If New York state banking superintendent Bernard Lawsky thought that the Indian tribes that he is pursuing in an attempt to choke off their Internet payday lending activities in his state were going to meekly come to heel, they quickly disabused him of that notion.
Two Indian tribes on Wednesday sued a New York regulator in an effort
to preserve their ability to make online loans to the state’s
residents.
The tribes sought an injunction against Benjamin M. Lawsky,
superintendent of New York’s Department of Financial Services, in U.S.
District Court for the Southern District of New York.
Earlier this month, Mr. Lawsky ordered 35 online and tribal lenders
to stop offering “illegal payday loans” in New York, saying they
violated a state-imposed cap on interest rates charged to consumers.
Mr. Lawsky also pressed banks and the group that oversees an electronic payments system to cut off access to those lenders.
The tribes, however, say they don’t need to don’t need to comply with
the law of New York or other states because they enjoy sovereign status
under federal law.
“The states have no authority to regulate these tribes in a way that
limits their sovereign rights,” said David Bernick, a lawyer with Boies
Schiller & Flexner LLP, who represents the tribes. “That is a
bedrock principle of law.”
The lawsuit was filed by the Otoe-Missouria Tribe, located west of
Tulsa, Okla., and the Lac Vieux Desert Band of Lake Superior Chippewa
Indians, located near the Wisconsin-Michigan border. The Otoe-Missouria
tribe operates American Web Loan Inc and Great Plains Lending LLC and
the Lac Vieux tribe operates CastlePayday.com.
“Through a campaign of misrepresentations, threats, and coercion, the
State of New York has launched an attack on the plaintiff Tribal
Nations’ inherent sovereignty,” the lawsuit reads.
Lawsky should have been prepared for the fact that the tribes are not wimps. They've been waging jihad on the CFPB for some time.
Consumer advocacy spokespersons, predictably, were outraged by the tribes' insistence that tribal law preempts state law. The tribes responded to such outrage with an analogy that I am convinced was not intended to be ironic, but certainly was.
Tribal lenders compare their online lending operations are similar to
Indian-run casinos. They argue that their operations are legal because
borrowers who take out loans agree that a tribe’s law, rather than their
state’s law, applies to them.
Yes, that's a winning public relations argument: our payday operations are just like gambling. The odds overwhelmingly favor the house and we make money off the losses of thousands of the addicted. That's not exactly their preemption argument, but it might as well be if they insist on continuing to compare taking out a payday loan to letting it all ride on the pass line. Just sayin...
It's interesting that some of the tribes' competitors are backing New York.
Other lenders disagree with this argument. The largest ‘payday’
lenders, which also offer loans online, say they are careful to only
offer their loans in states that allow them, and are careful to comply
with state regulations.
“Bad actors tarnish the good reputation of regulated lenders who
operate within a complete framework of federal and state regulations,”
wrote Jamie Fulmer, a spokesman for Advance America, the largest U.S.
payday lender, in an e-mail earlier this month.
Mr. Fulmer said his company, which also runs an online lending
operation “does not lend in New York or any state where our services are
prohibited.”
"The good reputation." The article doesn't reflect any collapse into hysterical laughter, so I guess he was serious. You don't make loans in New York because, unlike the Indian tribes, you don't have a valid preemtion argument to make. It sounds like sour grapes more than legitimate support for the high road.
At any rate, the tribes are likely to continue this fight. The money at stake is substantial, and as long as there's a chance that the preemption argument might prevail, there's no reason to back off.
As long as we continue in the smack-talking stage, we'll pass on giving the matter further attention. On the other hand, it will be interesting to see how this plays out. If Richmond wins in court, the next battle is going to be seeing how the federal government forces lenders to loan in Richmond without imposing a risk premium on the loans. I'm sure we can all think of many social engineering solutions to that conundrum, can't we?