'A pimp in the family'

Tribes get into the payday lending game.

  • Payday loan offices are everywhere in New Mexico border towns like Gallup, with 46 small loan licenses.

    Andrew Cullen
  • Farmington, New Mexico has 55 payday loan licenses.

    Jonathan Thompson
  • Farmington, New Mexico has 55 payday loan licenses. Now, some tribes are moving to start their own online small loan operations.

    Jonathan Thompson
 

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Lawmakers have tried to rein in the industry. In 2006, Congress passed a law protecting military service members from predatory lenders, but not the general public. The Consumer Financial Protection Bureau, created by the 2010 Frank-Dodd Wall Street Reform Act, pushed big banks and firms out of the refund anticipation loan business. But First Nations Development Institute found that many tax preparers in Indian Country have escaped its reach; Liberty Tax Service, for example, simply works with non-federally regulated businesses to offer refund loans. Last year, it raked in $10 million in tax preparation fees and $30 million from "financial products."

Some tribes have also cracked down, but enforcement off-reservation, where most lenders are based, is difficult. And now that lenders have migrated to cyberspace, it's even tougher. In 2007, New Mexico's Legislature banned certain kinds of payday loans, but lenders simply rejiggered their offerings to skirt the rules. This year, Idaho and Utah also tried to regulate the industry but failed.

That's partly because payday loans provide a necessary – if overpriced – service for the "underbanked." Banks can be intimidating, and in the rural West, they're often distant, which helps explain why Nevadans, Montanans, New Mexicans and Arizonans are some of the heaviest users of alternative financial services. Getting loans is a long, tedious process, and other options are simply not available for those with poor credit.

The industry has also spent heavily to fight regulation. The Community Financial Services Association, which watches out for payday lenders' interests, has contributed over $1.6 million to campaigns and poured $19 million into lobbying since 1999, according to the Center for Responsive Politics. QC Holdings, Security Finance Corp. and Cash America International, all with various outlets in Indian Country, dumped cash into recent elections.

They've bought powerful allies. Last year, 31 House Republicans – most of whom have benefitted from the industry's largesse – sent a letter to the Obama administration arguing that its efforts to edge out online payday-type lenders would "adversely impact tens of millions of low-income American families who depend on short-term credit provided by online lenders." If it was shocking to see the GOP stand up for the working poor, perhaps even more startling was that some Native Americans took the lenders' side, too, claiming that federal and state crackdowns violate their right to self-determination and wreak havoc on their efforts to build economies and offset federal budget cuts.

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