The economy of the country is under a lot of stress given the current financial situation and the rising mountain of public debt. Different lines of credit, rather than cash, have slowly but surely established themselves as the preferred standard of financial transaction. Since larger lenders find it unprofitable to lend small amounts of cash to the general public, the void thus created has been filled up by payday loan companies.
Payday loans have long been a subject of much controversy amongst consumers, lenders and regulatory bodies. Short term micro loans have always faced numerous regulation challenges along with consumer complaints. Since payday loan companies specialize in lending small amounts of cash (between $100 and $1000), they tend to charge very high rates of interest to make a profit.
In the last few years, judicial and legislative measures have been taken against payday lenders to curb and control the extent of their operation. The steps against payday loan companies have been taken to primarily stop them from financially exploiting consumers. As of now, the operations of payday lenders are prohibited in 11 states. The states of Arizona, New Hampshire and Ohio have very restrictive low cost interest rate laws pertaining to payday lenders.
A new threat emerges
Legislation and state laws have only managed to do so far. There is now a new kind of payday lending menace terrorizing consumers. The lending laws set up by the government are such that they are not applicable to ‘tribal enterprises’. In the light of this fact some Internet based high interest payday lenders have set themselves up as tribal enterprises thereby exempting them from government regulation. These lenders are now claiming that they are entitled to tribal nation sovereignty which allows them to function outside federal oversight.
Policy makers and industry pundits argue that this is nothing but a cheap trick to bypass federal rules and regulations, and have free reign to exploit the generally unsuspecting consumers. Authorities say that these lenders are using the tribal population as a front for their otherwise illegal operations. Consumers who have fallen victim to the misdealing of tribal lenders saw a spark of hope when the Consumer Financial Protection Bureau was set up. Experts predicted that the new bureau will have legislative power over tribal payday lenders. It is also highly probable that the actions of the bureau could set off a long drawn legal battle with the complexities of tribal immunity.
The tribal lenders are not limited by state laws or even borders for that matter. A consumer in California reported that she had been charged $1,057 interest in 5 months by a tribal payday lender. The principal value of the loan was $300. According to the lawsuit filed in Oklahoma, where the lending company is based, the consumer had been charged interest at the rate of 1200%. Another such case has been reported in Nebraska where a tribal payday lender allegedly affiliated to the Miami Nation of Oklahoma charged 521% interest on a loan. The company even threatened to have her arrested on a fraud charge.
The questionable nature of these tribal payday lenders are reinforced by the fact that these organizations provide very little information about themselves. There are no direct phone numbers listed on their websites and sometimes their physical mailing address is nothing but a post box set up on tribal territory. The websites themselves are designed to conceal the nature of the business in plain sight.
The current scenario
A 26 year old Virginia resident says “I was looking for a way to make the monthly payment on my car when I stumbled across this website. I had no idea that the loan I had applied for was sanctioned by an American Indian tribe. The website looked like any other online lender’s site.” The extremely fine print at the bottom of the website makes a passing mention of the lender’s association with the Cheyenne River Sioux Tribe based in South Dakota. Tribal payday lenders have been preying on unsuspecting consumers and conducting business with total disregard for state laws and corporate morals.
The States of California and Colorado have been at war with tribal lenders for a while now. In 2005, the Attorney General of Colorado tried to stop tribal lenders from operating in his state but the legal battle concluded with the words “We are largely powerless to stop them”. The case of tribal lenders vs. the Attorney General of West Virginia ended in a $128,000 settlement. A total of 946 borrowers had their debts cancelled and were refunded.
The obscurity and the ambiguity of state and federal laws pertaining to tribes all over the US has led to the creation of a loophole which is being used by lenders to systematically exploit consumers. As of now, the states have been engaged in years of litigation, trying to bring a semblance of order to the chaos stirred up by tribal payday lenders.