Tribes located in impoverished and isolated areas need the proceeds from online lending to fund their governments and essential services – everything from education programs to new fire trucks, said Barry Brandon, executive director of the Native American Financial Services Association, an advocacy group for tribes involved in the online lending business.
“We have had reports from some of our member tribes that the revenues they are producing from their online lending operations are now making up between 25 and 50 percent of the tribal budget,” he said.
Brandon acknowledges there are some bad actors in the online lending business – including some companies that falsely claim affiliation with tribes – but he says most tribal businesses operate responsibly and in accordance with federal law.
Unfortunately, non-Indian online lenders often claim tribal sovereignty in situations where their ties to tribes are loose at best, said Uriah King, vice president of state policy with the Center for Responsible Lending in Durham, N.C.
“When we scratch the surface, they don’t look like tribal lenders,” King said. “They look like sham relationships that benefit the lenders, not the tribe.”
In one high-profile case, the payday lending operation AMG Services Inc. in Overland Park, Kan., claimed to be owned by the Miami and Modoc tribes of Oklahoma and the Santee Sioux of Nebraska, yet the tribes reportedly only received 1-2 percent of the revenue from each loan.
The real benefactor allegedly was race car driver Scott Tucker, who used $40 million collected from borrowers to sponsor his racing team, according to a complaint filed last year by the Federal Trade Commission.Sovereign immunity for the tribes is a very serious issue, but it shouldn’t be used as a fig leaf for predatory lending, King said.
“At the end of the day, a payday loan is a junk product that gets people deeper into debt, and it doesn’t matter if it’s a bank or nonbank or a tribe, the reality is that it’s just not a good product and it doesn’t matter who provides it,” he said.
Consumers also should be wary of phony online payday loan websites designed to steal their names, Social Security numbers and bank information, he said.
A federal judge in Illinois last week ordered one such operation in Tampa, Fla., to halt operations after an investigation by the Federal Trade Commission.
The FTC accused defendants Sean Mulrooney and Odafe Ogaga of using websites with names such as Vantage Funding, Ideal Advance and Your Loan Funding to debit consumers’ checking accounts without their permission. Tens of thousands of customers lost more than $5 million to the scheme.
Mulrooney and Ogaga allegedly used the scam to finance luxurious lifestyles, complete with fancy cars – Mulrooney owned a Maserati GranTurismo, while Ogaga owned a Rolls-Royce Ghost and a Ferrari, court documents show.
“You absolutely have no idea who you’re dealing with when you take out a loan online and you agree to let somebody put their hand in your bank account,” said Mierzwinski, the consumer advocate with U.S. PIRG. “Please step back and think: Is there any other way I can get this money to meet my bills? Because once you go into high-cost payday lending, whether online or in person, it’s not something you do once. It’s usually something you do again and again and again.”