Fast-money lender CashCall Inc.-- known for TV ads featuring faded child star Gary Coleman talking about his financial problems -- agreed Monday to pay $1 million to settle state prosecutors' allegations that the company ran deceptive ads and used "loan shark tactics" to collect debt from customers.
CashCall specializes in making loans in as little as one day, with only a signature needed to get cash.
But the Anaheim company charges most customers extremely high interest rates while advertising that its rates are low, according to a civil complaint filed by the California attorney general's office. When customers fell behind on payments, CashCall used illegal debt collection practices, such as making verbally abusive telephone calls "at all hours of the day and night," the complaint said.
CashCall didn't admit to any wrongdoing in the settlement and assisted the attorney general's office in its investigation of the company, said Daniel Baren, CashCall's general counsel.
In its complaint, the state attorney general's office depicted CashCall as a deceptive lender using aggressive tactics to get its money back.
The company, which was started by Paul Reddam, who also founded and later sold mortgage lender DiTech Funding Corp., runs advertisements that falsely suggest that cheap loans are available to all borrowers, according to the state's complaint.
Instead, low interest rates are available only to active-duty military personnel and their families, in keeping with limits under federal law.
CashCall charges a 139.34% annual rate on its $2,600 consumer loan, state prosecutors contend. At that rate, a borrower would pay $10,762 over the 36-month life of the loan, said Scott Gerber, a spokesman for the state attorney general's office.
CashCall's Baren said the state's example exaggerated what borrowers usually paid because most borrowers pay off their loans early and avoid accumulating such interest.
California Atty. Gen. Jerry Brown said in a statement that CashCall used collection methods that violated state law, including causing borrowers to incur bank fees by repeatedly trying to collect payments despite knowing there were insufficient funds in the borrowers' accounts.
The lender would then threaten to begin legal action and wage garnishing against borrowers to intimidate them into paying back their debt, the state said.
In some instances, the attorney general's office found evidence that CashCall improperly discussed private financial information with borrowers' neighbors, friends and co-workers, Gerber said.
Monday's court judgment orders CashCall to pay $1 million in civil penalties and legal expenses. CashCall funds about $1 million in loans each month, Baren said. Two years ago the company was funding about $20 million a month in loans, he said.
Under the settlement, CashCall has to withdraw deceptive ads and train its employees to ensure that the company stays in compliance with court orders, court documents said.
The company also was ordered to fire any employee who violated the terms of the settlement and to record and maintain a detailed log of all telephone calls with prospective and current borrowers as well as all customer complaints, documents said.
Coleman's ads helped bring the company to prominence, but he is no longer CashCall's pitchman.
The actor, known for his role on the 1970s and '80s TV show "Diff'rent Strokes," became the firm's spokesman after receiving a loan from the company, Baren said. Coleman repaid the debt by endorsing CashCall in commercials, but that agreement ended a couple of years ago, Baren said.