TRIBAL PAYDAY LENDING IN TROUBLE

If you have been having trouble getting a Native American loan from any of the big tribal lenders like Great Plains Lending, Spotloan, Plain Green Loans, Mobiloans or Ameriloan, there's a big reason why and it all boils down to New York, as in the state of New York.  The state of New York (both the attorney generals office and a state financial services superintendent) are going after tribal lending on a couple of fronts.

First, the New York financial services office has sent a letter to 35 total payday lenders, many of whom are Native American loan companies such as Great Plains Lending, demanding that they cease and desist their business activities within the state of New York, meaning anyone who lives in New York would be off limits to the tribal lenders.  Or a better way of saying it is that the tribal loan companies will no longer have access to anyone living in New York to push their loan products to.  This is landmark situation, because as New York establishes this new rule states like Colorado, California, and Illinois will most likely not be far behind with similar regulations and restrictions. 

Second, the Native Americans went to federal court to fight back against the state of New York looking to get the state regulators off their back.  The plan was to assert the sovereign status of the tribal lands and the business practices of the tribes themselves.  Did the Native Americans push their sovereign status and win?  No, they did not.  They did push their sovereign nation status but that didn't do much to impress the federal district judge in Manhattan. 

The setbacks just keep coming against the tribal lending business.  Now the newest threat is that a number of states follow New York and try to severely limit the interest rates on the loans that are made available in these particular (often large) states.  The problem is the following question, do the tribal lenders maintain a lower interest rate business in these states that have resisted (with court proceedings and decisions) or do these companies simply back-up their bags and leave town? 

It's hard to say what they do, if I had to guess I would say that most tribal loan shops close down their business in these particular states.  Why?  The risk of lending out lower interest loans to a very high risk pool of borrowers is just too great.  Imagine if you owned a loan company and the company made 100 loans in a given month.  The loans carry a 36% APR on them, which sounds like a lot of money and it is, under normal conditions.  But these are not normal conditions, because the group of borrowers you have as customers have severe financial problems going on in their lives.  So it turns out (hypothetical) that out of the 100 loans your company issued only 60 of those loans are going to be repaid.  Since so many of the loans will not be repaid, or will only be partially repaid, that means the tribal lender has to charge a high interest rate in order to cover the cost of all those bad loans. 

That's the thinking, that's the mantra, but we don't have any true information to back up those claims because no tribal lender is a publicly traded corporation, which means none of this information is available.  But it makes sense that if you loan a bunch of money to people with medium, low and outright bad credit ratings that you could (will) have some indifference when it comes to collecting on those debts.  So this is the problem, because many states with payday lending and interest rate limits (caps) don't care about these (potential and realized) financial losses at the tribal lenders, they are out to protect the consumer from terribly high rates which are of course debilitating to a household budget of anyone who borrows at these rates. 

The state regulators want to get these rates that are ranging from 390% APR to 800% APR (and higher in some instances) down to around 36% to 48% APR's.  That's a huge change, that's a massive shift in return for the Native American loan shops.  It is such a shift that it will change the business model of the tribal payday lenders, and probably the installment lenders as well. 

This is the question: do tribal payday lenders still do business in states that pass these new interest rate restrictions?  Right now the case is on appeal at the federal appellate court level.  It will almost certainly go to the U.S. Supreme Court either way, no matter which side loses.  That means the Supreme Court will have to make the final decision of whether states can regulate the rates that sovereign, tribal lenders make on their loans or if the tribes themselves can maintain control of that business decision. 

Depending on which way the Supreme Court goes it could alter the lending landscape, as tribal loans are without a doubt the most simple loans to qualify for, from any lending source.  If the state regulators win there will be a potential huge loss of active lenders in many states and the credit crunch that has already been ongoing will only tighten further. 

At the same time, there will be thousands of consumers who are getting financially pillaged by these exorbitant rates that will be relieved of this stress and financial strain.  It will be an interesting case and it will definitely have a big impact on the tribal loan companies, especially those that are engaged in the payday lending side of the trade.

Comments

[No Credit Guy]

There are other lenders besides these tribal loans. The reason people pay the high rates is only because they have no credit. If you have anything like decent credit then you should try a non-tribal lender.

[plain green loans complaints]

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