Tribal Sovereignty, a status that allows Native Americans a degree of autonomy and attempts to ameliorate the United State’s previous history of oppression against Native Americans, is now being used by payday lenders to evade state regulation of predatory lending. A report released by the Center for Public Integrity states that payday lenders, such as Cash Advance and Preferred Cash Loans, are establishing online lending arms as “tribal enterprises.” Since tribal enterprises are not subject to the authority of individual states they are immune to the increasing number of restrictions being placed on payday lenders through state legislation.
After consumers were hit with interest rates of 1,200 percent, states such as Colorado and California began suing these online lenders only to discover that these businesses were operated by federally recognized tribes. In other words, these predatory lenders are exploiting a legal loophole by operating a “rent-a-tribe” model: creating a loose affiliation with a tribe and merely using tribal land addresses as the location for the business.
With poverty rates at 25% and chronic unemployment on tribal lands, leaders of Native American nations are in no position to refuse any economic opportunity presented to them. The tribes involved in the lawsuits state that the profits from their relationships with payday lenders pay for much needed human services like housing, nutrition and education, services that the federal government is failing to provide. It is, therefore, no wonder that tribal officials are seizing the opportunity to generate income.
The real issue is not whether or not payday lenders should be allowed to operate as “tribal enterprises” or the relationship between states and Native American sovereign nations, but rather why payday lenders are allowed to continually exploit marginalized and vulnerable populations, whether Native American or low- and moderate-income families across America, in the first place. What is being done to ensure that impoverished communities do not need to partner with predatory lenders or access their services to make ends meet?
As the Consumer Financial Protection Bureau (CFPB) starts its work hopefully it will fulfill its mandate to protect consumers around the country, including on tribal lands, from the practices of predatory lenders.
This article was coauthored by Kelly Ward.