Often you will find that States that allow Payday loans have a large Native American population. This is because Native Americans have legal advantages that make providing online payday loans easier and more profitable.
Payday lenders across the country partner with Native American tribes in order to circumvent consumer protection laws through sovereign immunity, also known as Tribal Lending Enterprises.
This article will explain what this means and more such as:
- What is Sovereign Immunity?
- How does Sovereign Immunity affect payday loans?
- Why are Native American tribes offering payday loans?
- Do Native American tribes’ payday loans affect other lenders?
- Should you borrow from a tribal-based lender?
What is Sovereign Immunity?
Fortunately for tribes, Native Americans are legally shielded by sovereign immunity. This allows the reservations to hold limited autonomy in governing their own land.
As a result, they are not bound to all of the legislation made by local and federal governments. These legal protections brought by sovereignty are why they are allowed to operate casinos on tribal land.
So How Does This Affect Payday Loans?
Due to the nature of payday loans, controls have been passed to regulate them. Because the eligibility requirements are not the most extreme, payday loans can often carry very high-interest rates. Therefore many States have attempted to cap interest rates and stop payday loans.
However, interest-rate caps and payday loan regulations are not legally enforceable on tribal property. This immunity also grants Tribal-owned payday lenders the right to lend in states where payday lenders are lawfully banned.
Why Are Native American Tribes Offering Payday Loans?
Despite stereotypes that all tribes operate profitable casinos, many Native American Tribes operate other enterprises to create an income, including payday loan lenders.
Some operations, such as casinos, may struggle to generate sizeable profits. Therefore, Tribes looking to create more income have begun offering online payday loans or partnering with already established payday lenders.
Most often, tribal loans are short-term installment loans that give you time to receive your next paycheck.
How Does This Affect Other Payday Lenders?
With more Native American Tribes offering payday loans, many lenders in various states have begun to have partnerships with various tribes.
This allows them to benefit from sovereign immunity and thus more payday lenders have been created because of this.
Should I Borrow From A Tribal-Based Lender?
If you’re looking for a payday loan, you should be aware that Tribal-based online payday loans can carry massive interest rates. Some have even been known to have an equivalent annual interest rate above 750% APR.
As a result, 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 does not mean that all Native American lenders are like that, there are always tribal lenders that provide fair rates for your money but just be sure to understand what you are accepting before you sign.