In Consumer Fin. Prot. Bureau v. CashCall, Inc., Nos. 18-55407, 18-55479, 2022 U.S. App. LEXIS 13810, at *23-25 (9th Cir. May 23, 2022), the Court of Appeals for the 9th Circuit rejected CashCall’s argument that the Native American Tribal Lender, and not CashCall was the true lender for purposes of determining whether state usury law applied.

In substance, all of the loan transactions at issue here were conducted by CashCall, not Western Sky. As the district court observed, “the entire monetary burden and risk of the loan program was placed on CashCall.” Western Sky was formed for the purpose of making loans for CashCall, and it amounted to little more than a shell for CashCall’s operations. Through a subsidiary, CashCall provided the money with which Western Sky made loans. CashCall agreed to purchase the loans that Western Sky made, and it did in fact purchase all of Western Sky’s loans, just a few days after they were made and before the borrowers had made any payments. From then on, it bore all economic risk and benefits of the transactions. It also agreed to indemnify Western Sky for any legal or regulatory expenses. And even in the act of originating the loans, Western Sky’s involvement was limited: At least at the beginning of the program, CashCall hosted Western Sky’s website and phone number, and CashCall employees handled communications with customers. In sum, Western Sky’s involvement in the transactions was economically nonexistent and had no purpose other than to create the appearance that the transactions had a relationship to the Tribe. Nor is there any other basis for finding a relationship between the Tribe and the transactions. Western Sky was organized under South Dakota law, not tribal law, and it was neither owned nor operated by the Tribe. And the borrowers applied online or over the phone, never set foot on tribal land, and made payments from their home States, not the reservation. The only reason for the parties’ choice of tribal law was to further CashCall’s scheme to avoid state usury and licensing laws. Because the Tribe had no substantial relationship to the transactions, and because there is no other reasonable basis for the parties’ choice of tribal law, the district court correctly declined to give effect to the choice-of-law provision in the loan agreements. Instead, the court applied the law of the jurisdiction with “the most significant relationship to the transaction and the parties,” which it found to be the borrowers’ home States. Restatement (Second) of Conflict of Laws § 188(1)-(2). And for the States at issue in this case, application of state law means that the loans were invalid.

The Court of Appeals found that the loans were not “valid-when-made”.

But these loans were not valid when made because there was never any basis for applying the law of the Tribe in the first place, and they were invalid under the applicable laws of the borrower’s home States. CashCall also objects that the district court phrased its conclusion in terms of a determination that CashCall was the “true lender,” a concept that CashCall says “would disrupt lending markets and undermine the secondary loan market.” To the extent that CashCall invokes cases involving banks, we note that banks present different considerations because federal law preempts certain state restrictions on the interest rates charged by banks. See, e.g., 12 U.S.C. § 1831d (permitting state-chartered banks to charge the interest rate allowed in their home State). We do not consider how the result here might differ if Western Sky had been a bank. And we need not employ the concept of a “true lender,” let alone set out a general test for identifying a “true lender.” To answer the choice-of-law question, it suffices to examine the economic reality of these loans. As we have explained, doing so reveals that the Tribe had no substantial relationship to the transactions.

The Court of Appeals affirmed personal liability imposed on the CEO.

Reddam argues that the district court erred in finding him personally liable. We have held that an individual is liable for a corporation’s violation of the CFPA if “(1) he participated directly in the deceptive acts or had the authority to control them and (2) he had knowledge of the misrepresentations, was recklessly indifferent to the truth or falsity of the misrepresentation, or was aware of a high probability of fraud along with an intentional avoidance of the truth.” Gordon, 819 F.3d at 1193 (quoting FTC v. Stefanchik, 559 F.3d 924, 931 (9th Cir. 2009)). Reddam does not dispute that the first component of that test was satisfied because, as CEO, he had authority to control CashCall’s acts. Thus, Reddam’s liability turns on whether he had the requisite knowledge or acted recklessly. Reddam argues that he lacked the necessary mental state because he relied on the advice of counsel. But as the district court correctly observed, we have held that “reliance on advice of counsel [is] not a valid defense on the question of knowledge required for individual liability.” FTC v. Grant Connect, LLC, 763 F.3d 1094, 1102 (9th Cir. 2014) (quotation marks and citation omitted) (alteration in original). In any event, even taking account of counsel’s preliminary advice, continuing to collect loans after September 2013 was reckless for the reasons we have already explained. The district court did not err in holding Reddam personally liable.