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American Indian Tribes and the 'Rent-A-Tribe' Scheme

by D Sidney Potter, published

Editor's note: The initial published draft of this article said Western Sky Financial was owned by members of the Cheyenne River Sioux Tribe. It has come to our attention that this is inaccurate. The article has been corrected and IVN apologizes for the misrepresentation.


Just when you thought it was okay to admit you like the Washington Redskins again, it's now becoming common knowledge that American Indian tribes are knee deep in payday loan centers.

Let's get something straight here, the plight of the American Indians has always been sacred here in the Unites States -- starting in 1492, when Christopher Columbus officially became the first illegal alien.

Since this time, when Columbus promptly proclaimed that he "discovered" America and soon was met by the original Americans, we have always had a soft spot in our hearts and minds for those that have gotten the short shaft on the totem pole of equality.

Exhibit 1: The American Indian

Thus, it's hard for anyone to stomach the voracious appetite that some American Indian tribes are having with the operation, ownership, and funding of payday loan centers, with actual call centers located on ancient tribal lands. Obviously, this is good for employment, as the unemployment level is near 50 percent on some reservations.

But when it comes to American capitalism, our Indian hosts may have learned all too well from us. Which paradoxically echoes the old adage, "Teach a man to fish, and you feed him for a life time."

Although it's common knowledge among Americans of the wide spread existence of Indian casinos -- which offer a market priced product that vacationing Americans have come to enjoy and rely on -- it is not known that the business acumen of the American Indian has widened with the proliferation of payday loan centers across the United States.

With interest rates that vacillate anywhere from 30 percent to 700 percent, it is no wonder that some American Indian tribes have been labeled "rent-a-tribe" by a handful of state attorney generals.

Last July, the Minnesota attorney general, Lori Swenson, took to court the California-based CashCall, in what Swenson described as an Internet-based "rent-a-tribe" scheme.

Furthermore, Swenson accused CashCall and its subsidiaries of charging illegally high interest rates on their consumer loan products, all the while fraudulently insisting that the loans are subject to tribal sovereign immunity as defined by federal law because the actual loans are made by a South Dakota company called Western Sky Financial.

In January, in another lawsuit against CashCall, New York Attorney General Eric Schneiderman announced that his office had settled with the payday loan center after accusing it of illegally charging borrowers 100 percent plus interest rates.

Similar to the Minnesota case, Western Sky Financial and its owners were sued for purporting a scheme to consumers. The settlement in New York provided up to $35 million in debt relief, along with $1.5 million in penalties.

Western Sky Financial was licensed to do business on the reservation of the Cheyenne River Sioux Tribe, which is based in Timber Lake, South Dakota. Sadly, the tribe had to lay off nearly all of its employees and suspended it operations in connection with the online lending platform after the settlement was reached.

According to Jennifer Weddle, who is with the law firm, Greenberg Traurig, and co-chairs the firm's national American Tribe Law practice group, in a statement from April 2014:

"Indian tribes are exercising their sovereignty. They continue to provide for their citizens, using the resources available to them to subsist and build their economies. This is nothing new, yet, a controversy exists because some do not like one particular mechanism of tribes' sovereign action -- in this case making short-term, small-denomination loans to consumers around the country via the Internet." - Jennifer Weddle, lawyer for American Indian tribe casino interests

Now What?

While the latter statement might appear to gloss over the inherent problems that payday type loans cause American consumers, loans most often marketed and targeted to those of color, the legal argument for the justification of high interest loans has a disgusting underside in terms of hurting those who are most vulnerable in society. It ultimately comes down to the slickness of their lawyers, who are able to legally skirt state usury laws.

This is difficult to comprehend.

Fortunately, their legal counterparts are the ones wearing the white hat, much the same as Tonto's sidekick, the Lone Ranger, proudly wore his. Wherein the byline was helping those disenfranchised by a stronger power.

Hence, the royal irony that the American Indian, a people so disconnected and disemboweled from the American Dream, by no fault of their own, decides to utilize a loophole in the law to financially exploit those that are the least able to fend for themselves, leaves one befuddled and saddened. (Really?)

As a true testament to the complexities of the situation, even the U.S. Congress has a difficult time grappling with the issue. Earlier this year, both chambers of Congress considered amending the Truth in Lending Act and to pull back the reins of tribal lending.

However, those talks failed to make it out of session. But rather, and from a consumer lending perspective, it can be opined that Congress has purposely not acted to constrict tribal authority in any way.

To quote Mrs. Weddle:

"By establishing, regulating, and operating lending enterprises, tribes are exercising their sovereignty--sovereignty that predates the United States and holds deep roots in the nation's earliest jurisprudence."

Disclaimer: Mr. Potter, via Potter Equities, LLC, performed and was compensated for providing subject matter expert consultant work in the field of mortgage banking for CashCall in 2012 and 2013.

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