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Rent-a-tribe or sovereign immunity: Fort Belknap lawsuit exposes legal gray areas of payday lending – Daily Montanan [1]

['Blair Miller', 'More From Author', '- September']

Date: 2023-09-13  

Scroll to the bottom of the websites for Target Cash Now, Bright Lending and Cash Advance Now – the three lending companies Island Mountain Development Group currently runs – and one will find lengthy disclaimers noting the companies are wholly-owned by the Fort Belknap Indian Community and licensed under its Tribal Regulatory Authority.

Each also notes in similar or identical forms: “This is an expensive form of borrowing and is not intended to be a long-term financial solution.”

Island Mountain Development Group started its short-term lending ventures in 2011 to help create a stronger economy on the reservation in northcentral Montana and experienced brisk annual growth, 72% on average from 2013 to 2020, according to the company. At one point, it ran as many as 11 online lending companies, according to the Wall Street Journal.

Websites of the three current companies tell visitors they might use the loans for “unexpected emergencies, car repair bills, medical care, or essential travel expenses.” Each company provides initial loans to first-time customers, typically at a minimum of $300 and maximum of $2,500.

But if someone looking for quick cash does not read the fine print, they might miss that Cash Advance Now charges a 725% annual interest rate — meaning someone who takes out a $300 loan and pays it back on the 12-payment schedule would end up paying $1,059.

Now, Island Mountain Development Group, with an estimated $130 million in operating revenue three years ago, is embattled at home after suing its former attorney over alleged financial mismanagement, and the lending companies it operates — which helps provide critical revenue streams for Fort Belknap — are also under scrutiny in federal courts.

“Fort Belknap Indian Community has been taken advantage of by interests outside our community who have worked to undermine our sovereign right as a people to govern ourselves,” IMDG said in a news release Tuesday announcing the lawsuit against law firm Greenberg Traurig and attorney Jennifer Weddle. “These forces have made millions upon millions of dollars for themselves while too many of our people suffer.”

Economic development and tribal lending

Monte Mills, director of the Native American Law Center at the University of Washington School of Law who formerly taught at the University of Montana’s law school, said lawsuits playing out in court may have serious implications for tribal sovereignty. And he said the tribal lending landscape is “tricky.”

The U.S. still is grappling with how such lending companies fit into the legal system, in part because laws protect consumers from being taken advantage of, but they also protect tribal sovereignty.

Mills said sovereign immunity means tribes cannot be sued unless they consent to it. But nontribal people have used tribes and their sovereign immunity to set up lending businesses that violate the law and could put those tribes’ sovereign immunity in jeopardy.

Typically, state usury and other consumer protection laws don’t apply to tribal lending companies under tribal law and tribal jurisdiction, Mills said. That has allowed tribes to set up businesses like IMDG and its lending companies to generate revenue where they otherwise could not.

Earlier this year, Fort Belknap tribal elders and leaders raised questions about IMDG and whether the tribe was financially vulnerable if its companies became insolvent through a default. In January, the tribal council ousted the Island Mountain board, replaced its members with tribal council leaders to try to protect tribal sovereignty, and launched an investigation into allegations of fraud.

The investigation led to the newly filed lawsuit this week alleging that Weddle, a longtime attorney for IMDG, and her law firm were behind financial mismanagement of the company, a pressure campaign on five tribal council members who replaced the board, and a scheme to transfer IMDG to the Rosebud Sioux tribe in South Dakota. An ousted board member and tribal council member was also impeached and removed from the council late last month over the financial allegations.

“Ms. Jennifer Weddle, of Greenberg Traurig, acting in her own self-interest, misled IMDG board and staff regarding the board seats over a period of three years in an effort for Ms. Weddle to keep her lucrative contract employment with IMDG,” board member and lawsuit plaintiff Derek Azure said in a statement Tuesday.

Lending company revenue streams are critical to some tribes and reservations, Mills said. However, he said at times, outside investors have taken advantage of the tribal status to engage in predatory lending for their own benefit.

“I think that’s where you’ve seen a lot of sort of controversy and conflict around tribal lending operations,” Mills said.

Mills said “bad actors” trying to do business through tribal nations occasionally have put some of the longstanding tribal sovereignty and sovereign immunity doctrines in jeopardy.

Fort Belknap’s lending companies have drawn scrutiny

IMDG’s three current lending companies are Target Finance LLC (Target Cash Now), Aaniiih Nakoda Finance LLC (Bright Lending), and GreatPlains Finance LLC (Cash Advance Now).

Customers wanting a loan through those companies can “apply online in minutes,” and after they “carefully review” documents, receive the money through direct deposit, according to their websites.

