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Payday Loans and the Tribal Sovereignty Model

posted by Nathalie Martin

Think about what happens when you pit tribal sovereign immunity against effective consumer protection laws. In my view, no one wins. Yet payday lenders are now very actively seeking tribes with whom to partner, in order to get the benefits of tribal sovereign immunity.  As one might expect, the payday lenders make out big and in most cases, the tribes get very little, at least so far.

Many news reports have come out describing these new relationships, and today another caught my eye, this time in The Fresno Bee. The article mentions how three tribes and their loan business partners were sued by the Federal Trade Commission after consumers complained about their business practices. This Fresno article also mentions a new payday loan trade association called Native American Financial Services Association, which caters to these new alliances.

Before you jump to conclusions about the legitimacy of all this, realize that it is complicated.  Tribal self- determination is critical to a just society, since justice never flows from oppression. Consumer protection is also important to a just society.  Read more about this conflict in my and Josh Schwartz’s article, The Alliance Between Payday Lenders and Tribes: Are Both Tribal Sovereignty and Consumer Protection at Risk?

Turtle Talk, one of the most influential legal blogs in the U.S. recently commented on our paper, calling it balanced (admittedly not a word often used to describe my approach to payday lending). Turtle Talk is a fantastic blog and has been following the payday - tribal sovereignty issue closely. I hope you’ll check out Turtle Talk often, just to expose yourself to the kinds of issues that come up in Indian country. Obviously, like any other group of Americans, not all Native Americans agree on everything, including the value of taking up payday lending. 




The question that intrigues me here is whether lenders equipped with such tribal shield can initiate collection actions in state court and still use it as a defense to counterclaims. It is my unscientific conclusion that many offshore payday lenders will not invoke the legal system, I assume with that concern; they collect by bank account assignment, telephone harassment, or not at all. If it works, it works, but there are some obvious commercial vulnerabilities to that model.

It's a LOT more complex, and oppression has many sources. Many tribal governments have proved to be little more than continuations of old clan wars by other means. The Navajos have long had this problem, for example. The commissions from the outside contractors seem small in comparison to the population of the whole tribe, but that isn't how they're distributed. The spoils go only to the insiders.

Then you have situations like the Yakama Indian Nation, which was cobbled together from whole cloth by the Treaty of 1855. The Yakima River bands were related to each other, but the Columbia River bands were related to bands downstream, had different language and culture, and were frequently at war with the Yakima River bands (It didn't help that the whites made Tah pa shah of the Klickitats the first chief under the treaty when Kamiakin refused to come to the reservation.). The attitudes haven't changed much. Guess how much real influence the Columbia bands have in the tribal government?

I am certain this matter is going to receive quite amount of written opinions and authority whomever is granted as such. Ah the pen and writing brings back so many memories in history that placed Native American Indians on reservations, aka "projects" where most suffer from not having any normal amentities with the stroke of a pen but not to worry to be concerned. We can outsource American business world wide, help other countries( but I don't seem to see how yet), have over 25M Americans unemployed, but that isn't important. At least the Navajos and Yakima are still around and not extinct. I suppose Native American Indians should just sit and wait until the Great Father in DC decides to send more rations.

There's a large body of case law on the "commercial activity exception" to the Foreign Sovereign Immunity Act that seems relevant here, if only by analogy. It will no doubt be complicated by the particular clauses in treaties... leaving only the lawyers as winners.

If people want to patronize reservation businesses, that’s their business just like it’s their business to go to Canada or elsewhere for affordable healthcare and medication. Good governance would mean fixing the causes that drive Americans to these places, and not simply “cracking down” on the symptoms. I like this development because it causes two liberal themes to contradict each other: the poor, exploited Indian and the poor, exploited borrower. Maybe this will start some sensible discussions in statehouses about reasonable regulations instead of just capping rates at a level where the businesses can't possibly exist.

BritainLoans: That position makes sense if, and only if:
(1) The fact that a business is a "reservation business" is known, and
(2) People who would consider patronizing that type of business understand the implications of doing business with "reservation business"es, and
(3) People who would consider patronizing that type of business have real choice among at least two such businesses, at least one of which is NOT a "reservation business", and
(4) People desperately in debt are rational actors in both the short and long term.

Since not one of these conditions holds in fact -- and the argument requires all four of them to hold in fact -- I think this cryptolibertarian argument tries too hard to count the number of angels dancing on the head of a pin. No, not that pin, THIS pin.

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Sorry to have such a strong attitude about this but the truth is that lenders are being more pushed to do tribal lending then they desire to do it.

Title Loan companies are just like payday loan companies - just larger loans. My site http://www.maxcashtitleloans.com helps put both the consumer and the lender together and we talk to hundreds of people a day. You want to know what the common complaint is? They have little options and need the money right now.

The BANKS are not helping them. They got their bailout.
Their friends cannot help because the economy through millions of people into a lower bracket of credit and they are in the same boat.
Their employer can't help them, because this move is so risky in bad economic times and employees are not making much (thus hard to repay)

So what are these people to do? The government has gone out of their way to make it hard for these lenders to do business so now the lenders are seeking Tribal lending as a safe haven.

Tribal lending is expensive yes, and a little risky but the fact is, it is needed.

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