Payday Lenders Partner with Indian Tribes

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By: Javi Calderon
Payday Lenders Partner with Indian Tribes

Facing mounting restrictions from State legislatures across the U.S., payday lenders have started partnering with American Indian tribes to take advantage of their sovereignty.

Granted immunity by the U.S. government, Indian tribes are exempt from interest-rate caps and other payday loan regulations. Tribe-affiliated loan lenders can even offer loans in the 12 U.S. States that have completely outlawed payday loans.

Much like Indian casinos, payday lending has become a profitable revenue source for American Indian tribes. In fact, tribes made over $420 million from cash advance loans last year, providing over 12,000 loans per month. More than 10% of the 300 Internet loan lenders online are owned by tribes and many believe that the number of Indian tribes owning payday advance stores will soon rival the 400 that own casinos across the country.

To benefit from the Indians tax exemptions payday lenders do not have to have a building on Indian property. They need only sign loans in the tribe’s name and conduct business from a call center on the reservation. In fact, for most of these partnerships the lender is based in a State several states away.  

Just last November the Supreme Court ruled that two lenders run by American Indian tribes were safe from tax law enforcement. In 2008 a California court ruled in favor of five payday loan companies who claimed Indian affiliation.

Companies who have moved their operations to States with less stringent payday loan laws, however, have repeatedly been held accountable for abiding by the laws of the State where their client resides.

Due to aggressive regulations in at least 17 States the payday loan industry has seen a 24% drop in profits since 2007. As more and more States tighten their grip on lending laws many more payday lenders will start looking to partner with Indian tribes to help boost their profits.