A growing number of Indian tribes are getting into the payday loan business, saying they just want to raise revenue for their reservations while helping cash-strapped consumers nationwide.
But federal officials suspect that, at least in some cases, tribes are being paid to offer their sovereign immunity to non-Indian payday lenders that are trying to dodge state regulations.
So far, the tribes have prevailed over California and other states that have tried to assert authority over tribal lending operations. But they may now face a crackdown by the federal Consumer Financial Protection Bureau.
"The states have historically been the ones that have regulated and overseen the payday-loan industry," said Tom Feltner, director of financial services for the Consumer Federation of America.
"They're the ones that have implemented rules for interest rates or even whether a payday loan can be issued," he said. "The vast majority of these tribal lenders are not complying with state laws."
And that can have serious repercussions for consumers.
Neil Barry was having trouble coming up with the rent for his small print shop in Reseda. He received a pitch in the mail from a company called Mobiloans. It promised a "new, more flexible way to borrow emergency cash."
"My credit is really bad," Barry, 82, told me. "I didn't know what else to do. So I figured I might as well give it a shot."
That was in October. He estimates he's now only about halfway toward paying off the $1,000 loan, with monthly payments coming out of his Social Security checks.
By the time he gets Mobiloans out of his life, Barry figures, he'll have paid at least another $1,000 in interest. If so, he can consider himself lucky: A 100% annual percentage rate would be only a fraction of what similar loans can cost.
"I had no idea what I was getting myself into," Barry said. "It's like being caught in a spider web."
It's unlikely that California officials would be able to help. Mobiloans is owned by the Tunica-Biloxi tribe of Louisiana and thus says its sovereign status makes it accountable only to federal law enforcement.
In California, payday lenders are prohibited from lending more than $300 at a time, and they can't charge more than 15% interest. Thus, a borrower who received a loan of $200 for two weeks would owe $230 when his or her paycheck arrived.
On an annual percentage basis, that works out to 460%, which is absurdly high but not as onerous as the rates charged by some tribal lenders.
"These online payday loans can have annual percentage rates of 600% or more," said Ellen Harnick, senior policy counsel for the Center for Responsible Lending, an advocacy group. "This is a relatively new way for the industry to get out from under state laws."
One particularly troublesome aspect of online tribal lenders is that they often require access to customers' bank accounts. This is ostensibly to facilitate depositing money into the account as quickly as possible after a loan is granted.
But it also allows the lender to withdraw monthly payments, which can get a borrower into trouble if he or she is short of funds. Bank overdraft charges can quickly pile up.
Instructing your bank to cut off access to the account won't solve anything. "Then the lender will just sue you for not making payments," Harnick said.
Barry Brandon, executive director of the Native American Financial Services Assn., told me that the ranks of tribal lenders are rapidly expanding. His organization now counts 16 tribes as members and is adding one nearly every month, he said.
"Tribal lending is a financial lifeline for many tribes," Brandon said, noting that some tribes' reservations are too remote for casinos. In such cases, he said, payday loans may be the best way of bringing in much-needed revenue.
Brandon said he was unable to share financial returns for his group's members or even to quantify the scope of outstanding loans.
Who actually runs the loan operations? "They are wholly owned and operated by the tribes," Brandon insisted — at first.
But there have been reports of some tribes extending their sovereign status to non-Indian payday lenders in what some have called "rent a tribe" deals.
The Federal Trade Commission filed a lawsuit last year against AMG Services, a Kansas payday loan company that allegedly tied up with Indian tribes to avoid state regulations.
According to the FTC suit, AMG, founded by race car driver Scott Tucker, claimed that it was owned by the Miami and Modoc tribes of Oklahoma and the Santee Sioux of Nebraska. But Colorado officials, who also are trying to crack down on tribal lenders, have said in separate state court hearings that the tribes received only a small fraction of AMG's earnings.
The FTC's lawsuit is pending.
Brandon finally acknowledged to me that some tribes do indeed work with others to fund or run their payday lending, just as some Indian casinos bring in outside management teams with gambling-industry experience.
In response to emailed questions, Marshal Pierite, vice chairman of the Tunica-Biloxi tribe, said Mobiloans "provides a vital service to a large population of American consumers who lack access to traditional credit services."
He said the company adheres to "all applicable lending laws."
But there's the rub. Mobiloans and other tribal lenders don't believe state rules are applicable — and so far, the courts have agreed with them.
Attempts by California and Colorado officials to regulate tribal lenders have been rebuffed by appellate courts, which based their thinking largely on a 1987 U.S. Supreme Court ruling that laid out broad legal immunity for tribes from state and local laws.
A big question now is how much authority the federal Consumer Financial Protection Bureau has over tribal lenders. The answer is unclear, and a legal battle is almost inevitable.
Richard Cordray, the director of the bureau, served notice last year that he believes his agency has jurisdiction over tribal lenders.
"If there is legitimately a tribal entity that can oust a state of effective jurisdiction to enforce laws against that entity, it does not oust the federal government," he said.
Brandon at the Native American Financial group said tribes may be willing to compromise by accepting the consumer bureau as a "co-regulator" of the industry, along with the tribes' own oversight of loan businesses.
Meanwhile, Sen. Jeff Merkley (D-Ore.) has sponsored the Stopping Abuse and Fraud in Electronic Lending Act, which, among other things, would require online lenders to abide by the rules of the state where a borrower lives.
This would theoretically require tribal lenders to follow state regulations or not do business in a particular state.
Barry, the Mobiloans customer, said he now wishes he had resisted the Tunica-Biloxi tribe's pitch for what looked like easy money.
I asked what advice he has for anyone else who receives a solicitation from this or another tribal lender.
"Start running," Barry replied.