The U.S. Consumer Financial Protection Bureau rejected a bid by three Native American online lenders to end a probe of possible abuses of consumers, and gave them 21 days to provide details about their businesses.
In a document posted on the agency’s website today, CFPB Director Richard Cordray turned back a July 2012 request from the tribes to stop an investigation of whether they broke federal laws. The tribes argued that the consumer bureau doesn’t have jurisdiction over them, a point Cordray rejected.
“Every court of appeals to address the issue has agreed that Indian tribes, like individual states, do not enjoy immunity from suits by the federal government,” Cordray wrote.
The Native American Financial Services Association, a trade group for tribal lenders, said that the CFPB probe “willfully and flagrantly” violates the 2010 Dodd-Frank law that created the bureau.
“We will act swiftly to rectify this situation and will continue our proactive dialogue with the CFPB on the issues that are most crucial to Indian country,” John Shotton, chairman of the Otoe-Missouria tribe and association board member said in the e-mailed statement.
Robert Rosette, a Phoenix-based lawyer for tribal lenders, said the CFPB ignored a portion of the Dodd-Frank law that he said calls for calls for “a system of respectful co-regulation” between the federal government and the tribes.
Rosette, who helped draft the initial challenge, said the tribes may sue CFPB to stop the probe. He said the tribes have their own consumer protection laws and want to work with the agency.
State attorneys general, who have had their authority to enforce consumer-protection laws challenged by tribal lenders, are backing the CFPB probe, said Justin Kolber, the assistant attorney general of Vermont. The lenders assert that states can regulate them on the grounds that tribes enjoy sovereign immunity, a doctrine that limits state authority over Indian governments.
“We see a lot of these online loans coming into Vermont, and a growing portion are coming from tribal entities,” Kolber said in an interview.
The consumer bureau began its inquiry as lenders affiliated with tribes began capturing a share of the market for online short-term, small-dollar loans sometimes called payday loans. Online lenders made $18.6 billion in loans in 2012, according to John Hecht, an analyst with investment advisory firm Stephens Inc.
Last year, three tribes used a CFPB administrative procedure to contest the agency’s civil investigative demands, a kind of subpoena seeking documents, which were issued in June 2012.
The decision today relates to a consumer bureau probe aimed at Plain Green Loans LLC, operated by the Chippewa-Cree tribe in Montana, Mobiloans LLC of the Tunica-Biloxi tribe of Louisiana and Great Plains Lending LLC of the Otoe-Missouria tribe of Oklahoma.
Since at least August, the tribes have also faced a crackdown by the Federal Deposit Insurance Corp. and the Department of Justice, which have pressured banks to cut ties with short-term lenders who operate over the Internet.