On April 27, the Consumer Financial Protection Bureau filed a lawsuit in an Illinois federal court against four online installment loan companies operated by a California Native American tribe. Although the tribe operates the installment loan companies, the CFPB's complaint alleges that the defendants are not "arms of the tribe" and therefore should not be able to share the tribe's sovereignty. The Bureau made these allegations in support of its belief that the defendants violated the Consumer Financial Protection Act ("CFPA") by entering into loan agreements that violated state usury and lender licensing laws. The Bureau alleged that the loans are void and cannot be collected under the CFPA because the loans are usurious under state laws. The complaint also alleges that the defendants violated the Truth in Lending Act ("TILA") by failing to disclose the cost of obtaining the loans.
All four defendants extend small-dollar installment loans through their websites. The Bureau's complaint alleges that the defendants' customers were required to pay a "service fee" (often $30 for every $100 of principal outstanding) and five percent of the original principal for each installment payment. As a result, the effective annual percentage rates of the loans ranged from approximately 440% to 950%. The complaint also alleges that each of the defendants' websites advertises the cost of installment loans and includes a rate of finance charge but does not disclose the annual percentage rates. The defendants made the loans at issue in Arizona, Arkansas, Colorado, Connecticut, Illinois, Indiana, Kentucky, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, and South Dakota.
During an investigation before the lawsuit was filed, the defendants claimed that they were entitled to tribal sovereign immunity because they acted as an "arm of the tribe." The CFPB's complaint disputes that defendants are entitled to tribal sovereign immunity because they allegedly do not truly operate on tribal land, that most of their operations are conducted out of Kansas (although the tribal members were in California), and that they received funding from other companies that were not initially owned or incorporated by the tribe.
The relief requested by the CFPB includes a permanent injunction against the defendants from committing future violations of the CFPA, TILA, or any other provision of "federal consumer financial law," as well as damages to redress injury to consumers, including restitution and refunds of monies paid and disgorgement of ill-gotten profits.
Lenders affiliated with Native American tribes have been subject to both regulatory and private lawsuits for violations of consumer protection laws, as we previously reported here and here. Recently, in January 2017, the Ninth Circuit Court of Appeals rejected the sovereign immunity arguments that tribal lenders made and affirmed a lower court's decision that three tribal lending companies were required to comply with the Bureau's civil investigative demands for documents. The Ninth Circuit stated that generally applicable federal laws, like the Consumer Financial Protection Act, apply to Native American tribes unless Congress expressly provides otherwise and Congress did not expressly exclude the three tribal lending companies from the Bureau's enforcement authority.
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