Court Determining Issue of Tribal Immunity in Payday Loan “Rent-a-Tribe” Case
Image via KipMalone.com.
By Aidan O’Shea
A years-long fight to win justice for consumers who say they were victimized by online payday lenders now hinges on a strange-seeming question: What makes a business part of a sovereign Native American tribe?
A New Mexico court is in the process of determining whether AMG Services, Inc. – a company that specializes in high-interest, short-term payday loans, and that claims it is wholly owned and operated by the Miami Tribe of Oklahoma – is entitled to share in the tribe’s immunity from lawsuits. Tribal immunity exists to protect the sovereignty of Native American tribes, which are on similar legal footing to that of other sovereign entities, like states, and often have internal governments and court systems.
But AMG is using tribal immunity as a license to cheat, argue the plaintiffs in this case. Far from being a legitimate tribal business, the plaintiffs claim that AMG is actually controlled and operated by – and for the benefit of – Kansas tycoon Scott Tucker.
After state authorities tried to shut down his payday lending business, Tucker, who is known for using the profits he makes from payday lending to bankroll his hobby racing luxury cars, sought to make a deal with the Miami Tribe under which his illegal activities would be shielded from the reach of state laws.
While Tucker and AMG claim that the tribe owns AMG on paper, evidence uncovered in a Federal Trade Commission investigation calls that into question, revealing that millions of dollars are siphoned from AMG’s accounts to fund Tucker’s racecar team, private jets, Aspen home, and extravagant personal lifestyle. Tucker is believed to be the only signatory on AMG’s bank accounts, said Public Justice Staff Attorney Leslie Bailey, co-lead counsel in the case. Meanwhile, there is no evidence AMG employs tribal members or benefits the Miami Tribe in any significant way.
This litigation has its origin in the story of Albuquerque school administrator Andrea Felts, who took out three loans from an internet loan company to help her out as she was going through a costly divorce. The $400-$500 loans carried interest rates of 684, 730 and 521 percent respectively. Long after paying back the principal, she had sizable payments left outstanding, and debt collection agencies began harassing her and her daughter. She filed suit alleging violations of New Mexico’s interest caps on loans. Knowing there are other New Mexico payday loan customers in similar straits, Felts brought the case as a class action, which is often the only feasible remedy for going after widespread cheating that affects large numbers of consumers.
Public Justice has been part of this litigation, Felts v. CLK Management, Inc., for several years. Public Justice originally joined the case to prove the contract term the defendants used to try to force the plaintiffs out of court and into arbitration was unenforceable, and after succeeding in that, is now co-counsel in the New Mexico trial court to fight AMG’s efforts to hide behind tribal immunity.
Payday lenders like Scott Tucker’s businesses specialize in targeting desperate people who have few financial alternatives, Bailey said.
“People who get caught up in payday loan scams are commonly already in low-income communities. Then, because of the insanely high interest rates, too often they end up rolling these loans over from paycheck to paycheck,” Bailey said. “Before they know it, they can end up owing the payday lender several times more money than they originally borrowed.”
AMG’s attempt to claim tribal immunity is part of a growing trend among online payday lenders, known as the “rent-a-tribe” scheme, she said.
“State legislatures enact laws to protect consumers from exorbitant interest rates,” she explained. But instead of complying with those consumer protection laws, she says, “what some lenders are increasingly doing is offering to pay an Indian tribe some percentage of their earnings, in exchange for a paper affiliation that they hope will convince a court to give them tribal immunity.”
Though tribes can sometimes receive a monetary benefit from being a part of this scheme, Bailey says it is often tiny, and at any rate is legally irrelevant.
“The question is not whether the tribe formally owns the business, or even whether the tribe receives some fraction of the revenue,” she said. “The critical issues for the court are who is really calling the shots, and who is the primary beneficiary of the business. We’re confident that, at the end of the day, the evidence will show Scott Tucker is really the one in charge of AMG.”
This spreading trend of payday lender abuse could have wide-reaching implications, for more than just victims of usury. Last year, we wrote about the possibility of a backlash against tribal immunity that could prompt courts or even Congress to limit positive invocations of tribal sovereignty.
The court will conduct a so-called “arm-of-the tribe” test to determine whether AMG operates as part of the Miami Tribe of Oklahoma, or is just an ordinary corporation cloaking its illegalities in tribal immunity, as the plaintiffs allege.
Bailey is glad that the court will base its ruling not merely on the formal paperwork submitted to the court by AMG, but rather on extensive factual evidence the plaintiffs think will expose how AMG is truly managed, controlled, structured, and financed, as well as where its revenues are actually distributed.
This tribal immunity battle in the Felts case is coming at a tough time for payday lenders. These companies, including some with a tribal connection, are coming under increased scrutiny from the media, activists, and prosecutors. A ruling that Tucker’s businesses are not truly tribal would further turn the tide in favor of consumers.