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Federal officials consider short term lending to Native Americans

Jun 10, 2013 Philip Burgess

Native Americans are increasingly becoming involved in short term lending. Many individuals believe that the practice is a great way to bring in revenue while providing consumers with much-needed cash.

Potential regulations could stunt the growth of the lending practice that has been successful to date, the Los Angeles Times reports. Federal officials have started investigating Native American short term lenders, the source stated.

Government officials cited suspected pay offs to individuals on reservations by outside loan providers as the reason for the investigation. Because they have sovereign status, Native Americans can provide these loans to consumers in states that have prohibited short term lending. However, the Los Angeles Times noted that these lenders have previously fended off similar attempts by states such as California to put an end to the industry.

For years, short term loans have been a viable source of funding for American consumers who struggle to pay monthly bills.

According to a Pew Charitable Trusts report, 81 percent of short term borrowers say they would have to cut expenses if they weren't able to take out these loans. In fact, it's enabled a large portion of the nation's population to stay current on payments, which can help improve consumer credit scores for many people. Pew data showed that 62 percent of these borrowers would have to delay bill payments if they didn't receive short term funding.

Most of these loan products are for small amounts and are paid off fairly quickly. Pew's report noted that the average short term loan is just $375 and it takes American consumers just 18 days to pay them off.

Currently, a number of states regulate short term lending, with some outlawing the practice. However, if federal agencies were to prohibit this type of lending, it could put an end to the industry across the country, cutting off an important source of funding for many Americans.