A Few Things to Consider Before Federal or State Regulators Cave to ...


Carter Dougherty added last week to the many recent articles (here and here) on regulators who are cracking down on internet lending, both state and federal. First, the Justice Department has been asking banks to cut ties to online lenders whom regulators suspect of shady business practices. Various governmental entities have even issued subpoenas to banks and other companies that handle payments for an array of financial offerings, ramping up an investigation that has been under way for several months, according to Justice Department officials. New York state is also cracking down. New York has even filed suit, alleging that lenders, including television advertiser Western Skies, were charging consumers ten times what New York State law allows.   

Last week though, Mr. Dougherty reported that an association of online lenders claiming to be operated by Native American tribes, The Native American Financial Services Association (NAFA)(which represents just 16 of the 566 federally-recognized Indian tribes in the U.S.) called on banks to resist pressure from the state of New York State to cut them off from the nation’s primary payment system, claiming violations of tribal sovereign immunity. 

I wrote an article about payday loans and tribal sovereign immunity last winter, found here, and have been trying to see if many or most of the lenders claiming to be tribal sovereigns really are sovereigns.  Some are but a lot are not. Take Western Skies, for example. This frequent television advertiser claims to have tribal sovereign immunity but is owned by one tribal member, Marvin Webb, who is no more entitled to tribal sovereignty than I would be as a result of being a citizen of that sovereign known as the United States. Then there are the tribes in partnership with famous billionaire and race car driver Scott Tucker. Tribes are getting crumbs through these deals, while Tucker gets richer.  Look at industry web sites(here and here).  These sites will explain blow by blow how existing payday lenders can partner with tribes to avoid compliance with state laws. Very clear. 

I hope that federal regulators will do what is needed to protect consumers, both Native and non-Native.Becasue the NAFA represents just 16 of 566 recognized Indian Tribes in the U.S., the organization by no means represents even a fraction of Native Communities, nor do their positions on this issue reflect Native views throughout Indian Country. Moreover, as NAFA makes crystal clear on its web site, lenders in this organization comply with federal law, as they must. I care about tribal sovereignty and worry that misuse of sovereignty by non-Native people could hurt Native people. Also, if you think native people do not themselves use on-line “tribal” payday lenders, you are wrong.  These lenders have an automatic seal of approval on some parts of Indian Country.

And states, please do look behind the curtain. Financially, tribes often get close to nothing for allowing a lender to use their sovereignty, all while lenders themselves get rich. The question to ask is, “is this a tribe?” NAFA says state’s regulators are violating the tribes’ sovereign immunity when they ask banks to prevent them from making and collecting on short-term, high-cost loans via the Internet, but dig deeper. Please do what it takes to get the facts.