Even as the federal regulators and consumer advocacy groups continue to push for denouncement of illegal payday lending practices, the tribal lenders are easily circumventing the laws because of the complex legal protection they get. The federal government has traditionally protected the apparently unrelated right of the Native American tribes in governing their own affairs.
The Native American tribes are characterized as sovereign entities, which are free from state intrusion on the right of self-governance. This is an issue, which has made the war on cracking down payday lenders a nightmare to the regulators. The state regulators are mandated to protect the rights of consumers by enacting consumer protection laws, but there has been a conflict between the regulators and the tribes regarding the issues of payday lending.
The tribally owned online payday lending companies have halted the state enforcement effort in protecting consumers from these predatory lending practices. The payday industry is not yet regulated by the federal government, and on the other hand, the consumer advocacy groups have relentlessly said that these payday loans are abusive and unfair to the consumers, something which is seeing most states become active in regulating the industry.
Some states have even eliminated the payday loans while other have restricted the terms of the loans. But the tribal payday lenders quickly create obstacles for such controls to take effect due to the doctrine of Native American tribe immunity. This immunity prohibits the states from enforcing laws against the recognized Indian tribes and the business, which they own, and only the federal government has the authority to enforce such regulations.
In a recent twist of events, the New York state has scrutinized online payday lenders with close to 16 regulators authorized to investigate websites, which offer such payday loan lending services. But the tribes have challenged the New York’s authority over their payday lending because they know they are protected by the federal laws.
The tribes have argued that the New York state should not stop residents who want to use the services of the tribes’ payday lending voluntarily since they have the right to decide on which products they want to use. The problem is that even if the New York State managed to bar the tribes from doing business in the State, the lenders could still issue these loans to consumers elsewhere.
These loans are only illegal in 15 states, and the tribal businesses could still issue loans to residents in New York State based on the maximum set interest rate of 16 percent. The matter is even made worse by the fact that there are rogue payday lenders who are not Indian tribes who are doing their business masquerading as American Indian tribes in a bid to deceive the state and prevent it from unearthing their activities.
Such businesses manage to use the tribal sovereignty as a weapon or shield to protect themselves from the reach of state usury laws. The Indian tribes have engaged in the payday lending practices citing it as an e-commerce venture, which offers them the ability to get vital source of revenue, which helps them provide health care, education, public safety, and other essential services.