Marc Benjamin at The Fresno Bee wrote a very informative piece on the payday loan tribe-sovereign nation model at:
The payday loan industry generates $52 billion worldwide each year, and Chukchansi officials hope to get a piece of it. They’re not alone; about three dozen tribes are in the business across the United States, said Allen Parker, a California consultant who works with tribes nationwide.
It’s an ideal business opportunity for tribes in locations too remote to operate a casino successfully, or for tribes whose casino revenues are down.
Although a tribe may need to hire a consultant or management group that takes a cut of profits and ensures the business is run properly, the overall costs can be lower because the tribe doesn’t have to follow state rules, said Jer Ayler, a Newport Beach consultant who runs payday loan storefront businesses and helps tribes with online loan businesses.
That angers regular payday lenders who have to comply with state laws and limits, he said.
“You’d be mad if you spent millions of dollars on compliance and regulatory issues compared with a tribe that can enter with very little capital and utilize the sovereign model to exempt themselves from state licensing regulations and usury laws,” Ayler said.
But a Los Angeles County Superior Court judge said tribes are not subject to California licensing rules because of sovereign immunity, said Mark Leyes, a Corporations Department spokesman.
Sovereign immunity may also provide protection in federal court.
Three tribes and their loan business partners were sued in April by the Federal Trade Commission after more than 7,500 consumer complaints over the last five years.
In the federal case, tribes are accused of overcharging for loans and illegally filing lawsuits against customers. In one case, a company forced consumers who owed them money to travel to South Dakota and face a tribal court that did not have jurisdiction over their cases.
Other contentions made in the federal case: employers were falsely told by tribal companies that they had legal court orders to garnish wages, and tribal companies disclosed an employee’s debt information to employers and coworkers.
The federal case detailed where a loan company charged interest rates and fees totaling $1,925 to pay off a $500 loan.
“We are concerned that the loan documents and website representations are truthful and complete,” said Nikhil Singhvi, a lawyer for the Federal Trade Commission in Washington, D.C.
But the tribes’ lawyer, John Nyhan, who represented two of the same tribes in the recent California case, said he expects the federal government’s case to be dismissed in the tribes’ favor because of sovereign immunity.
Meanwhile, the Native American Financial Services Association is aiming to reduce those types of suits by setting ethical guidelines for tribes to follow when dealing with customers.