Because of growing restrictions on payday loans, banks and payday lenders are teaming up with American Indian businesses. Indian country offers a loophole, sovereign immunity, that shields companies from the U.S. government’s mandated interest rate caps and other payday-loan regulations. Indian country lenders can even issue loans in states where lawmakers have booted out the payday-loan industry.
The sovereign-loan model is “exploding and will be the future lending model for payday-loan companies,” said Jer Ayler, president of Trihouse Enterprises Inc., a payday-loan consultant in Las Vegas. Just like the casino boom that began a few decades ago, payday loans are emerging as a great boon for economically struggling Native American communities.
More than 12 percent of the 300 companies making payday loans through the Internet are wholly owned by American Indian tribes, Frank Cotton, a payday-loan consultant in Atlanta, told The Wall Street Journal. Indian country’s business with online banks made about $420 million in payday loans in 2010, or about 12,500 loans a month, he estimates. Precise figures are hard to come by, as Native American businesses aren’t required to give details on their business operations. But there are at least seven federally recognized tribes that own payday lenders. These include the Chippewa Cree Tribe in Montana, which recently launched its Internet payday loan service Plain Green Loans.
Indian Country Today Media Network recently spoke with Montana State Senator Jonathan Windy Boy (D–Box Elder), Plain Green’s policy advisor, to shed some light on Plain Green and its membership in the Native American Lending Alliance (NALA).
What prompted you to get into the online lending business?
For tribes like ours, geography creates a number of barriers to promoting economic growth. E-commerce has provided our tribe with the ability to create innovative and profitable businesses, and we believe our product gives consumers real choice when it comes to emergency short-term loans. All NALA lenders operate as an arm of their tribe and are wholly owned by the tribe.
Montana law prohibits interest rates above 36 percent, but your lending rates soar as high as 360 percent.
How do you ensure that the person securing a Plain Green loan is not a Montana resident and thereby avoid breaking state law?
NALA’s Best Practices ensure complete transparency of rates and fees, so there is always full disclosure of all terms and conditions to the consumer. Here are the facts. According to a 2009 Bretton Wood study, Fee Analysis of Band and Credit Union Non-Sufficient Funds and Overdraft Protection Programs, more than 20 million households pay an average of $1,500 a year in non-sufficient funds and overdraft fees. According to a 2008 Federal Deposit Insurance Corporation study, “a $27 overdraft fee that a customer repays in two weeks on a $20 debit purchase would incur an annual percentage rate of 3,520 percent,” The New York Times reported. Our consumers know the facts and the real costs of their options. Plain Green does not lend within the state of Montana. We use all available information to underwrite unsecured loans and this includes the applicant’s address on the credit application.
How would you respond to critics who contend the payday lending industry victimizes low-income people?
Plain Green provides financial services to the underbanked. Some estimates indicate that 25 percent of the U.S. population falls into this category. The traditional banking system is failing many consumers with less-than-perfect credit history. Let’s ask the banks when was the last time they made an unsecured installment loan of $1,000 or less. You won’t see too many raise their hands. Plain Green also reports to credit bureaus which allows consumers to improve their credit score with positive payment history. In a recent survey, Plain Green asked its customers, “Why did you take out a loan with us?” We heard things like: “I’m paying off credit cards slowly but surely and doing well thanks to you guys cuz no one would help me—thanks.” Results of the survey will be published this month.
Do you use any profits to develop consumer-awareness programs?
NALA is working with other Native organizations to develop or use existing financial literacy programs, targeted specifically to Native Americans.
What programs does Plain Green have to invest in Indian country?
Plain Green invests 40 percent of its profits directly back into the Chippewa Cree Tribe. To date, we have provided scholarships, educational resources, funding for parks, and holiday meals for each member of the tribe. Tribal leaders are developing a long-term strategic plans for putting the revenue to the best use for our people. In a time of budget cuts from the federal government, the Chippewa Cree aren’t sitting idle. We’re providing economic opportunity and real hope for the future.