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Internet-based, short-term lenders have various routes for setting up business, but most of their options expose them to potential legal challenges.
October 1 -
After nearly two years, the Justice Department so far has accused just one bank of facilitating consumer fraud. And the aftermath of that case suggests that prosecutors' strategy is not as effective as they hoped it would be.
December 3 -
A recent Supreme Court ruling concerning a tribal casino and state authorities has sparked a debate about whether the decision could extend to curtailing payday lenders that claim their affiliation with Native American tribes frees them from state and federal consumer protection laws.
June 9
Two online lenders associated with Indian tribes have won the dismissal of a lawsuit that alleged the companies were operating in violation of Maryland law.
The decision adds to a body of legal cases that functionally give online payday lenders a green light to keep making exorbitantly costly loans over the Internet, as long as the lenders are arms of tribes.
U.S. District Judge Catherine Blake did not seem pleased with the outcome she reached, but indicated she was bound to follow the law.
"The settled law of tribal sovereign immunity is not without unfortunate consequences," Blake, a President Clinton appointee, wrote in a decision published Friday.
"Unless Congress chooses to limit tribal sovereign immunity, tribes will continue to be immune from suits arising from a tribe's commercial activities, even when they take place off Indian lands."
Ever since tribes became involved with the payday lending business, a trend that started about a decade ago, they have been tangling with state and federal authorities. For online payday lenders, affiliations with tribes provided a new legal shield at a time when
The tribe-affiliated businesses have lost some battles. For example, the Consumer Financial Protection Bureau has
In addition, a pair of tribes abandoned a suit against New York officials after a federal appeals court
But those defeats, and other pending legal challenges, have not yet forced tribes to retreat from the lucrative online payday lending business. Indeed, tribal firms have frequently prevailed in court with the argument that they cannot be sued for violations of state lending laws.
In May 2015 a federal judge in Pennsylvania dismissed a lawsuit brought against the manager of a tribe-affiliated lender, finding that he was shielded by sovereign immunity.
In the Maryland suit, which had sought class-action status, Alicia Everette of Baltimore sued after taking out loans from several different online payday lenders. One of the defendants, Riverbend Finance, currently quotes annual percentage rates of 520%-782% on its website, far in excess of Maryland's 24% interest rate cap.
Riverbend responded to the suit by arguing that it is an economic arm of the Fort Belknap Indian Community in Montana, and has sovereign immunity. Another defendant, MobiLoans, stated that it is wholly owned by the Tunica-Biloxi tribe in Louisiana.
The plaintiff alleged that outside parties maintained functional control of the tribal lending businesses, and that the tribes' involvement was a sham. But the judge wrote that no evidence was presented to support those claims.
Representatives of tribal lenders applauded the judge's ruling.
"I think it was a good, straightforward decision that reinforced centuries of precedent on tribal sovereign immunity," said Charles Galbraith, an attorney who represented MobiLoans.
"The court rightfully upheld tribes' inalienable right to exercise their sovereignty as historically mandated by federal policy, and correctly ruled that these online lending businesses are in fact arms of their tribes," Barry Brandon, executive director of the Native American Financial Services Association, said in a press release.
An attorney for the plaintiff declined to comment.
Meanwhile, consumer advocates have not given up hope that tribes and the companies that work them will be held responsible for violations of state law. Lauren Saunders, associate director of the National Consumer Law Center, said in an email that there are numerous other potential legal avenues for holding various parties responsible.
Despite Friday's ruling, the Maryland lawsuit is not yet over, since its list of defendants included three individuals who do not qualify for tribal sovereign immunity. The judge wrote that she will address motions to dismiss filed by those defendants in a separate opinion.
