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Missouri AG Koster shuts down predatory payday loans | SEMO TIMES

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Attorney General Chris Koster announced yesterday that he has obtained an agreement with eight online payday loan operations to shut down payday loan operations in Missouri, provide $270,000 in consumer restitution, and erase all loan balances for Missouri consumers.

Koster said Martin A. “Butch” Webb acted through numerous business entities operating from a Native American reservation in South Dakota, including Payday Financial, Western Sky Financial, Lakota Cash, Great Sky Finance, Red Stone Financial, Big Sky Cash, Lakota Cash, and Financial Solutions, none of which were licensed to do business in Missouri. These businesses sold short-term loans with exorbitant fees and forced consumers to agree to have their future wages garnished without going through the court system as required by Missouri law.

The Attorney General’s Office received 57 complaints from consumers who were collectively charged approximately $25,000 in excess fees. The Attorney General’s investigation subsequently discovered as many as 6,300 other Missourians who may have also been charged excessive fees. One Missouri consumer was charged a $500 origination fee on a $1,000 loan, which was immediately rolled into the principal of the loan. She was charged 194 percent APR and eventually paid more than $4,000.

“These predatory lending businesses operated in the shadows, taking advantage of Missourians through outrageous fees and unlawful garnishments,” said Koster. “Webb may have thought that by operating on tribal land he could avoid compliance with our state’s laws. He was wrong.”

Under Missouri law, a payday lender cannot charge “origination” or other such fees in excess of 10 percent of the loan, up to a maximum of $75.

The judgment obtained by Koster permanently prohibits Webb or any of his businesses from making or collecting on any loans in Missouri, and it cancels existing loan balances for his Missouri customers. Webb must also instruct credit reporting agencies to remove all information previously supplied to them about specific consumers. In addition, Webb must pay $270,000 in restitution to consumers and $30,000 in penalties to the state.

Consumers who, while living in Missouri, paid excess origination fees to one of the companies listed above—even if the loan was later sold to a third party—may be eligible to receive restitution under the terms of the judgment. The Attorney General’s office will be contacting eligible consumers.

“My hope is that every Missouri consumer who took out a short-term loan with these companies gets back what they were charged in excess of Missouri law,” said Koster. “The message to online payday lenders is clear: follow Missouri law or you won’t be doing business in our state.”

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How a High Court Ruling on Tribal Powers May Impact Payday …

The recent U.S. Supreme Court ruling in a case between the state of Michigan and the Bay Mills Indian Community, which upheld tribal sovereignty in the case of a casino, did not deal with payday lending but mentioned possible limits to tribal authority by suggesting that states could pursue individuals instead. Some observers believe the decision will make it harder for payday lenders to claim that an affiliation with Native American tribes exempts them from state and federal consumer protection laws.

“This case makes clear that sovereign immunity is only immunity from being sued but they are not exempted from complying with the law,” said Lauren Saunders, associate director of the National Consumer Law Center. “Payday lenders who claim an affiliation with a tribe claim that they are outside of law [but] that is simply wrong and this says a court can even issue an order against them by doing it through action against an individual.”

However, other experts insist it is uncertain whether the ruling can be applied to tribes and affiliated payday lenders. Ronald Rubin, a partner at Hunton & Williams in Washington, says, “The real question is whether or not payday lenders located on Indian lands are actually operating on tribal territory when they make loans to people around the country.”

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Indian tribes lash out at efforts to squelch payday lending …

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A payday loan outlet is shown in Baton Rouge, La.

Photo by

Associated Press

/Chattanooga Times Free Press.

RELATED STORY

Letter stymies payday empire of Chattanooga’s Carey Brown

WHAT’S A PAYDAY LOAN?

• A payday loan is a short-term, unsecured, high-interest loan.

• In Tennessee, lenders can charge $15 for a $100 loan.

• The loan is typically due within two weeks, or on the next payday. Hence the name payday loan.

• If borrowers pay back the loan immediately, it can be a good way to avoid missing a car or a house payment.

• But many borrowers let the loans roll over, only paying the interest and penalties and generating “churn,” which is how lenders make much of their money.

• Many lenders prefer it this way, leaving the originally borrowed amount in the account and only debiting the interest every two weeks.

• Lenders say they must charge the high interest rates because the high-risk borrowers are typically operating on the margins of society and outside traditional banking systems.

• Opponents say the system traps its victims in a cycle of debt that leaves them worse off than when they started.

• Recent actions by regulators have cut off some payday lenders’ ability to reach into consumers’ bank accounts as punishment for those lenders ignoring state limits on interest rates.

Source: Center for Responsible Lending, State of New York, news reports

In a parallel to the 1970s-era battle over the legal right of Indian tribes to open casinos in contravention of state laws, a new generation of online payday lenders are now suing for the same type of immunity from state lending regulations, hoping to dodge rules limiting interest rates.

“This is a straightforward case that is about the real-world importance of Native American sovereign rights,” said David Bernick, an attorney working for two tribes to stop regulators in their tracks.

Recent actions by the states have challenged tribes’ ability to flout lending laws by leaning on the banks that control the nationwide banking network to choke off payday lenders’ ability to electronically deposit and withdraw money from customers’ accounts.

