Sherry Treppa, the chairwoman of the Habematolel Pomo of Upper Lake in California, appears in An Unlikely Solution, a film about the online lending industry in Indian Country. Still image: An Unlikely Solution

Tribal lenders face pressure as new rule aims to end 'debt traps'

The lending industry in Indian Country is facing new pressures as the Obama administration moves forward with a rule that seeks to prevent consumers from falling into what federal officials are calling "debt traps."

Tribal lenders are already under scrutiny across the nation. Federal agencies, state officials and individual consumers have questioned financial products that come with interest rates and repayment plans that they consider to be unethical or even illegal.

A new rule from the Consumer Financial Protection Bureau aims to settle some of those questions by imposing standards on all lenders, including those operated by tribes. The 1,341-page proposal regulates interest rates and payment methods and requires financial service firms to make determinations regarding credit worthiness before offering a consumer loans.

"Payday lenders already have to comply with federal laws on matters such as truth-in-lending and debt collection practices. Today the Consumer Bureau is taking the next step, adding new federal protections against lending practices that harm consumers by trapping them in debt they cannot afford," Richard Cordray, the director of the agency, said at a lengthy and well-attended public forum in Kansas City, Missouri, on June 2.

The Lac Vieux Desert Band of Lake Superior Chippewa Indians was featured in An Unlikely Solution, a film about the online lending industry in Indian Country. Still image: An Unlikely Solution

According to Cordray, the bureau consulted tribes about their lending practices while developing the proposal. One session was held during the National Congress of American Indians annual convention in October 2014 and another was held in Washington, D.C., in June 2015.

But tribal leaders who are involved in the lending industry say those efforts have fallen short of "meaningful" consultation. They believe they should be treated as "co-regulators" instead of having their own laws supplanted by the federal government.

"Efforts to impose additional regulations would significantly obstruct access to credit and reduce or eliminate consumer choices for meeting unexpected financial obligations," Sherry Treppa, the chair of the Habematolel Pomo of Upper Lake in California, told the House Committee on Financial Services at a hearing in February.

Treppa's tribe is part of the Native American Financial Services Association, an organization that also accused the Consumer Bureau of failing to engage in adequate consultation. According to Barry Brandon, the group's executive director, federal law requires tribal regulators to treated with respect.

The office of American Web Loans in Red Rock, Oklahoma, a lending business owned by the Otoe-Missouria Tribe. Photo by Jane Daugherty

"The Bureau’s engagement in consultations with tribes as part of the rulemaking process was a disingenuous, check-the-box exercise, not a sincere effort to work with tribal regulators and elected leaders," Brandon said in a statement.

The concerns raised by Treppa and Brandon are also at the heart of an ongoing court battle involving three tribally-owned lenders. In a May 2014 decision, a federal judge said he was "honored" to have the "sovereign" tribes appear in his court "as it would be honored to have the State of Wisconsin or the Federal Republic of Germany or the Holy See."

But Judge Michael W. Fitzgerald of California concluded that the Consumer Financial Protection Bureau is well within its rights to investigate the Otoe-Missouria Tribe, the Tunica-Biloxi Tribe and the Chippewa Cree Tribe as ordinary businesses rather than approach them as governments.

The investigations, however, are on hold pending resolution of the dispute by the 9th Circuit Court of Appeals. Oral arguments were heard on Monday and the outcome could determine whether the Consumer Financial Protection Act indeed requires tribes to be treated as "co-regulators."

Indianz.Com SoundCloud: 9th Circuit Court of Appeals Oral Argument in Consumer Financial Protection Bureau v. Great Plains Lending June 6, 2016

"It's the only statute this court has ever confronted in which Congress went out of its way to actually mention tribes and define them on par with states as equals," attorney Neal Katyal, who served in a top position at the Department of Justice before leaving the Obama administration, told a three-judge panel of the 9th Circuit.

Turtle Talk has posted briefs from the case, Consumer Financial Protection Bureau v. Great Plains Lending.

As the case was proceeding, the Chippewa Cree Tribe ended its relationship with a company that was helping determine which consumers could receive loans. Plain Green Loans is now hoping to expand the types of financial services it offers going forward.

“There is a growing need for the short-term installment lending services we provide and an immediate need for jobs and economic development in our tribal community where we are based,” CEO Jay Abbasi said in a press release. “By implementing these changes we can provide our customers a higher level of service and create more job opportunities among tribal members, which is the overarching mission of the tribe’s economic development company.”

YouTube: 9th Circuit Court of Appeals Oral Argument in Consumer Financial Protection Bureau v. Great Plains Lending June 6, 2016

Separate from the Consumer Bureau's investigation, Plain Green has been ensnared in a wide-ranging corruption scandal on the Rocky Boy's Reservation that saw two of its former executives convicted, sentenced and ordered to repay millions of dollars to the tribe for taking kickbacks from a company that worked with the lending operation.

Federal authorities now say that company cheated the tribe out of $3.5 million. The indictment against Encore Services and its president, Zachary Roberts, cites the kickbacks that were given to former executives Neal Rosette and Billi Anne Morsette.

Encore Services is not the same as Think Finance, which was providing installment-lending services to Plain Green up until the recent announcement by the tribe.

The Consumer Financial Protection Bureau's proposed rule has not officially been published in the Federal Register but comments from tribes and the public are being accepted at least through September 14. Since the process is starting so late in the year, it's unlikely that a rule could be finalized before the end of the Obama administration.

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