Online lenders may need to abide by state laws

The rules governing online commerce or other business activities have not always been clear, or at least applicable in the same ways as similar activity conducted offline. Internet retailer Amazon will begin charging sales tax to customers in Massachusetts starting in November, and only then because it opened an office in the state. These murky guidelines can have the unfortunate effect of causing an organization to run afoul of laws that it didn't know existed, or that are arbitrarily being applied to the digital landscape.

This the case with Western Sky Financial and Cashcall, both of which are being sued by Georgia's Attorney General Sam Olens according to a recent Atlanta Journal-Constitution article. Olens claims that the two businesses are operating illegally in Georgia due to the region's ban on short term lenders. While the organizations do not physically operate in the state, they have been providing short term loans through their websites to Georgia residents.

Whether the state actually has the authority to prohibit the lenders' operations in its borders is up to the courts, but the source noted that Western Sky had agreed in May 2012 to cease operating in Georgia. However, the agency then started funding loans that Cashcall provided the lending and debt collection services.

"The defendants' utter disregard for the law of this state will not be tolerated," Olens told the source.

One state among many
According to MLive, the two lenders are also involved in a similar dispute in Michigan. Neither business is licensed in the state and their interest rates exceed the 25 percent maximum instituted in the region. The source added that Oregon, Colorado and Washington are also involved in suits with the organizations, claiming that their state laws are being violated.

According to Western Sky's owner, Martin Webb, state laws do not apply to his organization because he is a Cheyenne River Sioux tribe member who works on his reservation.

While a court decision will likely settle the dispute, organizations offering short term lending through the Internet may still want to research the laws and licensing terms for any states they intend on working in. This could avoid later legal headaches, or at least prepare lenders for any suits that may be brought against them.