Online reviewers of the companies generally praise the workers who facilitate the loans. Most employees work at IMDG’s call centers, and 70% are enrolled Fort Belknap members and 90% are Native American, according to company data.

But even the positive reviews show people have concerns about the interest rates and, at times, have been denied loans from other lenders.

“This was a horrible scam you completely destroyed me. I did read through the paperwork but must have missed something very important. Because I got a loan for $700 and you are charging me $2300 that is highway robbery and ridiculous and most likely against the law but since you’re an Indian tribe there’s nothing I can do,” said one review.

Each site provides incentives for people to pay the loans off early, but rate calculators show that even if a person pays off their full loan within one month, they would, on top of that, have to pay back nearly 50% of the initial amount in interest alone.

A social media post from someone recommending Bright Lending for people needing a loan “with little to no credit” after receiving an $800 loan, for which they would have to pay back a total of nearly $4,500 during the next 11 months, made the front page of Reddit last year. It received more than 1,000 comments calling the lending “predatory” and “loan-sharking” and wondering how, or if, those rates were legal.

In some places, but not all, they are. And in some cases, the companies are being used to defraud customers, according to prior reporting from the Wall Street Journal.

While Fort Belknap and Island Mountain Development Group currently run the three lending companies, they have run more in the past, according to online records, past news stories, and a consumer alert from the Washington State Department of Financial Institutions.

That consumer alert, first posted in 2013 and updated in 2018, lists Bright Lending, Target Cash Now, and seven other companies tied to IMDG through Michelle Fox, IMDG’s CEO until 2018.

Among the other companies listed were White Hills Cash, Blue Thread Lending, Riverbend Cash, Cash Fairy, Northcash, West River Cash and Northern Plains Funding. A Better Business Bureau profile for White Hills Cash lists the company as being owned by Fort Belknap and its company name as Island Finance LLC.

The alert said the state had received complaints about all nine listed companies, and while the allegations had not been verified, it said that Bright Lending, and possibly others, were not licensed by the department or registered to conduct business in the state.

A Wall Street Journal story published in 2015 showed the tenuous connection some companies had to a tribe — a connection Mills notes is key in determining whether a company is an actual “arm of the tribe.”

The WSJ reported that Island Finance LLC’s address was listed as a United States Postal Service mailbox in Florida shared by companies and owned by a man with multiple lending operations.

Another WSJ story from 2014 says Fort Belknap operated 11 lending websites at the time, and Wells Fargo had stopped working with the tribe’s lending companies in 2012. Further, the WSJ reported, Wells Fargo’s loan processor, LST Financial, went away after LST’s bank settled with the federal government over claims it knew or was ignorant of the fact it was being used to defraud customers.

At the time, then-CEO Fox told the WSJ the lending business for Fort Belknap had fallen by 40%.

The U.S. Department of Justice and U.S. Consumer Financial Protection Bureau already were scrutinizing tribal lending operations then and how they interacted with state lending laws and tribal sovereignty – something the U.S. legal system is still working to figure out today.

The tribal lending legal landscape

The astronomical interest rates play perhaps the biggest factor in the lending legal landscape.

Forty-five states and the District of Columbia have placed caps on interest rates and loan fees for certain loans, according to a June 2022 report by the National Consumer Law Center.

For $500, six-month loans, the median cap is set at 39.5% APR, while the median is roughly 32% APR for $2,000, two-year loans – though the caps vary state-by-state, according to the report. Montana, for instance, caps those APRs at 36% — it’s one of 19 states at or below that rate.

But tribal sovereignty protects tribal and arm-of-the-tribe lenders, in most cases, from certain state compliance regulations and from facing lawsuits over the interest rates.

A paper published in Business Law Today in 2017 notes that online lenders “must observe all applicable state laws in each jurisdiction in which it lends” – including state licensing and usury regulations.

But the U.S. Supreme Court held in the 2014 Michigan vs. Bay Mills Indian Community decision that tribes have sovereignty and immunity “even when a suit arises from off-reservation commercial activity.” Another Supreme Court decision found the only exceptions to tribal immunity are if “Congress has authorized the suit or the tribe has waived immunity.”

The U.S. Consumer Financial Protection Bureau, tasked with enforcing federal consumer financial law and protecting against unfair, deceptive and abusive practices, has changed its tactics between the different administrations in recent years, as Brianne Marino Glass wrote in the 2019 University of North Carolina School of Law/North Carolina Banking Institute paper: “Tribal Lending Under CFPB Enforcement: Tribal Sovereign Immunity and the ‘True Lender’ Distinction.”

