A tribe’s fight to bring you 449% payday loans
An Oklahoma tribe is fighting for its right to offer payday loans to consumers in Connecticut, reports the Hartford Courant, ironically claiming that the state’s restrictions on its high-rate, short-term loan offerings are financially damaging.
Last year, the Connecticut Banking Department issued cease and desist orders to two online lenders belonging to the Oklahoma-based Otoe-Missouria tribe for offering small, short-term loans with annual percentage rates. up to 448.76%. That’s well beyond the state’s 12% cap on these loans. Earlier this year, the state nearly imposed fines totaling $ 1.5 million on the tribe’s two businesses, Great Plains Lending LLC and Clear Creek Lending LLC, and Tribe President John Shotton.
The tribe filed a lawsuit with the state of Connecticut, and last month Shotten filed a civil lawsuit against the state’s banking regulators.
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Now, in support of the tribe, the Running reports, a conservative nonprofit group called the Institute for Liberty has launched a website and Twitter campaign and put up at least one notice board with messages accusing Gov. Dannel P. Malloy “of leaving to regulatory action that deprives an impoverished tribe of income. ”Campaign messages combine photos of Native American children with phrases such as“ Govt. Malloy, don’t take my dad’s job away ”and“ Govt. Malloy, don’t take away my future. ”
Institute President Andrew Langer told Courant: “This is the Governor’s State. He is the Governor, and the responsibility ends with him.” Langer declined to identify his backers, but told the newspaper he was not being paid by the tribe or any of its funding partners.
This is not the first time that tribes have argued in court that tribal-owned payday loan companies, like tribal governments, enjoy sovereign immunity, which means state regulators do not do not have the power to regulate them. In 2013, the Otoe-Missouria, along with the Michigan-based Lake Superior Old Lake Chippewa Indian Band, filed a federal lawsuit against New York State in response to a state campaign against them. payday lenders. The tribes dropped the lawsuit last fall, The Wall Street Journal reported, saying the legal battle “has consumed considerable resources.”
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Seventeen states and the District of Columbia have adopted double-digit limits on payday loans, according to the Center for Responsible Lending. Consumer advocates say working with Native American tribes is just the most recent tactic payday lenders are using to get around these caps and other state usury laws.
Connecticut Gov. Dannel P. Malloy delivers his Budget Address to the Senate and Home inside the State Capitol House Chamber, Feb. 18, 2015, in Hartford, Connecticut.
Jessica Hill | AP Photo
“There is no denying that Native American tribes suffer terribly from economic distress and instability,” Ellen Harnick, senior policy advisor for the Center for Responsible Lending, told CNBC.com. “That said, what they are doing is making an arrangement that generates income for the tribes, albeit a far cry from what the payday lenders get, at the expense of the off-reserve poor.”
It’s easy for consumers to get trapped in a payday loan cycle, with a typical two-week loan carrying an APR of 391% to 521%, according to the Center for Responsible Lending. “Loans are marketed very aggressively as something useful, as a quick fix to a financial emergency, and they hardly ever are,” Harnick said. The business model depends on loan renewals or borrowers taking out new loans, with 90 percent of business coming from borrowers with five or more loans per year. “The impact on consumers can be devastating,” she said.
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In the Courant’s report, a Connecticut resident who borrowed $ 800 from Great Plains Lending had, after one year, made $ 2,278 in loan payments.
Harnick said partnerships between tribes and payday lenders are likely to falter as state and federal regulators continue to crack down on payday loans. The Consumer Financial Protection Bureau recently proposed a framework for short-term loans, while the Department of Defense proposed protections against predatory loans for members on active duty.
States have started targeting regulated banks and payment processors used by tribal lenders, rather than the lenders themselves. “It’s a game changer,” Harnick said. If the lenders’ tribal partnerships turned out to be restrictive, she said, “they would drop the tribes like a hot potato.”