One tribe's fight to bring you 449% payday loans

An Oklahoma tribe is fighting for its right to offer Connecticut consumers payday loans, reports the Hartford Courant—ironically arguing that state restrictions on its offerings of high-rate, short-term loans are financially damaging.

Last year, Connecticut's Department of Banking issued cease-and-desist orders to two online lenders owned by the Oklahoma-based Otoe-Missouria tribe for offering small, short-term loans with annual percentage rates as high as 448.76 percent. That's far in excess of the state's 12 percent cap on such loans. Earlier this year, the state almost imposed fines totaling $1.5 million on the two tribe businesses, Great Plains Lending LLC and Clear Creek Lending LLC, and tribe chairman John Shotton.

The tribe has filed an appeal with the state of Connecticut, and last month, Shotten filed a federal rights civil lawsuit against state banking regulators.

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Now, in support of the tribe, the Courant reports, a nonprofit conservative group called the Institute for Liberty has launched a web site and Twitter campaign and put up at least one billboard with messages accusing Governor Dannel P. Malloy "of being party to a regulatory action that deprives an impoverished tribe of revenue." Campaign messages pair photos of Native American children with phrases including, "Gov. Malloy, Don't take away my daddy's job," and "Gov. Malloy, Don't take away my future."

Institute president Andrew Langer told the Courant: "It's the governor's state. He's the governor, and the buck stops with him." Langer declined to identify his funders, but told the paper he is not being paid by the tribe or any of its financial partners.

It's not the first time tribes have argued in court that that tribe-owned payday lending businesses, like tribal governments, have sovereign immunity—meaning state regulators lack authority to regulate them. In 2013, the Otoe-Missouria, along with the Michigan-based Lac Vieux Desert Band of Lake Superior Chippewa Indians, filed a federal lawsuit against New York state in response to a state campaign against payday lenders. The tribes dropped the lawsuit last fall, The Wall Street Journal reported, saying the legal battle "consumed considerable resources."

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Seventeen states and the District of Columbia have enacted double-digit caps on payday loans, according to the Center for Responsible Lending. Consumer advocates say working with Native American tribes is only the most recent tactic payday lenders are using to get around those caps and other state usury laws.

Jessica Hill | AP Photo

Connecticut Gov. Dannel P. Malloy delivers his budget address to the senate and house inside the Hall of the House at the State Capitol, Feb. 18, 2015, in Hartford, Conn.

"There is no denying that Native American tribes suffer terribly from economic distress and instability," Ellen Harnick, senior policy counsel for the Center for Responsible Lending, told CNBC.com. "Having said that, what they are doing is making an arrangement that generates some revenues for tribes, although nowhere near what payday lenders get, on the backs of poor people off reservation."

It's easy for consumers to get trapped in a cycle of payday loans, with the typical two-week loan carrying an APR of 391 to 521 percent, according to the Center for Responsible Lending. "The loans are marketed very aggressively as something helpful, as a quick-fix for a financial emergency, and they're almost never that," said Harnick. The business model depends on borrowers renewing loans or taking out new ones, with 90 percent of business stemming from borrowers with five or more loans per year. "The impact for consumers can be devastating," she said.

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In the Courant's report, one Connecticut resident who borrowed $800 from Great Plains Lending had, after a year, made $2,278 in payments toward the loan.

Harnick said the partnerships between tribes and payday lenders are likely to falter as state and federal regulators continue to crack down on payday lending. The Consumer Financial Protection Bureau recently proposed a framework for short-term loans, while the Department of Defense has issued proposed predatory lending protections for active-duty service members.

States have begun targeting the state-regulated banks and payment processors tribal lenders use, rather than the lenders themselves. "That's a game changer," Harnick said. Should lenders' tribal partnerships prove restrictive, she said, "they'd drop the tribes like a hot potato."