Payday lenders are using tribes as fronts to avoid lawsuits and state regulations, an investigative report claims. The report, by the Washington, D.C.–based Center for Public Integrity, says that Internet-based payday lenders operating in California, New Mexico, West Virginia and Colorado have argued that they are “tribal enterprises” and enjoy the benefits of sovereignty, including immunity from lawsuits and state oversight. Some of the payday lenders’ borrowers are “non-Native Americans living far from Indian lands,” according to the report’s authors, Michael Hudson and David Heath.
The two called the payday lenders’ arrangements with tribes, which reportedly started around 2005, “rent a tribe,” an expansion of what consumer advocates call a “rent-a-bank” technique they had used earlier with banks in states where regulation wasn’t as stiff. The report, partly supported by the former Huffington Post Investigative Fund, said one borrower of a tribally affiliated lender in California claims she was charged an annual interest rate of more than 1,200 percent on a $300 loan.
According to the study, some of the firms involved include Cash Advance and Preferred Cash Loans, units of groups affiliated with the Santee Sioux Nation of Nebraska and the Miami Nation of Oklahoma. The authors said that payday lenders affiliated with the two nations above, as well as the Modoc Tribe of California, reached a $128,000 settlement, without admitting any wrongdoing, with West Virginia’s attorney general in 2008. Refunds and cancellation of debts for 946 borrowers were included in the settlement.
The Center for Public Integrity says it attempted to contact the involved lenders and tribal firms but was unable to get comments from them. A representative from a payday lender trade group, the Consumer Financial Services Association, told Hudson and Heath that payday lenders did not go out of their way to avoid regulation. The Santee Sioux Nation said all loans extended by its payday lender were approved on tribal land. In the Colorado case, the authors said, lawyers for the tribes and lenders denied any impropriety and said their rates looked good in comparison to banks’ overdraft fees. Hudson and Heath said that payday lenders are regulated by a patchwork of state rules but that a new federal unit, the Consumer Financial Protection Bureau, likely will get oversight of payday lending and make it a high priority once it goes live in July.