Case of the Week: Lending Companies Operated by Indian Tribes Are Subject to Lending Laws

Tribal Lending Entities operated by sovereign Indian Tribes are subject to investigation by the Consumer Financial Protection Bureau (CFPB), according to a recent 9th Circuit case. The Tribal Lending Entities failed to convince the court that they were exempt from regulation under the Consumer Financial Protection Act of 2010.

Several tribal lending companies, operated by the Chippewa Cree, Tunica Biloxi, and Otoe Missouria Tribes, were engaged in online, small-dollar lending. The CFPB notified the Tribal Lending Entities that they were being investigated, but the tribes directed the lending companies not to respond to these inquiries. Instead, the tribes offered to operate as co-regulators with the CFPB. The CFPB rejected the offer, and sought enforcement in federal district court. The trial court rule against the lending companies, who then appealed.

The appeals court analyzed the case primarily under the test set forth in Donovan v. Coeur d’Alene Tribal Farms, 751 F.2d 1113 (9th Cir. 1985). Coeur d’Alene provided three situations where a law of general applicability may not apply to sovereign Indian Tribes, when a law does not expressly state that Indian Tribes are either covered or exempt.

First, if a law touches exclusive rights of self-governance in purely intramural matters, the tribes may be exempt. In this case, the Tribal Lending Entities were engaged in business on the internet, and were lending money to people who did not have any relationship with the tribes. This clearly fell outside of the first exception for purely intramural matters.

The second exception applies when the application of the law to the tribe would abrogate rights guaranteed by Indian treaties.  This was not present in the case.

The third exception exists when there is legislative history or other evidence showing that Congress intended the law not to apply to Indians on their reservations. The tribes attempted to argue that by including Indian Tribes under the definition of a “state” that had co-regulatory authority under the Consumer Financial Protection Act, Congress had showed an intent to exclude the tribes from regulation.

The court was not convinced, and ruled that the existence of authority as a co-regulator was not mutually exclusive of an investigation by the CFPB. The act did not limit the CFPB’s authority simply because it granted states a limited status as co-regulators, and the Indian Tribes were required to comply with the CFPB’s investigative demands.

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