According to the FDIC, access to financial services continues to be a significant setback for many people. About 65 million adults are struggling to receive credit, banking solutions, and other similar services. This gap provides an opportunity for alternative lending sources. One such group is the tribal nations which offer various financial services.
A tribal payday loan is a form of lending facilitated by Native American institutions operating within the regulatory limits of tribal law. The transaction occurs inside a sovereign tribal state where federal and state financial agencies do not have as much jurisdiction.
Throughout American history, the tribal nations, who are often referred to as Indian Tribes in legislation, have resided in reservations. There are over 500 recognized sovereign nations.
Concerning financial services, the reservations have sovereign authority to form their own regulations. This jurisprudence means commercial activities are regulated under the applicable tribal laws. Gaming, gambling, and lending form the main economic power of the native tribes.
Native American reservations have small populations, which can make it hard to sustain a strong, self-contained economy. Thanks to the Internet, they don’t have to. Online tribal lending offers the community a great financial boon.
Most of the lending takes the form of payday loans. However, some lenders allow for amortized payment terms and installments.
You do not have to live within a reservation to apply. However, there are limitations on who can access the loans. States such as New York, Pennsylvania, Georgia, and New Mexico prohibit payday loans. Residents of such lands may not qualify for tribal lending. Although, some tribal lenders offer loans to residents of these states.
To be approved, you must accept the terms and conditions. One important condition is to agree to the requirement that the loan terms are subject to tribal law and not any other law on the land. You must be at least 18 years old. Some lenders insist on an annual income cap. You must also have a checking account where you deposit your income.
Some lenders have options for people who are actively looking for jobs but are currently unemployed.
Significant portions of Americans do not have access to quick financial services within their community. The lender will want to do background checks before they facilitate any loans. Such a process can deny many people financial resources that they need in times of emergencies and financial need.
As noted, most of the tribal lending enterprises do their business exclusively online. Tribal lending comes to the rescue of these vulnerable populations by doing the following:
They offer fast funding.
The ease of access and the simple application procedures make it possible for these lenders to deliver on their mission to provide quick cash to the consumer who needs it.
They help those disadvantaged by the state laws.
When states pass restrictive laws on payday loans, consumers can opt for tribal laws, which may not be subject to such state laws. Since 2013, that advantage is under significant assault from states that claim that the federal regulations on consumer protection apply to all. However, courts continue to affirm the sovereignty of the tribes.
They provide the loan application platform online
Online platforms can be accessed by anyone with an Internet connection. By putting a loan application online, lenders make it easier to fill it out.
They spur competition and consequent growth of the sector.
In a capitalist economy, competition can benefit the consumer. What one lender cannot do becomes another’s competitive advantage. In states that have allowed this form of lending, the firms compete with other players to bring fees and interest rates down. Such actions are good for the economy and the people who have options to choose from.
What are some disadvantages of tribal lending for the consumer?
While getting cash faster can be a great relief to those struggling to make it to their next paycheck, there are dangers associated with taking out these types of loans.
Transparency is sometimes lacking, and you can’t always know the legitimate players.
One recognized authority in the industry is the Native American Financial Services Association (NAFSA). Unfortunately, unregulated market players abound. Sometimes it can be hard to find a reputable lender.
The average borrower lacks the knowledge and skills required to fully understand the terms and conditions for tribal loans or any other loan.
A lender, in bad faith, can add a clause that’s disadvantageous for the consumer. Some lenders will charge anything including and not limited to APRs of 1,000 percent. Some lenders, who may not be tribal, claim affiliation to tribes to profit from state law immunity.
The loans are expensive.
Just like all payday loans, tribal lending is exorbitant. Even those firms regulated under NAFSA and Online Lenders Alliance can still carry a significant financial burden. In a recent court case, which authorities dropped unceremoniously, the cheapest annual percentage rate (APR) from one of the tribal lenders was 440 percent.
Online reviews for tribal lenders seldom paint a very pretty picture when it comes to charges.
The loans can attract higher than recommended usury rates.
In some states, tribal lending is limited or outright prohibited. In others, the lenders can set high-interest rates under the protection of sovereign tribes. Some lenders try to comply with state laws when giving out loans to individuals. However, the majority of them do not. They maintain the same APR across boundaries.
Save for a few tribes such as the Shakopee Mdewakanton Tribe of Minnesota that are economically successful, those who live on Native American reservations are largely impoverished.
Tribal communities struggle in many areas. Their access to resources is wanting, and consequently, the vicious cycle of poverty permeates through generations.
Tribal lending is one arm of the tribal economic muscle. The communities rely on the revenues from these businesses to fund state functions, such as healthcare, social services, education, and overall economic growth. Healthcare is especially important as tribes suffer from issues with mental health, diabetes, and other health challenges.
Communities rely on profits to fund scholarships in a bid to reduce the gaps in education and overall literacy.
The federal government, which often funds these tribal nations, continues to cut on its spending. The future of the tribes lies in their ability to make money. Investments can create jobs for the community. They can also yield considerable profits that can fund many operations.
Tribal lending as an investment creates jobs that empower the community. It provides the revenue necessary for the communities to run their governments.
Some of the tribal lenders active in the market today include:
Most of them will insist on the following:
The NAFSA-Approved and Online Lenders Alliance (OLA) complaint companies have the following common traits:
Some lenders lack industry approval and compliance. These are the common traits among them:
In the past five or so years, tribal lending endured a tumultuous period that characterized the following:
As a result, some of the lenders are quitting. The now defunct Western Sky Financial is a testament to what a series of court cases can do to a business. The cost of litigation in the country is prohibitive. Numerous court cases and occasional run-ins with authorities deny businesses funds that would otherwise go to streamlining operations.
As Silver Cloud Financial, Majestic Lake Financial, Mountain Summit Financial, and Golden Valley Lending discovered recently, the world of litigation is brutal. Even after triumphing against CFPB, they have had to grapple with negative press about tribal lending.
The CFPB alleged that the companies charge north of 440 percent APRs, a claim that none of them disputed throughout the litigation process. Although the CFPB director dropped the case, the resulting damage has taken its toll.
Tribal lending provides easy access to payday loans. Even people with bad credit may qualify. However, the customer must read the loan documents carefully before borrowing and remember that the cost can be prohibitive.