When Consumer Protection and Tribal Sovereignty Collide
By Amy Radon, Staff Attorney
Western Sky Financial, a payday loan company affiliated with the Cheyenne River Sioux Tribe, announced yesterday that it is exiting the payday lending business effective next week. I don’t think anyone would dispute that Western Sky’s decision is in the best interests of consumers—far from “helping consumers make ends meet,” as many payday lenders claim, these businesses trap consumers in a cycle of debt with astronomically high interest rates (sometimes as high as 750%) and engage in a host of other egregious (and oftentimes illegal) lending and collection practices. As the Washington Post reported, Western Sky’s decision to cease its payday lending operation came on the heels of a number of consumer protection lawsuits filed against the company in New York, Oregon, Colorado, Minnesota, and Maryland, alleging that the company’s lending practices blatantly violated the rights of consumers.
The more complicated issue implicated by the Western Sky story is what these types of businesses mean for tribes and—more specifically—the future of tribal sovereignty. We’re seeing a lot of payday loan businesses popping up on the internet that purport to have a tribal affiliation. Some of these businesses may indeed be legitimately owned, operated, and controlled by tribes, where tribes can—and do—enforce their laws to ensure that the lending occurs in a non-predatory manner. These businesses may also generate much-needed revenue for economically- and geographically-isolated communities that have (quite literally) been pushed out of the marketplace by the federal government.
Other internet payday lending businesses, however, including one that was the subject of a recent investigation by the Federal Trade Commission, appear to be affiliated with tribes by name only. With respect to this second type of business model, non-Indians remain in control of nearly every aspect of the lending business and obtain the vast majority of the profits generated by it, but they offer a small kickback to tribes with the goal of using the tribe’s sovereign immunity to avoid consumer lawsuits and state enforcement actions.
In many circumstances, tribal commercial entities are entitled to share in the tribe’s immunity from suits brought by consumers—much like state agencies that are involved in commercial activities—and they should be. Immunity is vital to tribes as domestic dependent sovereign nations to be able to effectuate positive changes on behalf of their members, just as it is for state governments.
But when a handful of this country’s 564 federally-recognized tribes allow non-Indians to exploit the system and use tribal sovereignty for their own personal benefit to avoid state enforcement actions and consumer lawsuits, they risk judicial or congressional intervention that could severely restrict—if not completely wipe away—the whole doctrine of tribal immunity. The doctrine already rests on shaky ground: the Supreme Court itself has stated that “[t]here are reasons to doubt the wisdom of perpetuating the doctrine,” and at least one commentator warned that the “[u]se of tribal sovereign immunity to engage in unregulated payday lending in contravention of state law might engender a backlash,” prompting congressional intervention that may hamper tribal sovereignty beyond payday lending.
Tribes should push back against efforts by non-Indians to exploit the system in this manner and should send a clear message that tribal immunity should inure to the benefit of tribes only—not to opportunistic non-Indians looking for a “get-out-of-jail-free” card.