Payday loans of tribes under surveillance

A growing number of Indian tribes are entering the payday loan business, claiming they just want to increase their booking income while helping cash-strapped consumers across the country.

But federal officials suspect that, at least in some cases, tribes are being paid to offer sovereign immunity to non-Indian payday lenders who try to dodge state regulations.

So far, tribes have prevailed over California and other states that have attempted to assert their authority over tribal lending operations. But they can now face a crackdown from the Federal Office for Financial Consumer Protection.

“States have historically been the ones that have regulated and overseen the payday lending industry,” said Tom Feltner, director of financial services for the Consumer Federation of America.

“They are the ones who put the rules in place for interest rates or even whether a payday loan can be issued,” he said. “The vast majority of these tribal lenders do not follow state laws.”

And this can have serious repercussions for consumers.

Neil Barry was struggling to find rent for his small printing house in Reseda. He received a pitch in the mail from a company called Mobiloans. He promised a “new, more flexible way to borrow emergency money.”

“My credit is really bad,” Barry, 82, told me. “I didn’t know what else to do. So I thought I might as well give it a go.

It was in October. He estimates that he is now only halfway through paying off the $ 1,000 loan, with monthly payments coming from his Social Security checks.

By the time he takes Mobiloans out of his life, Barry estimates he will have paid at least $ 1,000 more in interest. If so, he may consider himself lucky: an annual percentage rate of 100% would only be a fraction of what similar loans can cost.

“I had no idea what I was getting myself into,” Barry said. “It’s like being caught in a spider’s web.”

California authorities are unlikely to be able to help. Mobiloans belongs to the Tunica-Biloxi tribe of Louisiana and therefore claims that its sovereign status makes it accountable only to federal law enforcement.

In California, payday lenders are prohibited from loaning more than $ 300 at a time, and they cannot charge more than 15% interest. Thus, a borrower who received a loan of $ 200 for two weeks will owe $ 230 upon arrival of his paycheck.

On an annual percentage basis, this works out to 460%, which is absurdly high but not as onerous as the rates charged by some tribal lenders.

“These online payday loans can have annual percentage rates of 600% or more,” said Ellen Harnick, senior policy advisor for the Center for Responsible Lending, an advocacy group. “This is a relatively new way for the industry to evade state laws. “

A particularly troublesome aspect of online tribal lenders is that they often need to access customers’ bank accounts. This apparently is to facilitate the deposit of money into the account as quickly as possible after the granting of a loan.

But it also allows the lender to withdraw monthly payments, which can cause problems for a borrower if they run out of funds. Bank overdraft fees can quickly add up.

Asking your bank to shut down access to the account will not solve anything. “Then the lender will sue you for not making payments,” Harnick said.

Barry Brandon, executive director of the Native American Financial Services Assn., Told me that the ranks of tribal lenders are growing rapidly. His organization now has 16 tribes among its members and adds one almost every month, he said.

“Tribal loans are a financial lifeline for many tribes,” Brandon said, noting that some tribal reserves are too far away for casinos. In such cases, he said, payday loans can be the best way to generate much-needed income.

Brandon said he was unable to share the financial returns for members of his group or even quantify the extent of outstanding loans.

Who actually manages the lending operations? “They are wholly owned and operated by the tribes,” insisted Brandon – at first.

But it has been reported that some tribes are extending their sovereign status to non-Indian payday lenders in what some have called “tribal lease” agreements.

The Federal Trade Commission filed a lawsuit last year against AMG Services, a Kansas payday loan company that allegedly linked with Indian tribes to avoid state regulations.

According to the FTC lawsuit, AMG, founded by racing driver Scott Tucker, claimed it was from the Miami and Modoc tribes of Oklahoma and the Santee Sioux of Nebraska. But Colorado officials, who are also trying to crack down on tribal lenders, have said in separate hearings in state courts that tribes receive only a small fraction of AMG’s income.

The FTC lawsuit is ongoing.

Brandon finally acknowledged to me that some tribes do work with others to fund or manage their payday loans, just as some Indian casinos use outside management teams with experience in the gaming industry.

In response to questions sent by email, Marshal Pierite, vice president of the Tunica-Biloxi tribe, said that Mobiloans “provides a vital service to a large population of American consumers who do not have access to credit services. traditional “.

He said the company adheres to “all applicable lending laws.”

But here is the catch. Mobiloans and other tribal lenders don’t believe the state’s rules apply – and so far the courts have agreed with them.

Attempts by authorities in California and Colorado to regulate tribal lenders were rejected by appellate courts, which based their thinking largely on a 1987 United States Supreme Court ruling that established broad immunity. legal for tribes vis-à-vis national and local laws.

A big question now is what authority the Federal Bureau of Consumer Financial Protection has over tribal lenders. The answer is not clear and a legal battle is almost inevitable.

Richard Cordray, the bureau’s director, said last year that he believed his agency had jurisdiction over tribal lenders.

“If there is a legitimate tribal entity that can oust a state with effective jurisdiction to enforce laws against that entity, that does not oust the federal government,” he said.

Brandon, of the Native American Financial group, said the tribes might be willing to compromise by accepting the consumer office as the industry’s “co-regulator”, as well as the tribes’ own oversight of the companies. ready.

Meanwhile, Senator Jeff Merkley (D-Ore.) Sponsored the Stopping Abuse and Fraud in Electronic Lending Act, which, among other things, would require online lenders to follow the rules of the state where a borrower lives.

This would theoretically require tribal lenders to follow state regulations or not do business in a particular state.

Barry, the Mobiloans client, said he now wishes he had resisted the Tunica-Biloxi tribe’s argument for what appeared to be easy money.

I asked what advice he has for anyone else who receives a solicitation from this or another tribal lender.

“Start running,” Barry replied.

David Lazarus’ column airs Tuesdays and Fridays. He can also be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your advice or comments to [email protected]

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