Payday Lenders Tied To Native Americans Not Above Law, Feds Say

Lately, payday lenders have been linking up with Native American tribes as a way to sidestep U.S. law.

Federal authorities seem less and less willing to let it slide.

The Federal Trade Commission is suing a number of individuals and companies alleged to have been involved with payday lending in Colorado, according to The Denver Post. The defendants named in the suit have been the object of law-enforcement attention since 2004, but a Denver district judge recently ordered the state attorney general to back off because the alleged lenders are affiliated with a number of American Indian tribes that have immunity from state investigation.

Payday lenders -- which offer quick loans to cash-strapped borrowers, but charge steep interest rates that can draw people into a spiral of debt -- have seen business boom since the recession put millions of Americans out of work.

All that custom has also drawn the attention of watchdog agencies like the Consumer Financial Protection Bureau, which has called out the payday lending industry as a top target.

Dozens of lenders have found it convenient to strike up arrangements with Native American tribes, many of which have a looser relationship with U.S. state law. The exact nature of such partnerships is often cloudy, but in some cases, the tribes themselves appear to be the official owners of the lending operations -- at least on paper -- which makes it tricky for American law enforcement to crack down on them.

Yet in this most recent case, the FTC has cited the scope of the alleged operation, saying the defendants have drawn more than 7,500 complaints to law enforcement over the years. The agency sued the nearly 20 people and organizations this Monday, saying their tribal affiliation doesn't put them above federal law.

Payday loan companies have been known to argue that their relationship with Native Americans is mutually beneficial. According to one payday loan executive, the day-to-day work of managing a loan company can sometimes help to mitigate the otherwise high unemployment rates found on many Native American reservations.

That has to be measured against the effects of the loans themselves, which have been shown to correlate with bankruptcy and other forms of financial misery, and which can prove especially harmful for Americans who lack the savings to weather a major episode of debt.