Payday lender Western Sky Financial will stop funding loans on September 3.

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Western Sky Financial, a leading online lender that offers short-term loans at triple-digit interest rates, said it would stop funding loans on September 3 amid mounting legal battles with authorities from several states, including Maryland.

The move comes as state and federal regulators crack down on payday loans, a burgeoning industry that operates under a patchwork of laws. These loans carry high interest rates and lump sum payments that can trap Americans in a cycle of debt, critics say. Industry groups say payday lenders are being persecuted and claim they are filling a need that is not being met by traditional banks.

Western Sky officials did not respond to requests for comment, but the company explicitly said on its Website that it will no longer grant loans from September.

Western Sky has been the subject of several lawsuits challenging its loans in states with strict usury laws that cap interest rates on loans. The company is owned by a member of the Cheyenne River Sioux tribe and operates within the tribe’s South Dakota reservation. He claims that the sovereign immunity of the tribe makes the business exempt from following state law.

This month, New York State Attorney General Eric Schneiderman, sued the company, alleging he violated state licensing and usury laws that capped loan interest rates at 25%.

Schneiderman accused the company of charging New Yorkers annual interest rates up to 355 percent. The lawsuit is aimed at preventing Western Sky from engaging in loans in the state and canceling loans it has already made. The attorney general’s office said the case would go ahead despite the company’s decision to stop lending.

Similar actions have been taken against the company in Oregon, Colorado, Minnesota and Maryland. In 2011, the Maryland Department of Labor, Licensing and Regulation issued a cease and desist order against Western Sky after receiving an avalanche of consumer complaints.

“There has been a significant expansion of online lenders, and technology is driving it,” said Mark Kaufman, Maryland’s financial regulatory commissioner. “There’s no question the business economy changes when you can sit behind a computer and make thousands of loans, rather than sitting behind a desk and doing a few in a day. “

Advocacy groups have long been concerned about the ability of payday lenders to circumvent state laws. Once states began to introduce interest rate caps, some lenders migrated online or moved their operations overseas to circumvent the laws. Other lenders began to form relationships with Native American groups to take advantage of their sovereign nation status.

State authorities have stepped up efforts to prosecute lenders, especially those operating under Native American sovereignty, with more enforcement actions and prosecutions.

Benjamin M. Lawsky, head of the agency that regulates banks in New York State, this month ordered 35 online and Native American lenders to stop providing online payday loans in the state. In response, two Native American groups filed lawsuits against the state last week, claiming its actions violated their federal status.

As states redouble their efforts to monitor payday lenders, consumer and industry groups wait to see what action the Consumer Financial Protection Bureau will take to strengthen federal oversight.

The bureau has oversight and enforcement power over payday, online and banking lenders. In April, he took a step closer to imposing rules to govern the industry with a research report on the landscape of payday loans. In a key finding, the report states that the average borrower took out 10 payday loans in a year and paid $ 458 in fees.

Peter Barden, spokesperson for the Online Lenders Alliance business group, said the backlash against payday lenders could deny millions of Americans access to small loans.

“If regulators pressure banks to stop processing these legal payments, it would cut off important credit choices for millions of underserved consumers,” he said. “It could also send a scary message to banks that legally process these and other transactions.”

Uriah King, vice president of state policy at the Center for Responsible Lending, argues that community banks and credit unions offer small loans at better rates than payday lenders. Payday loans, he added, are often used to cover recurring expenses, which can trick consumers into unsustainable loans.

“A two-week balloon loan priced at 400% is simply unsuitable for people who are in the red every month with their basic expenses,” King said.

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