'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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In cubicles crammed with pictures of their kids and funny quotes, they typed and chatted into headsets with people in other states. A sign on the wall read: "My job provides my family & I with a sense of security, Thanks 2 you." It was a common sentiment among the more than 100 employees of the call centers in Eagle Butte and nearby Timber Lake, both run by Western Sky – the biggest private employer in this impoverished part of South Dakota.

Last fall, the online lender laid off every employee, mostly members of the Cheyenne River Sioux Tribe. Various states and the feds had gone after the company for violating interest rate caps and other usury laws. Company owner Martin "Butch" Webb, a tribal member, argued that Western Sky was immune because it operated on the reservation. But the tribe didn't own the business, and refused to back the company in court.

Western Sky is an outlier, though: Most Native American online lenders are owned by tribes. This allows them to legally invoke tribal sovereign immunity, even though their firms rarely headquarter on reservations or employ tribal members.

The issue first hit public consciousness in 2005, when Colorado's attorney general subpoenaed Cash Advance and Preferred Cash Loans. The online lenders, owned respectively by the Miami Tribe of Oklahoma and the Santee Sioux Tribe of Nebraska, responded that they were beyond the state's legal reach: The Supreme Court ruled in 1998 that tribes and their "arms" have sovereign immunity from contract lawsuits, even when they involve off-reservation business. Colorado courts vindicated the companies' claims – an apparent victory for tribal sovereignty and Internet commerce.

Yet when Colorado started its investigation, the companies weren't yet affiliated with tribes. They were owned and operated by companies controlled by Scott Tucker, who turned them over to the tribes that year. According to a Center for Public Integrity investigation, Tucker made millions off payday lending and flaunts it: He owns an $8 million Aspen home and 15 racecars. He still appears to be the businesses' de facto operator and primary profiteer; the tribes essentially shield his companies from state regulators in exchange for 1 to 2 percent of the gross revenues. Most of the small number of tribes in the business have similar arrangements.

Since tribal finances are confidential, and the tribes involved won't talk, it's difficult to gauge their reward. But details from court cases suggest a tribe could make $10 million or more annually. "(Most of) the tribes that are doing this are incredibly poor," says Indian law expert Matthew Fletcher of Michigan State University. "They are not gaming tribes. They do not have natural resources. They are doing this because they have to."

But University of New Mexico law professor Nathalie Martin, who has written extensively on payday lending, wonders if the payoff is worth the risk. Media coverage of tribal online lending has portrayed an explosion of the "sovereign model," with dozens of tribes exploiting unwitting consumers to rake in big profits. In fact, very few tribes are involved, and their smaller stake means modest revenues. Combine that with short-term lending firms' unfavorable reputation and their "sham" arrangements with tribes, and the public may begin believing tribes are abusing their sovereign immunity.

If and when a "rent-a-tribe" case advances far enough, Martin worries, it might give the U.S. Supreme Court, which is already hostile to tribal sovereignty, an excuse to eviscerate it, with implications reaching far beyond online lending. Even Congress, egged on by storefront payday lenders, states' rights advocates and those who want to disempower tribes, could move to limit sovereign immunity. "Sovereignty is so important," says Martin. "Tribes shouldn't use it lightly."

For the most part, tribal lenders' websites are indistinguishable from those of other online lenders: Smiling faces, cheerful icons, a lot of green. Nor are the terms much different: Average interest rates are at least 300 percent. And their customer profile is generally the same as storefront lenders': lower-income working class and minorities. Which means that in some cases, members of tribes affiliated with lenders are customers – or victims – of those same lenders. Consumer advocates compare the dynamic to economically troubled tribes opening their land to radioactive waste dumps, or buying a coal mine to fuel a power plant that poisons tribal land and air.

Outspoken Native scholar and journalist Charles Trimble made a different comparison in a 2011 Indian Country Today column, which he still stands by. Whether the tribes own the businesses, he wrote, or are just being rented, "it is rotten to the core and taints and weakens the sovereignty of all tribes. It's like having a pimp in the family; he shames everyone, but you can't disown him because he is family."

*The name has been changed.

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