Considering a payday or installment loan from a tribal lending entity? Be sure you understand all applicable laws before entering into any agreement.
Let’s take a look at tribal lending basics to better understand the advantages and disadvantages of tribal lending entities.
The first thing that you need to understand is the concept of tribal sovereignty. The US government recognizes indigenous tribal nations as domestic dependent nations. These nations have inherent authority to govern themselves within the borders of the US.
This right of self-government is not delegated by congressional acts. It is inherent and based on government-to-government treaties between the American Indian Tribes and Washington, D.C. Unless a federal statute or treaty removes a power, the tribe is assumed to possess it.
For this reason, and because tribes are separate from federal or state governments, states do not have the power to regulate them. In other words, your state laws do not apply. Although this is being contested by some states (especially with regards to native American gaming), at the time of this article you should assume that tribal lending entities are not regulated by your state’s usury or consumer protection laws.
Update July 30, 2013: The FTC recently sued several payday lenders for allegedly engaging in unfair and deceptive practices. A court found that payday lenders can’t avoid federal consumer protection statutes (Electronic Fund Transfer Act, FTC Act and Truth in Lending Act) simply by aligning themselves with tribes.
Advantages of Tribal Lending Entities:
- they can meet demand for cash loans in states with discriminatory payday loan laws
- they can offer more flexible rates and terms in such states
- more competition in the market tends to spur innovation and drive prices down
Disadvantages of Tribal Lending Entities:
- you and your loan transaction are not protected by state consumer protection laws
- loans tend to be more expensive than cheaper payday loan alternatives like credit unions
- it may be difficult to contact lenders in the event of a late payment or dispute
- in the event of a dispute, governing laws / jurisdiction may be unclear
We believe more cash loan options are better than fewer options for both borrowers and the market.
That being said, unless you fully understand:
- USA federal laws pertaining to tribal sovereignty, and;
- the laws of the Indian Reservation pertaining to lending and consumer protection.
…you’ll probably enjoy a safer transaction with a lender legally licensed in your state of residence.