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Controversial short term lending crackdown another blow to Native American groups

Aug 30, 2013 Philip Burgess

The recent attempt by New York State's financial regulator Benjamin Lawsky to prohibit the use of online short term lending outlets operated by Native American tribes has put further strain on the Native American groups' finances.

The New York Times recently reported that Lawsky sent 35 cease and desist orders to online small dollar lenders, many of which are run by Native organizations. However, the legality of the move has been called into question by many industry experts and pundits.

Legal precedent shows that Native American nations have a unique sovereignty that makes it difficult and even against the law for states to regulate their practices. Such groups are subject only to laws passed by the United States Congress.

Legal precedent protects Native Americans
A recently published article in Indian Country Today indicated that the claim of Native sovereignty was strengthened just last year by a Colorado judge. The source reported that a 2011 case that was brought against an advance lender operated by a Native tribe in the state was thrown out by Denver District Court Judge Morris Hoffman. He cited the fact that Native American nations were recognized by the U.S. Supreme Court as sovereign entities as early as 1831 as his main reason for siding with the Native American group.

Apart from a significant amount of legal precedent that undermines Lawsky's actions, the over-regulation by New York officials comes at a time when Native organizations are reeling from sequestration. The source noted that recent federal budget cuts have resulted in $552.7 million in funding for health services, schools, housing and child care programs for Native American nations being cut.

A long legal battle appears to be ahead between New York regulators against Native lending enterprises. Not only is that of negative consequence to the already financially compromised groups, it could be detrimental to New York consumers.

Despite the case in Colorado being thrown out by Judge Hoffman, Indian Country Today noted that a seven-year legal fight led up to the final decision. Indian Country Today stated that losses due to hefty legal fees resulted in millions of lost dollars that could have been used to better the lives of Colorado citizens. A similar development may soon be showcased in New York.

If so, New Yorkers will be the ones who suffer. Instead of wasting money on a controversial legal battle, state regulators should consider investing that money into financial education programs for its citizens.