As we are all aware, the Wall Street Journal did a story on payday loan companies using a tribal relationship strategy to avoid payday loan state-by-state licensing. Attacks on these relationships by state attorney generals have resulted in the relationships being upheld as extensions of sovereign immunity.
The Dodd-Franks legislation targeted payday loans under its consumer protection provisions. While my understanding is that the CFPB federal agency will respond on a complaint only basis rather than go after payday loan companies proactively, this becomes another reason for payday loan companies to pursue the sovereign model.
Why? Because the practices of payday loan companies without the protection of sovereign immunity are subject to state-by-state regulations, legal attack and now consumer protections pursuant to federal law.
Tribal joint ventures between payday loan companies and federally recognized tribes, however, extend the tribe’s sovereign immunity from legal recourse to the joint venture.
Moreover, tribal lobbying groups such as the Native American Fair Commerce Coalition (www.savethetribe.org) have arisen to protect these joint ventures under the aegis of protecting sovereign immunity.
Comments
2 responses to “Tribe Payday Loan Lending: An Additional Layer of Legal Protection”
The tribe payday loan model, if for no other reason than to arbitrage the risk in employing an offshore, state-by-state, or choice-of-law lending model, makes a great deal of sense. Of course, your ultimate exit strategy, risk tolerance, etc. play a role in a lender’s ultimate course of action. And, if you have the ability to “run” simultaneous portfolios, the tribe model is a “no-brainer.”
PS: Thank you Allen for sharing your thoughts via our recent conference call. The “Mastermind Group” is still talking about it!
Jer, the economics of the tribe lending model are SERIOUSLY better than the alternatives as well!