When Tribes Fail to Govern: Lessons from the Tribal Payday LendingFiasco

My work here in New Zealand sometimes feels far removed from the context of my tribes and family back in America. But every now and then, stories drift across the Pacific from Indian Country that remind me how similar the challenges facing the World’s Indigenous peoples are. In this case, challenges of governance and good governance, in particular, strike me as a stubborn blight that Indigenous peoples are hard-pressed to overcome, both here and at home.

Earlier this week, Indian Country Today featured a column by Jane Daugherty with the headline “New York’s Attack on Tribal Lenders is a Threat to All Natives.” For those familiar with the debacle, the headline  referenced the State of New York’s decision to sue three online payday lenders that are said to be affiliates of the Cheyenne River Sioux Tribe of South Dakota. The rub of the case, as summarized by the Wall Street Journal, is below:

The lawsuit poses a key test for regulators who have begun cracking down on online lenders, including those affiliated with Indian tribes. Government officials say the lenders are violating state interest-rate caps and consumer-protection laws, but tribes say they are immune because they operate as sovereign governments.


In her analysis of the matter, Daugherty opined that “New York’s action ignores the sovereign immunity of recognized Indian tribes, as repeatedly upheld in the Supreme Court and in numerous states.” She then goes on to cite a Colorado State court opinion on tribal payday lending and sovereign immunity as a “highly relevant” corollary to the matter at hand in New York.

A few thoughts.

First, it needs to be mentioned that a Colorado State court opinion is not highly relevant to the New York lawsuit at all. Ms. Daugherty isn’t a lawyer so it’s understandable that a layperson might confuse the jurisdictional authorities of various courts. But the fact is, while a New York State court might choose to consider the reasoning of a Colorado State court judge, an opinion issued in another state is in no way dispositive of the lawsuit before the court in New York, regardless of how compelling the logic of the Colorado opinion is. This is problematic for Daugherty’s piece because of the bulk of it cites excerpts from the Colorado opinion en route to the conclusion that New York will waste taxpayer dollars just like the State of Colorado – presumably because the outcome will be the same. On the contrary, New York could well reach a different conclusion entirely and even see its opinion upheld in Federal Court.

Second, and in her defense, Daugherty correctly notes that the legal doctrine of tribal sovereign immunity is the major, legal oblation on the line in the New York matter. To wit, a gaggle of potentially affected tribes  have already filed a complaint seeking injunctive relief from the Federal District Court in effort to forestall New York’s efforts to regulate the tribal payday lending industry. In their complaint, the tribes asserted the defense of tribal sovereign immunity, a legal doctrine which prevents tribal governments from being sued without their consent. Elsewhere in the complaint, the tribes argue that permitting NY to regulate the industry even while the lawsuit proceeds, would be tantamount to inflicting an irreparable harm on the tribes through the disruption of the payday lenders’ operations. Indeed, there is some evidence to support this point already.

There’s little question as to the profound consequences that such a legal challenge presents. Tribal sovereign immunity has long been viewed with some skepticism by the courts and has at various junctures come perilously close to being extinguished altogether. Naturally, parading an ethically suspect payday lender before the court, one that charges clients north of 355% interest on loans, does not a sympathetic defendant make. Nevertheless, one goes to war with the army one has, not the army one wants – as Defense Secretary Rumsfeld was fond of saying.

Still, it stands to reason that the tribes involved could have taken preventative measures to ensure that clients doing business with tribal entities do not get hosed with 355% interests rates. I sometimes see red when I think of the interest rate on my credit card. I might well see black were my statement to include a rate of 355% (!!!). Frivolities aside, the tribes in question should have been proactive about establishing regulatory guidelines of their own, in order to ensure fair dealings and conformity to industry practices. True, tribes are not (in my view) subject to state regulatory regimes in this instance. But this is not to say that some form of regulation to protect consumers has no place in the tribal payday lending industry. What makes the lawsuit unfortunate is that the situation could have been avoided entirely had the tribes in question taken the initiative to govern.

The lesson to learn from the debacle is that effective tribal governments carry on with the business of governing. Whether it is regulating the shady business practices of its own entities through tribal codes, or engaging with other tribal governments to implement, broad industry wide standards, effective tribal governments undertake the decidedly non-glamorous work of governance rather than allowing power vacuums to fester into a full-blown lawsuit.

When viewed through the prism of tribal governance, the lawsuit pending in New York represents a critical, lost opportunity for tribes to demonstrate their competence.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: