Summary of Tribal Payday Lending Models: Tribes that are not geographically situated to profit from gambling have turned to consumer payday lending via the internet. Two Indian pay-day lending models have developed. Under the first model, a tribe forms a Tribal Legal Entity (TLE), a tribally chartered business organization, which provides payday loans to consumers nationwide, either via the internet or via store-front operations. Under the second, less prevalent model, a tribal member establishes either a store-front or internet only pay-day lending company. In this less common model, it is not always clear whether the payday lending company is a TLE or simply a registered business organization in the state where it operates. Both models have allowed payday lenders to benefit from a tribe’s sovereign immunity.

State and Federal Assertions of Regulatory Authority: The recent emergence, and prevalence, of tribal payday lenders, either operating as TLEs or owned by tribal members, calls into question the authority of states, the Federal Trade Commission (FTC), and the Consumer Financial Protection Bureau (CFPB) to regulate tribal payday lending companies. For example, states struggle with enforcing state lending and usury laws in cases involving tribal lenders, because state law only applies to tribal activities under certain limited circumstances, and second, tribal sovereign immunity makes state-court discovery rules inapplicable. Thus, TLEs and member owned payday lending operations may be able to avoid state regulation that applies to other, non-tribal payday lending entities.

Although the TLE or member-owned payday lender may be immune from suit, the nontribal financial institution is likely not immune. In many instances the “true lenders” are non-tribal financial institutions. These non-tribal financial institutions both finance the payday loans and receive the majority of the economic benefits from the payday lending transactions. Because these non-tribal financial institutions lack the protection of sovereign immunity, the next trend in tribal payday lender litigation may be targeted at non-Indian financial institutions.