Payday lenders join Indian tribes


OVERLAND PARK, Kan.—From rows of booths beneath handwritten signs that read “CUSTOMER SERVICE IS AN ATTITUDE, NOT JUST A DEPARTMENT,” more than 150 AMG Capital Services Inc. employees provide loans and collect payments across the United States.

This is your average call center in a cookie-cutter suburban office park, except for this: at least a dozen payday lenders doing business with AMG belong to Native American tribes. . These loans average around $400 and are secured by the borrower’s next paycheck.

Due to the sovereign immunity granted to tribes by the US government, they are shielded from interest rate caps and other payday loan regulations. Tribal lenders can even lend in the 12 US states where lawmakers have kicked out the rest of the payday loan industry.

These benefits are attracting Native American tribes to the payday loan business and sparking a scramble for lenders to team up with the tribes. Much like the casino boom that began about 25 years ago, payday loans are emerging as a promising source of income for economically struggling tribes, especially those willing to let outside businesses piggyback on their freedom. vis-à-vis state and US lending laws.

payday tribes

Some of the Native American groups with payday loan operations

state of the tribe

SD Cheyenne River Sioux Tribe

Chippewa-Cree Tribe Mount.

Miami Tribe of Oklahoma Okla.

Modoc Tribe of Oklahoma Okla.

Mowachaht/Muchalaht First Nation Wash.

Otoe-Missouria Tribe of Okla Indians.

Source: WSJ research

The “sovereign lending model” is “exploding and will be the future lending model for payday loan companies,” said Jer Ayler, president of Trihouse Inc., a Las Vegas payday loan consultant. A lawyer for AMG declined to comment.

More than 35 of the 300 companies that provide payday loans over the Internet are owned by Native American tribes, said Frank Cotton, an Atlanta payday loan consultant. Tribes doing business with online lenders got about $420 million in payday loans last year, or about 12,500 loans a month, he estimates.

Exact numbers are unknown as tribes are required to disclose few details of trading ventures. At least seven federally recognized tribes have payday lenders, according to court filings and other documents, ranging from the 6,177-person Chippewa-Cree Tribe in Montana to the Modoc Tribe in Oklahoma, with 200 members.

“We don’t mean to brag,” said Bill Follis, a former bank loan officer who has been Modoc’s chief since 1974. “But that’s fine.”

Some observers predict that the number of tribes with payday loan operations could eventually soar near the 400 that now have casinos. Over the past 18 months, more than 1,000 payday lenders have expressed interest in cloning the strategy used at the Overland Park call center, said Mr. Ayler, the Las Vegas consultant.

All it takes to get a deal done is a willing tribe and a willing payday lender. The lender typically incorporates on tribal land, agreeing to pay the chief a salary of a few thousand dollars a month, according to people familiar with the agreements. These payments can swell if the tribe has relationships with more than one lender, a common practice.

Most payday lenders have no physical presence on tribal lands. To enter into business with a tribe, they typically start making loans on behalf of the tribe from the lender’s existing call center, according to industry consultants.

In October, Peg Calvird of Suffolk, Va., got a $600 payday loan from American Web Loan Inc. She came across the company while surfing online to find a way to make her mortgage payment. The interest rate on the loan was 300%, well above the 36% legal limit in Virginia.

The fine print at the bottom of the American Web Loan website indicates that the company is part of the Otoe-Missouria Indian Tribe, based in Red Rock, Okla. American Web Loan and Tribe officials did not respond to calls for comment.

Ms Calvird, a 46-year-old computer systems administrator, said she did not know her loan was from a Native American tribe. “It looked like any other website,” said Ms. Calvird, who repaid the loan.

“We are largely powerless to stop them,” said Colorado Attorney General John Suthers, who has tried unsuccessfully since 2005 to force lenders belonging to the Miami Nation of Oklahoma and the Santee Sioux Nation in Dakota. South to stop lending to Colorado residents.

In November, the Colorado Supreme Court ruled that the two payday lenders were protected from enforcement action as weapons of Native American tribes.

Sovereign immunity is becoming even more attractive as states crack down on alleged abuses in the traditional payday lending industry. Seventeen US states have capped interest rates on such loans or banned them altogether. Overall, payday loan volume fell to $38.5 billion in 2009, down 24% from 2007, according to Stephens Inc., a Little Rock, Ark., investment bank.

Some payday lenders have tried to avoid interest rate caps by incorporating in states with no rate caps, such as Delaware and Utah, and then imposing higher rates on borrowers across the United States.

This practice suffered defeat when Pennsylvania’s highest court ruled in October that Cash America International Inc.,

the largest publicly traded payday lender by revenue, had to comply with state interest rate and licensing rules, even though the company is incorporated in Nevada. The possibility of similar defeats elsewhere is another reason why payday lenders make deals with tribes.

A Cash America spokeswoman declined to comment on whether the Fort Worth, Texas-based company was interested in the tribal deals.

Mr. Follis, the chief of the Modoc tribe in Miami, Okla., said getting into the payday loan business has generated jobs that are a welcome addition to the tribe-owned cigarette store, Factory recycling center and the 25,000 square foot casino near Interstate 44.

Sitting in his office in a farmhouse dwarfed by the Stables Casino, with 546 slot machines and two restaurants, Mr Follis would not say how much money the tribe receives from payday loans or identify the lender it owns . Modoc officials have been approached by other payday loan companies over the past six months, he said.

Asked about the location of the tribe’s payday loan operation, Mr Follis said he thought “it’s somewhere in Kansas”.

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