lenders, including Western Sky Financial, directing them to stop lending monies at usurious rates in New York.

The case is People of the State of New York v. Western Sky Financial, et al, New York State Supreme Court, New York County, No. 451370/2013.