We have little use for payday lenders.
They charge high interest rates to desperate people struggling to make ends meet, and avoid overly tough state regulation by handing out campaign donations, all the while claiming to provide safety-net services.
A Midwestern businessman took high-interest lenders’ cynicism to a whole new level by claiming his business was owned by Midwestern Indian tribes and hiding behind tribes’ right not be regulated by states, including California.
The companies operated as AmeriLoan, United Cash Loans, US Fast Cash, Advantage Cash Services and Star Cash Processing. California alleges the lenders charged interest rates and fees in excess of 1,000 percent of the loan amount, illegally renewed loans and used threats to collect payments, all in violation of state law.
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Attorney General Kamala Harris has appealed a state court of appeal decision that hamstrung the state’s ability to regulate non-Indian-owned companies that affiliate with tribes. Attorneys for Miami Tribe of Oklahoma and Santee Sioux Tribe of Nebraska argue that the tribes controlled the lenders, and that lenders are immune from the state’s reach.
The California Supreme Court, which agreed to review the case, must determine how far the state can go in such instances to enforce consumer protection laws without running afoul of tribes’ immunity. In our view, the state’s responsibility to protect consumers against slick lenders should come first.
Harris acknowledges that businesses that truly are controlled by tribal governments for the benefit of tribes generally enjoy immunity from state law. But that line blurs – or should – when tribes act as beards for operators who fleece consumers.
The case, People v. Miami Nation Enterprises, has its beginnings in 2006, when the old California Department of Corporations, since folded into the Department of Business Oversight, ordered Internet payday lenders to cease unlicensed activities in California. The lenders refused, contending they were beyond the state’s reach because they were tribal entities.
As California regulators pressed their case in the courts, the Federal Trade Commission in January obtained a $21 million settlement against AMG Services, a Kansas-based loan-servicing company at the center of the controversy that claims to be owned by tribes. As detailed by the Kansas City Star and the FTC, race car driver- businessman Scott Tucker appears to be the main beneficiary, using $40 million collected from borrowers to sponsor his racing team. A federal case is pending against Tucker in Las Vegas.
Harris quoted the state official responsible for enforcing California law as saying: “Tucker and his company totally controlled, operated and managed the businesses as part of an interrelated network of companies that have common ownership, business functions and employees and that persistently commingle funds.”
Tucker’s operation is hobbled by various investigations. But if the appellate court ruling stands, Harris contends, new businesses with superficial tribal affiliation could gain immunity from state regulation of mortgages, insurance and loans, contractors, car repair, unemployment insurance and benefits, employees’ wages and hours, workers compensation and environmental protection.
The California Supreme Court has an opportunity to establish clear lines and provide important consumer protections in a decision that will become ever more relevant as tribes expand commercial ventures.