Are Payday Lenders Shielded by the Tribal Veil?

In a case pending before the U.S. District Court for the Eastern District of Pennsylvania, Pennsylvania v. Think Finance, Inc., et al., No. 14-cv-7139, the Pennsylvania Attorney General (the “AG”) sued a number of defendants under Pennsylvania’s “Loan Interest and Protection Law,” which limits the rate of interest for loans under $50,000.00 issued by unlicensed lenders to six percent per year. See 41 P.S. § 201(a). The AG alleged that the defendants had “partnered with an out-of-state bank and with Native American tribes, in arrangements known colloquially as ‘rent-a-bank’ and ‘rent-a-tribe’” schemes to avoid the usury statute. In January of 2016, Judge Joyner considered a motion to dismiss in the case.

The “payday loan” industry has been the subject of comprehensive state legislation aimed at protecting consumer-borrowers from loans that, oftentimes, carry “astronomical annual interest rate[s].” See Smith v. Steinkamp, 318 F.3d 775, 776 (7th Cir. 2003). To avoid liability under these state laws, payday lenders sometimes partner with certain federally chartered banks and Indian tribes who enjoy immunities and other federal protections from state law. See, e.g., People v. Miami Nation Enterprises, 223 Cal. App. 4th 21 (Cal. Ct. App. 2014) (shielding tribal business enterprise from suit for payday loan practices because of sovereign immunity); see also USA Payday Cash Advance Centers v. Oxendine, 585 S.E.2d 924, 926-27 (Ga. Ct. App. 2003) (“In an attempt to circumvent state usury laws, some payday lenders have contracted with federally chartered banks or state chartered banks insured by the FDIC to take advantage of federal banking laws that allow such banks to make loans across state lines without regard to that state’s interest and usury laws in ‘rent-a-charter- or ‘rent-a-bank’ contracts”).

http://www.jdsupra.com/legalnews/are-payday-lenders-shielded-by-the-76016/