Nine years later, state wins key verdict against tribal payday lenders

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A decade after California financial regulators first tackled a pair of online payday lenders linked to Native American tribes, the California Supreme Court on Thursday awarded the state a victory, ruling that the case against lenders can continue.

The question is whether lenders, doing business under half a dozen different names, including Ameriloan and OneClickCash, are immune from state loan laws because of their affiliation with the Miami Tribe of Oklahoma and the Santee Sioux Nation of Nebraska. Tribes and tribal entities are not subject to state laws.

The court ruled, however, that while the lenders were tribal entities in name, they had little connection with the tribes in practice. In a unanimous decision, the court found “little evidence that either tribe significantly controls, supervises or benefits from the underlying business operations of online lenders.”

Instead, the court said it appeared the lenders were being controlled by Scott Tucker, the owner of the Kansas City area AMG Services company. AMG and Tucker are not defendants in the California case, but have been under federal scrutiny for years for payday loan companies that regulators and prosecutors say have used fictitious relationships with Native American tribes to flout state loan laws.

Federal prosecutors in New York this year charged Tucker with criminal racketeering and violations of federal lending rules. Tucker has pleaded not guilty and a trial is due to begin next year. In October, a Nevada federal judge ordered Tucker, AMG and related parties to pay consumers $ 1.3 billion who paid high and improperly disclosed fees, following a case brought by the Federal Trade Commission.

Payday lenders offer small loans, usually for a few hundred dollars, and expect to be repaid after borrowers receive their next paycheck. Loans often have annual interest rates exceeding 300%.

California and other states have licensing requirements and rules that govern the amount of payday loans and the amount of interest and fees that lenders can charge. Tribal lenders, or entities claiming affiliation with Native American tribes, say these laws do not apply to them, allowing them to make larger and more expensive loans.

The California Department of Business Oversight first took action against tribal-affiliated lenders in 2006 and sued them the following year, claiming they were operating unlicensed, making loans above the 300 limit. $ government and were charging illegally high fees.

These allegations have not yet been examined in court. Since the case was filed, the lenders have argued that they are outside the jurisdiction of the state. The Los Angeles Superior Court and a state appeals court agreed, saying the state had no record. But the Department of Business Oversight continued to appeal the case, and Thursday’s ruling marks a long-awaited victory.

Department Commissioner Jan Lynn Owen said the ruling “strengthens our ability to enforce laws prohibiting excessive fees and unauthorized activity by denying payday lenders the ability to inappropriately use tribal sovereign immunity to avoid complying with state law “.

Yet the state will now have to make its point in the lower court.

Skip Durocher, an attorney for Miami Nation Enterprises, the entity that claims affiliation with the Miami Tribe, said he would continue to argue that his client is a tribal entity.

“This is a fight for tribal sovereignty,” Durocher said. “We are confident that when the facts are exposed, we will prevail.”

Lawyers for SFS Inc., the Santee Sioux nation-affiliated lender, did not respond to calls for comment.

Regardless of the outcome of the case at hand, the ruling could have a significant impact on the involvement of Native American tribes in the online lending industry.

The state’s Supreme Court ruling is just the latest action challenging how outside companies like Tucker’s have sought to work with tribal entities to circumvent state loan laws, including the rules that cap interest rates.

In August, a federal judge in Los Angeles ruled that the Orange County lender CashCall used a fictitious relationship with a tribal entity to provide loans that violate lending laws in 16 states. The judge in that case also argued that the tribal entity was too little involved in the business for tribal sovereign immunity to apply.

Donald Putterman, a San Francisco lawyer specializing in consumer loans and financial regulation, said recent rulings show some lender-tribe relationships have been poorly structured in the past, giving tribal entities too little involvement. – and too little skin in the game – to pass the rally.

But Putterman said he expects tribal lenders to use recent rulings to ensure their businesses are structured in a way that allows them to continue to circumvent state laws. The California Supreme Court ruling, he said, could be particularly helpful because it establishes clear criteria for determining whether a tribal-affiliated business should be immune from state laws.

“That kind of a decision, it basically provides a guideline for what will work in California,” he said.

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