by Ben Sweiry ·
Modified on 14 September, 2022
Native American tribes are quite prominent in the payday lending space, with more relaxed laws (known as sovereign immunity) helping native tribes across the country to access these less desirable but often lucrative businesses – as part of a way to help these communities build up and sustain themselves.
Payday lenders across the country often partner with Native American tribes in order to get around consumer protection laws through sovereign immunity, also known as Tribal Lending Enterprises.
Key Points
- The only real difference between an online payday loan and an online tribal loan is the identity of the lender – Indian payday loans are offered by Native American reservations.
- Always be wary – tribal lenders argue that since they fall out the state and federal jurisdictions, they don’t have to respect consumer laws, which can lead to more borrower exploitation.
- Tribal loans can be very expensive, with some loans having an APR of three-digits.
- As they often fall between the state and federal laws, tribal lenders can often lend in higher quantities.
Why Are Native American Tribes Offering Payday Loans?
Despite stereotypes that tribes operate profitable casinos to generate income, many Native American Tribes operate other enterprises to earn money and sustain themselves.
Tribal leaders have suffered enormously for centuries and being able to offer things like high cost lending and casinos is one of the ways of restoring and maintaining their sovereign nations. It can be challenging to bring in an income on reserves, particularly those far from the nearest urban centre.
Should I Get Payday Loans From Indian Tribes?
Given that sometimes offering loans is a means of keeping tribal communities afloat, their loans are sometimes offered hand-in-hand with massive interest rates. Some have even been known to have an equivalent annual interest rate above 750 percent. High rates are not unusual with any type of short-term loan, however it is recommended to shop around and be confident that the loan you are considering is the most suitable for you.
Because of their high interest rates, agencies have tried to create lawsuits and regulations against what is known as ‘predatory lending‘ by Tribal-affiliated online payday lenders. These usually fail due to sovereign immunity, but the Federal Trade Commission and Consumer Financial Protection Bureau continue to monitor the industry.
However, that is not to say that all Native-American lenders are sure to be offering massive interest-rates. You may find a loan that provides a fair rate for the money you need but be sure to compare the market before accepting a loan.
What is Sovereign Immunity?
Sovereign immunity allows certain bodies to be exempt from legislation meaning that they remain immune to committing legal wrongs in a given situation.
For Native American Tribes, this means that they are not bound to all legislation imposed by the local and federal governments.
Not only does this grant them certain legal protection when operating a business, it also is the reason why so many casinos and money loaning services are provided by Native Americans.
How Do Sovereign Loans Affect Payday Loans?
Due to the nature of payday loans, controls have been passed to regulate them. Because these cash advances are lent to practically anybody with a checking account, they often carry very high-interest rates.
These high-interest rates are one reason why consumer advocates have been trying to implement regulations on both state and federal levels to restrict these loans.
However, interest-rate caps and payday loan regulations are not legally enforceable on tribal property. This extensive immunity also grants Tribal-owned online payday lenders the right to lend in states where non-Native-American-owned payday lenders are lawfully banned.
Native American Payday Loans and Gaming
Native American Gaming is the term given to any gambling operations, such as bingo halls and casinos, which operate on tribal land in the United States. See all the states where payday lending is legal.
Due to tribal sovereignty, their operations are not subject to state or federal laws. This is due to the Indian Gaming Regulatory Act, introduced in 1988. As such, reports from 2011 showed around 460 gambling operations across the US, run by 240 tribes and accounting for an annual revenue of around $27 billion.