- Posted August 17, 2013 by
New York, New York
This iReport is part of an assignment:
- Feds Assure Banks They Can Keep Working with Online Lenders
- Feds Assure Banks They Can Keep Working with Online Lenders
- Federal Investigation of Online Lenders Could Harm Consumers Say Members of Congress
- Feds Deny Crackdown on Native American businesses
- Indian Tribes Sue New York Over Lending Businesses
New York enters fight against Native American payday lenders
Benjamin Lawsky, superintendent of New York’s Department of Financial Services, fired the first salvo in early August, issuing cease and desist letters to 35 payday lenders, many run by Native American tribes, and threatening more than 100 established banks that provide support services to the online lenders.
Lawsky, a man who is apparently comfortable with controversy, ticked off federal banking regulators last year when he charged a bank in England with helping Iran, for which he was criticized as being a “rogue regulator.”
This time, Lawsky’s zeal has all but closed the door on the bank of last resort for millions of low income workers with no other access to the banking system. The way he has gone about it is to force banks to stop processing something known as automated clearing house payments for licensed, legal, tribe-based lenders.
Lawsky’s actions may have generated the headlines he wanted, but it was a déjà vu moment for the citizens of Colorado, who watched millions of their tax dollars burn in an ill-fated legal battle played out over seven long years in the Denver courts – over the exact same issue!
In Colorado, Attorney General John Suthers tried to take down companies affiliated with two Native American tribes, the Santee Sioux of Nebraska and the Miami Tribe of Oklahoma, that were making online payday loans. After seven years of legal briefs, hearings, motions, and millions of dollars in legal expenses, Suthers took a drubbing by the courts.
Lawsky also joins Suthers in another embarrassing lowest common denominator: They’ve both been caught in outrageous usage of the English Language.
In Colorado, Suthers, failing to recognize the lenders as legitimate arms of the tribes, said they had engaged in a “rent-a-tribe” scam. His allegation was flatly rejected by the court, but not before he was shamed for coining that phrase. In New York, Lawsky has been heard referring to his enforcement efforts as “collecting scalps.” What year is this?
In their very first Colorado filing, the tribes noted a simple fact: They are sovereign nations and, as such, are not subject to the regulations of the state of Colorado. Unfortunately, no one on the Colorado legal team had any experience with that pesky federal doctrine of tribal sovereignty.
It might have ended there, but it didn’t. Instead, Suthers spent years fighting a losing battle, one that was ultimately put to rest in 2012 by a district court judge in Denver who finally brought the investigation to an end, telling Suthers that he had no legal right to further investigate the tribes, who are out of his jurisdiction. In other words, it took courts in the U.S. seven years to pound into Suthers’ head what the tribes pointed out from the first day – the fact that they have sovereign immunity because they are recognized as sovereign nations.
The same legal argument was used, and has been upheld, to allow federally-recognized Native American tribes to open casinos on their lands. Which is why, even though it might be against the law in a certain state to operate casinos, state governments cannot enforce that law when it comes to the tribes and what the legal business they conduct on tribal land. And, even though some of tribal customers are undoubtedly residents of that state with no tribal affiliation, the state still cannot attempt to regulate tribal businesses.
It may be no surprise that states are trying to fight the tribes on payday lending because a lot of states also tried to fight them over casinos. But almost 25 years after Congress passed the Indian Gaming Regulatory Act, one might think that state attorney generals would understand their limitations.
One might also think they would know the tribes have good reason for getting into the business of payday lending and it all comes down to one simple word: poverty. Most of the reservations in this nation are face unemployment and poverty to an extent that the rest of the United States can barely imagine. Enter the Indian Casino Era, a favorite scapegoat of politicians in the states surrounding the reservations.
Fast forward to 2013, and we can see that not only have casinos become an important source of tribal revenue, but we also have the perspective of some years, shedding light on the pattern in which government officials grab headlines at the expense of tribal enterprise.
And now Lawsky, presumably with the tacit approval of federal regulators, is bullying the banking system to close down legal tribe-based lenders who service low income workers. Again, what year is this?
Of course, if you were the top bank regulator in the state with the biggest banking abuse cases ever – ever – and the statute of limitations was about to expire on prosecuting any more of those abusers, you, too might be looking for a diversionary headline.
Borrowing from tribal lenders might be judged by some as questionable for some consumers; but for many others, there is no place left to go. But that’s an individual choice. And there’s nothing questionable about the schools, health clinics, roads and aid to seniors provided to tribal members from this revenue stream.
That revenue becomes even more critical in the face of $552 million in cuts to funding for reservations resulting from the budget sequestration reductions.
On the spectrum of income for tribes, casino revenues are proportionate to population proximity. Foxwoods transfers disposable income from New Yorkers and Bostonians to members of the Pequots of Connecticut. So it is no coincidence that the tribes owning online loan operations appear to be the hardest pressed: the rural tribes of Oklahoma and Nebraska, for example.
The state of New York may be stepping in legal quicksand in taking on an issue fought and lost by states far and wide. And it may be that Lawsky was in such a hurry “collecting scalps” that he forgot to ask who owns the lending companies. But a broader question is this:
Has anybody in New York state government considered what public benefit is served in draining state coffers – not to mention tribal resources – in a fight that the state just can’t win?