Most states regulate payday loans due to the expensive nature of this financing. Oklahoma is no exception, requiring payday lenders to have a license, lend no more than $500, and impose a fee no higher than $65. State regulators are now faced with how to handle unlicensed online payday lending companies owned by Oklahoma Indian nations.
You may have seen the ads on television for online American Indian-owned payday lenders. Regulators in Oklahoma and elsewhere are having trouble enforcing compliance with state laws due to the sovereign immunity granted to Indian tribes. Sovereignty granted by the federal government essentially makes tribes equal to state governments. States are not permitted to enforce their regulations against a tribal business within a state court.
According to sources, investment firm Stephens Inc. estimated that there were over 19,000 payday lenders in 2010. Storefront operations were estimated to account for $29.2 billion annually, while online lending represented $10.8 billion. Since Internet-based tribal lending companies are not licensed, no one knows how many there are or how much business they are doing.
State regulators in Colorado and California have been unsuccessful in attempts to penetrate protection provided by sovereign immunity when it comes to unlicensed online tribal companies offering payday loans. According to Consumer Federation of America, a national consumer advocate, failure to decide the sovereignty issue could render state regulation meaningless. To avoid state legislation, the industry may move entirely to tribally connected arrangements.
In the meantime, payday loan companies in compliance with state laws, as well as consumers, are suffering. Unregulated tribal lenders have an unfair advantage and consumers are not afforded the protection they receive under relevant state laws. Any payday lender hiding behind sovereign immunity is cheapening that solemn privilege, said Consumer Federation of America Director of Financial Services Jean Ann Fox.
