I just read an interesting article in the National Law Journal of April 6, 2009 about Payday loan companies that are affiliating with Tribal American nations in order to avoid regulation by the United States. Is this legal one may ask?
For the past few years, many states have begun to regulate these payday loan companies. Between the processing fees, interest rates and short terms of the loans, their effective rate of return is often between 600% – 800%. It is an obnoxious way to gouge a necessitous borrower. Yeah, yeah, whine whine, the payday lenders will cry “its all about risk and there is a lot of it with these borrowers.” Screw them. Its all about the bottom line and there is even more of that than there is risk. I don’t begrudge anyone a fair rate of return. It just turns my stomach when a fat cat lender holds his dollars over a borrower’s head and makes him jump through rings of fire for the loan. I am a collection attorney and yet this kind of debt nauseates me. I used to collect that crap and now I won’t touch it. Old age, I guess…ok…back to our story.
In the past two years, many states out west, such as Colorado, West Virgina, California, Nebraska and Oklahoma have passed laws that regulate these payday loan companies and the fees that they can charge. Indeed, Michigan is now one of those states that regulates these payday loans. Not having the desire to be regulated or the conscience to do the right thing, some of these lenders have decided to incorporate under the laws of Indian. Humorously, some consumer groups have labeled these Indian groups as “rent-a-tribes.” Anyways, these payday lenders are now claiming sovereign immunity when served with state court subpoenas. Essentially, the payday cowboys are telling the states to buzz off with their regulations and such, and that the states cannot touch them. Are they right? They may legally be correct.
Colorado has decided to take on this challenge to see who is ultimately correct. Its court of appeals has held that if a payday loan company is not “sufficiently affiliated” with an Indian tribe, that it may be subject to a court’s subpoena and subsequently, it may be regulated. The court then set forth a test to define what “sufficiently affiliated” means. Naturally, neither the payday loan companies nor the Indians care to have their claims to sovereign immunity questioned. This is a fascinating issue that I will follow and report upon later. I will keep you posted as events unfold.
So, what do you think? Should payday loan companies be allowed to scalp the under privileged with the help of our Tribal American brothers? Does anyone else see irony in this?