Payday Loan Sovereign Nation Model: The Misconceptions
The world of payday loans is a contentious one. Opponents of the industry claim it is exploitative, charging “immoral” rates and fees while taking advantage of the underprivileged. Proponents frame it as being a service provided, one which is only growing, with millions of customers worldwide who have nowhere else to turn to for financial help. But now, controversy is erupting over one of the newest developments in this industry: the payday loan Sovereign Nation model. Native American tribes have begun to partner with loan companies, using the same legal immunity that allows them to participate in for-profit gaming even in states where gambling is otherwise outlawed. This has led to some misconceptions about the model that should be addressed.
Misconception #1 - The payday loan Sovereign Nation model deliberately preys on non-natives.
According to Allen J. Parker, a lawyer specializing in Native American sovereignty, this is simply not the case. When a Tribe, Nation, or Reservation offers payday loans, their primary market is fellow tribal members. Furthermore, as with reservation casinos, the money earned is primarily reinvested into tribal properties. The primary purpose of these loans is to help both individual tribal members with their financial needs and help the tribal community at large with the profits.
Now, when these loans are offered on the Internet, anyone may apply. The tribal nations involved do not discriminate based on nationality.
Misconception #2 – The Sovereign Nations are trying to buy out payday lenders.
This is also simply false. The standard contracts between tribes and outside lending groups contain no language requiring a buyout at any point. However, should both parties wish to engage in a buyout and suitable terms are arrived at, nothing prevents them from doing so either.
Misconception #3 – Outside lenders participating in the payday loan Sovereign Nation model can still be prosecuted under state laws.
Not so far. According to a recent ruling by the California Court of Appeals (7th Division), the sovereign immunity granted to tribal nations can also be extended to financial arms that they partner with. While more test cases are likely, as the situation currently stands, financial companies partnering with sovereign nations share in their immunity.
This is a tricky issue, with many well-meaning and devoted advocates on both sides. It is important to look at the facts when making any decisions regarding loans and financial partnerships