Certain Native American tribes are using their sovereign immunity protection against state laws to partner with companies running high-interest, online loan operations. That includes Humboldt County鈥檚 Big Lagoon Rancheria. The tribe consists of only around eight households. But over the last decade it has owned at least nine online lending businesses which have avoided California regulations. JPR鈥檚 Justin Higginbottom spoke with reporter Joel Jacobs of ProPublica about his .
Justin Higginbottom: Joel, you've been covering high-interest, online lending companies owned by tribes. Can you tell me about these lenders? What kind of interest rates are we talking about and how does it all work?
Joel Jacobs: We're talking about really astronomical interest rates. We've regularly seen [annual percentage rates] of 600% or more. These are a bit longer term than your traditional payday loans and they're all offered online. To give you an example of what that might look like, we mentioned one borrower in our story who took out a 682% APR tribal loan. She borrowed $550 and was required to pay back more than $2700 over the course of the nine-month loan.
Justin Higginbottom: Some states do have laws banning high-interest lending companies. How do tribes get around these laws?
Joel Jacobs: Tribes are sovereign entities. So they basically argue that the companies they own are not subject to state law because of those tribal sovereign rights. And notably there is no federal interest-rate cap. I'll add that this is controversial because of the high-interest rates, but also because these tribes typically partner with outside, non-tribal entities who often conduct much of the day-to-day operations. And historically, in these deals, the tribes only get a very small portion of the total revenue and the rest goes to these outside partners who are doing a lot of the work.
Justin Higginbottom: Your reporting is largely focused on this tribe in Wisconsin that shows up as a creditor in around one out of every 100 bankruptcy cases in the country 鈥� which is pretty incredible. But there is a connection to a tribe in Humboldt County called Big Lagoon Rancheria. Can you talk about that?
Joel Jacobs: This link has to do with those outside business partnerships that I mentioned. The Lac du Flambeau tribe in Wisconsin, that we reported on, established partnerships with a number of outside entities to create this massive lending enterprise. But among those partners that LDF created deals with were these two brothers. And these brothers had actually previously partnered with the Big Lagoon Rancheria to offer high-interest loans. That enterprise with Big Lagoon Rancheria resulted in a lot of money going to those outside partners. One of the brother鈥檚 ventures amassed approximately $83 million in revenue over five years according to a legal filing that we saw. So it was making money, but that relationship between Big Lagoon and those brothers started to fall apart. And Big Lagoon actually alleged that the brothers were surreptitiously pushing customers from Big Lagoon鈥檚 websites to lending portfolios and websites that these brothers had set up with the Wisconsin LDF tribe.
Justin Higginbottom: Big Lagoon Rancheria has remained in this business. I've counted at least nine online lenders that the tribe has owned over the last decade or so. Right now they have that are operating. It looks like the others have been taken offline. What have states and legislators done or proposed to do to regulate the industry and how effective has any of that been?
Joel Jacobs: At the federal level there have been efforts to rein in the industry. But we found that they've fallen short. In Congress, Oregon Sen. Jeff Merkley has repeatedly introduced a bill that would force internet lenders, including tribal lenders, to comply with state laws in the state where the borrower is. But unfortunately for him and folks that are looking to rein in this lending, that bill has never gone anywhere. It's faced pushback from the payday-loan industry, which spends millions on lobbying. I think that big picture, the industry is facing some pushback and I think there's some legal cracks in the tribal-lending model. But it's still a very lucrative business and it's still going on. They鈥檝e faced push back before and they have adapted and thrived. And so I think it really remains to be seen how this industry is going to develop going forward.
Editor's note: The Big Lagoon Rancheria did not respond to multiple attempts to contact them for comment on this story.
