St. Croix-based business Cane Bay Partners and founding co-owners David Johnson and Kirk Chewning are facing a class-action lawsuit over an alleged nationwide payday lending program that imposed exorbitant annual interest rates while using Native American tribes as a front to evade state usury laws, according to a complaint filed in April in the District Court of Maryland.
According to the complaint, Cane Bay Partners is essentially running MaxLend, the lending service at the center of the lawsuit. MaxLend charges extreme annual interest rates — up to 841 percent — for payday loans of no more than $2,500. In an effort to avoid state and federal regulations on usurious lending schemes, Cane Bay Partners hid behind the MHA Nation, a Native American group composed of the Mandan, Hidatsa and Arikara tribes located in Fort Berthold, a remote reservation in North Dakota, the lawsuit alleged. While the MHA Nation acts as the tribal lender on paper, Cane Bay Partners directs the lending operation, leaving only a minute percentage of the profits with the tribes, according to the lawsuit.
Cane Bay Partners is a Virgin Islands Economic Development Commission company, receiving massive tax breaks such as a 90 percent reduction in corporate and personal income taxes.
Maryland resident Glenadora Manago, who detailed her experience in the 18-page complaint, represents a proposed class of plaintiffs that could number in the thousands. From her Maryland home, Manago took out a $400 loan in February 2019 from MaxLend, which imposed an interest rate of 605 percent. This resulted in a $209 payment for the first month alone and eventually incurred a finance charge of $1,436.20.
By the time Manago paid the full amount, her $400 loan had ballooned to $1,836.20.
In December 2019, Manago took out another MaxLend loan, this time for $600 with a 581 percent annual interest rate and a finance charge that amounted to more than $2,000. Maryland law caps interest rates for consumer loans at 24 to 33 percent, depending on the size of the loan.
Manago eventually revoked authorization to allow MaxLend access to her bank account and filed suit, listing two violations of the Racketeer Influenced and Corrupt Organizations Act (RICO), two violations of Maryland consumer lending laws, unjust enrichment and civil conspiracy.
According to the complaint, Johnson and Chewning had approached the MHA Nation in 2011 to set up lending websites. Make Cents, Inc. was created later that year as a tribal company, operating as MaxLend, but Cane Bay Partners runs the business, the lawsuit states, including “securing funding, registering domains, designing the websites, marketing the business, underwriting and approving loans, and analyzing returns to adjust the lending algorithms,” with MHA Nation having “little meaningful involvement in the business.”
The MHA Nation, for example, has a “referral agreement” with a company called TranDotCom Solutions for marketing and advising services, as well as other assistance “with regard to the development of the lending business,” the complaint alleges. Johnson and Chewning were both executives of TransDotCom, which is now affiliated with Strategic Link Consulting, also owned by Johnson and Chewning. Strategic Link offers a suite of services to “provide clients the most comprehensive lending solutions available to enable optimal ROI,” according to its website.
With discovery pending, the complaint did not specify how much of the profits goes to MHA Nation, instead pointing to an earlier dealing between Cane Bay Partners and another Native American tribe, the Lac Courte Oreilles Band of Lake Superior Chippewa. Cane Bay and its affiliated companies signed a servicing agreement in 2014 with the Lac Courte Band, which receives only 1.8 percent of the business’ revenues, according to the lawsuit.
The setup reflects a typical tribal lending scheme, where a lender associates itself with Native American tribes that have sovereign legal status and some level of immunity from lawsuits under federal and state laws. The Native American tribe sets up the lending company and enters into a servicing or consulting agreement with a non-tribal entity that practically controls the entire operation. This allows the lender to insulate itself from state and federal laws while pumping a majority of the profits to non-tribal entities, leaving the tribes with a tiny fraction – between 1 to 2 percent – of the generated revenues.
This is not the first time Johnson and Chewning faced allegations of extreme payday lending practices. A 2014 Bloomberg article drew attention to Johnson and Chewning’s lending websites, including CashYes.com and CashJar.com, at least one of which hounded an Arkansas woman for payments on her $775 loan when she had already paid more than $3,000.
Both “Cash Yes” and “Cash Jar” belonged to Hong Kong Partners, a Belizean company owned by Johnson and Chewning. Hong Kong Partners’ operations tracked the erstwhile successful offshore-lending model, which allows lenders to appear as if they are operating in a foreign country and evade state and federal lending regulations in the process. The practice declined after the 2013 launch of “Operation Chokepoint,” the U.S. Department of Justice’s crack down on banks that did business with companies considered at high-risk for fraud and money laundering.
Operation Chokepoint drastically reduced the number of banks and payment processors willing to do business with off-shore online lending companies, driving lenders to tribal-lending, which sparked this latest lawsuit.
The federal government’s increasing scrutiny of payday lending gives a glimpse of potential remedies for plaintiffs like Manago. In 2018, the Southern District of New York’s case against infamous loan shark Scott Tucker resulted in a sentence of 16 years in prison on federal racketeering and truth-in-lending convictions. Like Cane Bay Partners, Tucker also charged exorbitant annual interest rates – up to 1,000 percent – and also was accused of using Native American tribes as a shield against federal and state lending laws.
Manago’s class-action suit is asking the federal court in Maryland for a jury trial, injunctive relief, costs and treble damages, which allow courts to triple the amount of compensatory damages.