By Gary Davis
Misconceptions about tribal lending abound both inside and outside Indian Country. Tribal gaming faced a similar stigma for decades and has only recently begun to be embraced by Native and non-Native Americans alike for its entertainment value and vital contributions to tribal economic development and self-determination. Tribal lending entities (TLEs), originating $2 billion worth of short-term consumer loans each year, are also fighting misinformation on all fronts about the industry, its products, its participants, and its consumers.
A prime example of this uphill battle known all too well to Indian Country happened just recently. While I was busy promoting the incredible potential of financial services and technology to Indian Country at the National Reservation Economic Summit (RES) in Las Vegas, other industry leaders in ecommerce and online payments gathered at Harvard University for Innovation Project 2017. Some of the high profile speakers at Innovation Project 2017 included Visa CEO Al Kelly and PayPal CEO Dan Schulman. Day two of the conference explored the long-term future of short-term lending. Although our commitments as the presenting sponsor of the National RES left me unable to attend Innovation Project 2017, tribal sovereignty and online lending were still a hot topic for attendees.
The discussion centered on the effects of the Consumer Financial Protection Bureau’s (CFPB) proposed rule on auto title, payday, and certain high cost installment loans. Despite combined decades of experience in the legal nuance of online lending, the participants exhibited a poor understanding of the sophisticated regulatory structures in place for TLEs. A summary of the session demonstrated a similar misguided view of the sovereign and co-regulatory relationship between tribal governments, their economic arms, and the federal government: “In a world where the majority of short-term lending goes away, a possible future the panel pondered was one where the future of innovation is synonymous with the future of evasion—small dollar providers’ signature innovations will be around avoiding the reach of federal rules (by licensing offshore, or with Indian tribes or bouncing their servers all over the world).”
Contrary to the beliefs of Innovation Project 2017 attendees, tribal governments and their economic subdivisions adhere fully with all applicable federal laws. Contingent to admission into the Native American Financial Services Association (NAFSA), TLEs must demonstrate compliance with 19 different federal laws related to lending and consumer finance by agreeing to stringent best practices regarding lending, advertising, operations, and payments.
Beyond our best practices, each NAFSA member’s tribal council adopts its own lending code. Many of these codes have memorialized federal regulations in key areas. John Shotton, chairman of both the Otoe-Missouria Tribe and NAFSA, recently explained during a panel presentation that his tribal council spent a year researching and debating different provisions before finally adopting a lending code. On the same panel Jay Abbasi, CEO of NAFSA member Plain Green LLC, added that Plain Green hires an outside bank regulator each quarter to conduct a compliance audit and ensure conformity with all tribal and federal regulatory demands.
While the relationship between the U.S. government and tribes has not always been one of mutual respect and understanding, NAFSA and its members are nonetheless committed to working with federal agencies and Congress to protect tribal sovereignty and promote regulations that help tribal communities establish sustainable economies. The U.S. Dept. of the Treasury and the Consumer Financial Protection Bureau incorporate tribal consultation initiatives into their rulemaking processes, and tribes, defined as “states” in the Dodd-Frank Act, are recognized as co-regulators alongside federal agents in enforcing consumer financial protection laws.
To improve enforcement and ensure consumer complaints are given due consideration, each NAFSA member establishes an independent regulatory commission to oversee lending activity and customer concerns. Any non-Native lender seeking shelter from regulation by partnering with a tribe will be sorely disappointed to find a heightened level of oversight and regulation among TLEs.
Misinformation about the regulatory rigors in Indian Country is not a new phenomenon. Economic development in tribal communities begins with the tribal government and its ability to adopt sound business regulations to support entrepreneurial growth and foster industries that can provide for future generations.
NAFSA looks forward to and accepts the critical role
of promoting credible and sustainable tribal online lending solutions and services across America. Anyone hoping to avoid responsible regulation in this industry need not apply. ♦