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Tribal Online Lenders Ask Banks to Resist Pressure

Aug. 14 (Bloomberg) -- An association of online lenders operated by Native American tribes called on banks to resist pressure from New York State to cut them off from the nation’s primary payment system.

The Native American Financial Services Association said the state’s regulators are violating the tribes’ sovereign immunity when they ask banks to prevent them from making and collecting on short-term, high-cost loans via the Internet.

“We want you to be aware that we view these actions as a direct threat to tribal sovereignty and our efforts to develop economic self-sufficiency,” Barry Brandon, the group’s executive director, wrote in a letter to more than 100 banks.

The banks include Capital One Financial Corp., Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., PNC Financial Services Group and U.S. Bancorp.

Benjamin Lawsky, the New York superintendent of financial services, on Aug. 6 ordered a group of 35 online lenders, including at least four tribal companies, to cease offering loans in New York. He also sent a letter to 117 banks requesting their assistance to “choke off” the lenders from the automated clearing house system, the bank-supported network that handles electronic bank account debits.

The doctrine of tribal sovereign immunity limits state interference in Native American governments’ actions. Brandon said tribal lending operations are legal, and that New York is “doing an end-run” around the doctrine by pressuring banks and third-party payment processors to sever ties with the tribes.

‘Carefully Consider’

“Our elected tribal leaders are united against any actions hostile to our tribal government economic development efforts and urge you to carefully consider whether you wish to be complicit in these discriminatory actions,” Brandon wrote in the letter.

Brandon also wrote that tribes are considering “the next legal steps” to take regarding the New York actions.

Brandon also criticized the “unwarranted attempts” by federal authorities to stop tribes from accessing the payment system. The Department of Justice and the Federal Deposit Insurance Corp. have been pressuring banks to reconsider their relationships with online lenders.

To contact the reporter on this story: Carter Dougherty in Washington at cdougherty6@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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