Under the Obama administration, the Bureau had sued four online payday lenders that claimed to be arm-of-the-tribe lenders with tribal immunity, but the Bureau dismissed the lawsuit when the Trump administration took office. Acting Director Mick Mulvaney at the time outlined in the Bureau’s five-year plan that it did not want to be “trampling upon the liberties of our citizens, or interfering with sovereignty or autonomy of the states or Indian tribes.”

Glass wrote in the 2019 paper that she would recommend the Bureau take an approach in which it “investigates lenders with tenuous links to tribes while still promoting the protection of tribal sovereign immunity by acknowledging that tribes and legitimate arm-of-the-tribe lenders are considered ‘states’ under Dodd-Frank.”

Some lenders successfully challenged in court cases

Recent multimillion dollar lawsuits, including class-action cases, have taken on such lenders.

As reported by The Intercept, a settlement agreement was reached in April 2021 after a class-action lawsuit was filed against American Web Loan, which offered loans similar to the IMDG companies’ loans. The parties settled after evidence showed the company, which claimed it was owned by the Otoe-Missouria tribe and had sovereign immunity, was actually owned by a nontribal business partner.

In 2020, a federal court in Virginia gave preliminary approval to an $18.5 million class action settlement involving a company that was alleged to have evaded state usury limits through a purported “rent-a-tribe” scheme.

The Consumer Financial Protection Bureau also sued a company called Think Finance LLC in 2018 in the U.S. District Court of Montana alleging the company affiliated with tribal lenders not including Fort Belknap and illegally took money from consumers because the loans were void in 17 states. The final consent order says consumers paid at least $325 million more than the principal amounts borrowed. In a settlement, the company was prohibited from offering or collecting on loans to consumers in any of those states if the loans violated state lending laws.

However, the U.S. Ninth Circuit Court of Appeals ruled in September 2021 that the investor could force arbitration on claims, Reuters reported.

Two of IMDG’s lending company’s websites say they do not lend to people in Arkansas, Connecticut, Montana, New York, Pennsylvania, Virginia and West Virginia. Some lenders have stopped lending to customers in certain states because of usury laws and prior court rulings .

In January, the Consumer Financial Protection Bureau proposed a rule that would have the bureau require nonbanks that use terms and conditions that would waive consumer rights or legal protections to register annually, and to publish that information.

Expert says ‘nefarious actors’ can cause trouble for tribes

Most often at issue, Mills said in an interview earlier this summer, is whether the entities set up to help bring in revenue to a tribe are actual arms of the tribe — originating with and operated by the tribe — or a separate entity.

“I would imagine what’s happening now in Fort Belknap is the extent of tribal government control, the extent of tribal council oversight, the extent of the revenue sharing – all of those are factors in determining the extent of the arm-of-the-tribe analysis,” Mills said.

In the lawsuit, attorneys for IMDG and the council members wrote that the company “has a sovereign interest in protecting its assets, and in controlling its governance and operations.” Several of the lawsuits the company’s subsidiary lending companies have faced over the past several years were dismissed after attorneys, including those from Greenberg Traurig, argued the companies and tribe are protected by sovereign immunity.

IMDG terminated its arrangement with both Weddle and the law firm in early February. The lawsuit says that was due in part to their refusal to give the newly appointed interim board copies of agreements with lending companies backing the company financially. The company and tribe appointed new attorneys to handle at least two ongoing federal cases in other states.

In an interview Wednesday, tribal council and IMDG board member Geno LeValdo, who is one of the plaintiffs in the new lawsuit, said he did not believe that the allegations involving Weddle would affect those cases, however, despite them both involving allegations that outsiders are involved in the lending operations and attempts by the plaintiffs to pierce sovereign immunity in federal court. He called the IMDG lending companies a “gold-standard and model lending program.”

LeValdo said that part of the reason that the new board is composed entirely of tribal council members is to enhance the tribe’s sovereignty by ensuring tribal members are in control of the company and its operations.

“So that strengthens our sovereignty and strengthens our company,” he said.

Mills said that how federal judges interpret laws and balance tribal law with state and usury laws remains a big question. One concern he said courts have centers on the remedies for an injured party when weighed against the tribe’s sovereignty.

“What the court’s really trying to figure out is, is the tribe doing this as a matter of tribal governance? Or is this somebody else really just trying to rent the tribe’s authority to shield itself from usury laws, litigation, and whatever else it needs?”

He said the “nefarious actors” create problems not just for individual tribes.

“(They potentially cause problems) for the whole doctrine of sovereign immunity for tribal jurisdiction, which has much more far-reaching implications,” Mills said.

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