Lenders maintain that they are offering a service that customers demand, while regulators say that lenders’ methods end up costing consumers far more than they bargained for, trapping them in a cycle of debt that enriches lenders but leaves customers worse off than when they started.

Ben Lawsky, head of the powerful New York Department of Financial Services, convinced banks to shut off access to the automated clearing house (ACH) network for rule breakers, else the banks could be held responsible for abetting illegal behavior.

Lawsky’s plan to stem the flow of “illegal” payday loans into New York worked, and banks began to cut access to the banking network payday lenders like Chattanooga’s Carey V. Brown, forcing Brown to shut down his websites within weeks and lay off most of his employees.

But the tribes, some of which have partnered with Brown in the past, are unhappy about the loss in revenue, and charged that Lawsky was creating a constitutional backdoor that flies in the face of established rulings granting tribal businesses the right to ignore state laws.

“Lawsky knows that he doesn’t have the authority to regulate and limit tribes’ sovereignty, which is why the Department of Financial Services has instead gone after tribes’ banking relationships,” Bernick said.

Two tribes filed a lawsuit on Aug. 21 against Lawsky, asking for an injunction against what they called unlawful intimidation. On Monday, a judge expedited the case, forcing Lawsky to respond by Friday to the tribes’ motion for a preliminary injunction.

“Lawsky and the state of New York have overstepped their bounds with their illegal attacks on our tribes,” said Barry Brandon, executive director of the Native American Financial Services Association. “His actions are a flagrant denial of our rights as sovereign entities, and today, we are fighting back to defend these rights.”

Legally, the relationship between tribal businesses, the federal government and the 50 U.S. states has been a complicated one. Courts have held that states have almost no power to enforce their laws when it comes to Indian businesses, leaving a patchwork of federal regulators as the tribes’ only governing authority.

Taking advantage of this loophole, Indian tribes over the last few years have partnered with existing online payday lenders, offering lenders the tribe’s legal immunity in exchange for payments that support schools, playgrounds and other infrastructure. While the payday lending businesses must be technically owned by a member of a federally-recognized tribe, a Times Free Press investigation found that in some cases, the website’s operations are actually outsourced to existing payday lenders.

Cheryl Bogue, an attorney for one of Brown’s former Indian business partners named Martin “Butch” Webb, told the Times Free Press that the tribes “outsource to people like Mr. Brown” because of insufficient bandwidth on the reservation, among other difficulties.

Payday lending has been an especially attractive opportunity for tribes too far off the beaten path to make a casino a feasible source of revenue, as well as for lenders who are looking for a safer and more legally defensible way to make their short-term, high-interest loans over the Internet.

Allen Parker, a consultant who sets up deals between online payday lenders and Indian tribes, said that payday lenders will typically pay a lump sum to the tribe in exchange for the tribe’s immunity from state law, then send in recurring payments as sort of a profit-sharing plan.

“It works better if the tribe owns it 100 percent, then they contract with the payday loan companies to run the businesses,” Parker said. “In return, the payday loan companies pay a fee portion of revenues it collects.”

The arrangement works well for both sides.

For some tribes, lending revenues constitute more than 25 percent of the money they take in for education, health care, elder care and justice operations, according to the Native American Financial Services Association. And for lenders, the deal has allowed them to offer consumers access to easy money with interest rates that would get a brick and mortar store shut down.

Gary Kalman, executive vice president for federal policy at the Center for Responsible Lending, said the solution to the impasse between states and tribes is for federal authorities to step forward and more aggressively enforce federal laws. The newly-created Consumer Financial Protection Bureau could play a leading rule in standardizing the rules that govern lending in all 50 states, in tribal territories, and online.

“State laws are working, but all Americans deserve protection from abusive payday loans,” Kalman said. “The CFPB should look to states for tested models of effective laws as they develop rules that will protect families nationwide.”

Contact staff writer Ellis Smith, esmith@timesfreepress.com, 423-757-6315.

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Online Payday Loan Peddlers Apparently Skirting The Law By …

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(legotech)

When someone wants your money, they’ll go to quite sneaky lengths to get your business. That’s what one Oregon senator says online loan sharks are doing, by opening on Native American reservations so as to get around state and federal consumer protection laws. State laws don’t work on tribal lands, a situation which has turned such lands into veritable havens for payday lenders trying to skirt regulation.

Senator Jeff Merkley tells KATU he’s been trying to crack down on those organizations for a while now.

“What they’re doing is morally wrong,” Merkley said. “It breaks state law. It destroys families and we have to stop it.”

Loan companies are often sending customers to collections and charging triple-digit interest rates and harassing them over the phone. But under Oregon and federal law, nothing can be done if the companies operate on reservations, where tribal sovereignty is the law of the land.

Merkley tried to stop payday lenders from nefarious dealings by pushing a law through in 2007 that limits interest and fees that can be charged, and outlawed collections on any loans done over the Internet. Once those lenders moved to tribal lands, everything changed.

The senator is now pushing Congress to change federal law, which could be a hard fight as treaties involving some tribal lands have existed for decades.

“It simply says that you can’t operate out of a tribal reservation or overseas, or anywhere else, and violate the state laws,” Merkley said of his bill, which would enable the Consumer Fraud Protection Bureau to stop loan sharks.

Online loan sharks find tribal lands are an easy way to skirt the law [KATU]

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