The United States owes a fiduciary duty to Native American Indian Tribes.
Yet the federal Consumer Finance Protection Bureau (CFPB) seems unalterably bent on the regulatory crippling or destruction of hard-earned Indian self-sufficiency achieved through Internet commerce. That bias has been on display in litigation and CFPB harassment of legal, licensed and regulated online tribal lenders through civil investigative demands that ignore tribal sovereignty.
The prejudice disqualifies the CFPB as an impartial arbiter to negotiate and promulgate a rule that fairly balances the objectives of tribal sovereignty and self-sufficiency and protection of consumers from unconscionable lending terms. Former Senators Ben Nighthorse Campbell (D. Colo.) and James Abourezk (D. S.D.) would be superlative candidates to arbitrate an appropriate consumer lending rule among Indian Tribes, state regulatory authorities, and the CFPB. Negotiated rulemaking is no novelty. Secretary of Labor John Dunlop inaugurated the concept with fanfare under President Richard M. Nixon.
Since the Indian Reorganization Act of 1934, the policy of the United States has been to promote tribal self-government and self-sufficiency. Casino gambling on Indian reservations has enabled some tribes to flourish. But others that are more geographically isolated have laudably sought self-sufficiency through Internet commerce that provide a valuable services to people who need short-term credit. These tribal lending entities (TLE) have established a successful business model that is dramatically improving the lives of many in Indian Country without any costs to the American taxpayer.
Financed by a third party, these businesses typically make short-term loans over the Internet to consumers nationwide. But the terms may conflict with interest rate ceilings in some states where the borrowers reside. This has been an issue with Internet commerce in general across many industries. There is outstanding litigation over whether tribal sovereign immunity overrides the state dictated ceilings. The need for interest rate ceilings is questionable. TLEs are not monopolies capable of dictating short term lending terms or interest rates above competitive levels. Abusive lending by TLEs would provoke flight by borrowers to other providers.
Article X of the Dodd- Frank Act of 2010 created the CFPB with plenary supervisory, rulemaking and enforcement authority with respect to short term lenders. The CFPB is housed within the Federal Reserve Board. The Act is ambiguous as to whether TLEs should be subject to the same legal restrictions as non-tribal short term lenders. Under Dodd-Frank, tribes are endowed with the same authority as states to enforce CFPB rules. Further, the United States Supreme Court has instructed that Indian Tribes acting on tribal reservations should be exempt from federal laws of general application if legislative history or otherwise indicates Congress did not intend to disturb tribal sovereignty. Dodd-Frank is further unclear about the authority of States to regulate TLEs based on inconsistency with the statute or rules issued by the CFPB.
The CFPB, however, has been unyielding that TLEs should be regulated like any other short-term lender despite congressional goals of tribal self-government and self-sufficiency, statutory ambiguities, and TLEs' lack of market power. It filed a brief as amicus curiae in The Otoe-Missoula Tribe of Indians, et al v. Lawsky, No. 13-3769, appeal pending in Second Circuit, denying that TLEs should be treated any differently than non-tribal short term lenders under Dodd-Frank. The CFPB reiterated that conclusion in denying a petition filed by TLEs seeking to set aside civil investigative demands to investigate suspected wrongdoing.
In contrast to Senators Nighthorse Campbell of Abourezk, the CFPB's fixed prejudgments regarding regulation of TSEs unsuits it for presiding over a negotiated rulemaking to govern online tribal consumer lending. In Association of National Advertisers, Inc., et al v. Federal Trade Commission (1980), the United States Court of Appeals for the District of Columbia Circuit declared that due process requires disqualification of an agency from rulemaking if it has exhibited an "unalterably closed mind on matters critical to the disposition of the rulemaking."
The CFPB should be an advocate for a rule it favors, but it should not decide the rule itself, just as a man should not be judge in his own case. A negotiated rulemaking with an impartial arbiter is preferable to litigation to sort out the competing claims of federal and state regulators and tribal sovereignty and self-sufficiency. Compromise is the alpha and omega of rulemaking, whereas winner-take-all is the hallmark of adjudication. What is imperative for the TLE's is a rule which maintains the viability of their business model in furtherance of tribal self-sufficiency.
Accordingly, the Board of Governors of the Federal Reserve Board should appoint either Senator Nighthorse Campbell or Senator Abourezk to preside over a negotiated rulemaking involving the CFPB, state regulatory authorities, and Tribal Lending Entities. The objective would be an online consumer finance lending rule for TLEs that promotes tribal self-sufficiency without exposing borrowers to unconscionable terms or conditions.
Bruce Fein is a constitutional lawyer in Washington, DC and was Associate Deputy Attorney General under President Ronald Reagan.