Rent-A-Tribe Payday Lenders
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.
Ms. Harris, I'm as biased as you are on this issue - although at the other end of the spectrum.
Every month hundreds of thousands of consumers throughout the world "vote" for the payday loan industry by using their services. Why not simply support "best practices" which includes FULL disclosure of all rates and fees in easily understood language (something credit card companies, banks, and credit unions fail to do) and allow competition to drive down fees?
The problem is that payday lenders do not conform to "best practices." Moreover, even if we mandate what that best practices include full disclosure this still doesn't address the issue of extremely high interest rates. Competition does not drive these rates down because the payday lenders all charge about the same regardless of the volume of their business. Competition would probably work if banks and credit unions were offering small dollar loans as alternatives to payday loans, but at this point the majority do not (although the FDIC has done pilot programs demonstrating that such loans are profitable, and Treasury has demonstrated pilot loan loss reserve funds that banks have used to create such loans). In sum, I think that we need both regulatory safeguards as well as the development of new products.
Its just amazing how everyone wants the government to "protect" consumers from themselves, but is fine with late payment charges from banks, ATM fees and the like. I suppose that if someone believes that it cost $20 to borrow $300 for two weeks it should be their decision and we don't need more government oversight to protect us. They should have focused on the wide and large scale embezzlement that occurred on Wall Street versus short-term loans for consumers that no longer have any credit capacity. Give me a break and leave consumers alone.
Actually, we are not "fine" with the number of and increase in bank fees, however, some, though by no means all, of those issues have been addressed with the Credit CARD Act, the Frank-Dodd Wall Street Reform Law and the creation of the Consumer Financial Protection Bureau. The Shriver Center, among other consumer organizations, played a significant role in ensuring the passage of these laws to ensure the protection of all consumers from such blatant irresponsible behaviors, not just low income consumers. Yet, the issue of payday lenders still remains a significant area of concern.