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Lawsuits Against Abusive Tribal Payday Loans

Caddell & Chapman is investigating potential “rent-a-tribe” class action litigation.  The investigation focuses on businesses that abuse their arrangements with Native American tribes to make short-term loans.  These payday or installment loans have extremely high interest rates that are illegal under state and federal law.

As Caddell & Chapman is learning through its investigation, businesses across the country operate illegal online payday lending schemes by using the names of Native American tribes.  Such tribes are not subject to the same federal and state regulations that ordinarily protect borrowers from staggering interest rates.  Under state law, the charging of such interest rates is an illegal practice commonly known as “usury.”  There are federal statutes that also protect against abusive lending practices.  In an illegal attempt to exploit tribal immunity and to avoid state and federal regulations, businesses have bought the right to use a tribe’s name in exchange for a percentage of the revenue from illegal loans.  The conspiracy between the business and a Native American tribe is often referred to as a “rent-a-tribe” scheme.

These businesses prey on individuals who are struggling financially.  Claiming that their loans are not subject to state and federal regulations, lenders have charged interest rates as high as 1,332 percent (yes, 1,332% – more than 444 times the 10-year treasury yield rate of approximately 3%) .  Lenders also have imposed other illegal fees and conditions on the loans.

On August 31, 2016, the Consumer Financial Protection Bureau (CFPB) obtained summary judgment against a California-based online payday lender and others.  The defendants in that case allegedly used a “rent-a-tribe” scheme to avoid state usury and licensing laws in violation of the Consumer Financial Protection Act.  The court’s order in favor of the CFPB concluded, among other things, that the loans were void or uncollectable under the usury and state licensing laws at issue.  Such predatory lending practices have even led the Pennsylvania Attorney General to file a lawsuit for similar practices.

If you or someone you know received a high-interest “payday loan” or cash advance from a business affiliated with a Native American tribe, please contact us. 

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