A Prospect Newsletter About Big Ideas
 ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌


View this email in your browser
<[link removed]>

 

Fleecing in Indian Country

An undercovered SCOTUS decision brushes against Native sovereign
immunity, but also potentially snuffs out loopholes exploited by payday
lenders.

In 2019, Brian Coughlin of Massachusetts took out an $1,100 payday loan
from a company called Lendgreen. In December of the same year, Coughlin
filed for bankruptcy. By that point, debt collection activities against
Coughlin should have ended, because bankruptcy law provides an automatic
stay against these practices, in advance of him being put on a debt
repayment plan. But they didn't. Instead, Lendgreen continued
harassing Coughlin for months; he eventually exhibited suicidal ideation
and was hospitalized for two weeks.

Lendgreen is the front-facing name for Niiwin, LLC, a company based in
Lac du Flambeau, Wisconsin, home of the Lake Superior Chippewa Indian
Tribe. Niiwin argued that, as a tribal business, they are afforded
sovereign immunity from the United States bankruptcy code. The question
of whether businesses nominally affiliated with Native tribes can escape
bankruptcy law went all the way to the Supreme Court; SCOTUS said no in
an 8-1 decision, the lone dissenter being Justice Neil Gorsuch, who has
developed
<[link removed]>
a reputation as the Court's most ardent Native rights supporter.

The case cuts both ways. On the one hand, in federal statute, overriding
sovereign immunity relies on explicitly mentioning tribes. But in the
Court's lead opinion
<[link removed]>, Justice
Ketanji Brown Jackson explains that the bankruptcy statute explicitly
abrogates sovereign immunity of "governmental unit[s]," defined in the
U.S. bankruptcy code as "a State, a Commonwealth, a District, a
Territory, a municipality, or a foreign state; or other foreign or
domestic government." To Jackson, this includes a tribal government. As
she says in her ruling, abrogating sovereign immunity is not a
"magic-words requirement."

In theory, the Court's opinion opens tribal sovereign immunity in
other federal statutes for reinterpretation. But on the other hand, this
decision sends a strong message to Native outsiders that they cannot
exploit the exceptions of tribal sovereign immunity for their own means
of conducting business. This is notable, as payday lenders have
notoriously devised ways to escape
<[link removed]>
existing state usury limits and prey on borrowers without the
restrictions of regulations.

Using tribal status for payday lending is essentially a loophole. In the
Coughlin case, if you look at Lendgreen's parent company's website
<[link removed]>, Niiwin, it's not
obvious where the company is located, nor can one tell that it's
affiliated with a tribe. Public documents do not indicate whether
Coughlin knew that Lendgreen was affiliated with the Lac du Flambeau
Band of Lake Superior Chippewa Indians, but it's plausible that a
desperate individual taking out a payday loan is not thinking about a
loan's origin and the federal statutes that govern it. Especially
because high-interest, short-term loans are marketed as being quick and
convenient, with minimal credit checks.

Alternative credit lenders are already opaque actors. As The Intercept
reported
<[link removed]>
in 2021, payday lenders spent years shifting their operations onto
tribal lands, after regulators have cracked down on so-called
rent-a-bank schemes
<[link removed]>.
This enabled payday lenders to avoid state regulations simply by
partnering with a small bank that's exempt from things like interest
rate caps.

The rent-a-tribe scheme, if you will, is just an extension of that
practice. By setting up shop on tribal lands with a shell company, it
looks on paper like a legitimate business that's immune from any state
or federal regulatory strictures.

[link removed]

While the 2021 article focuses on the payday lender American Web Loan,
The Intercept's reporting provides concrete examples of how other
lenders arrange their operations to appear legit in Indian Country.
Meanwhile, those who benefit the most are outsiders, with tiny kickbacks
trickled down to tribal government general funds and other economic
development programs, ostensibly satisfying skepticism that the payday
lender is a critical business for the tribe. Most of American Web
Loan's employees were not tribal members, and the tribes received only
between 1 and 3.6 percent of total revenue from the loans.

This scheme has been around for over a decade
<[link removed]>.
In 2018, race car driver Scott Tucker was sentenced to more than 16
years in prison
<[link removed]> for
racketeering and charging illegal interest rates on payday loans, which
he claimed operated under sovereign immunity on tribal lands. That
offered some hope
<[link removed]>
that rent-a-tribe tactics would soon end, though clearly with Lendgreen,
they have continued.

Coughlin's situation with Lendgreen is not a perfect comparison to
American Web Loan, because it focuses on a single person filing for
bankruptcy. Public
<[link removed]>documents
<[link removed]>
reveal what the corporate structuring of a payday lender operating under
sovereign immunity looks like. Lendgreen is a part of Niiwin, which is
nestled inside the tribe's business development corporation, with a
whole other
<[link removed]>
suite <[link removed]> of
<[link removed]>
LLCs <[link removed]> that are lenders themselves.

Nathalie Martin, a law professor at the University of New Mexico, who
has written
<[link removed]>
extensively about payday lenders and tribes, told the

**Prospect** she had suspicions about the level of involvement the tribe
actually had in the collections process, because they typically do not
have any. Pushing for loan repayment in the middle of bankruptcy
proceedings carries obvious legal risks, as evidenced by this case
making its way to the Supreme Court. To support her suspicion, Martin
pointed to how the lender didn't notify Coughlin of its tribal status
until after he filed for bankruptcy.

Martin said that by law, any lender is supposed to lay off once
bankruptcy proceedings begin.

Taken together, Martin told the

**Prospect** that it's unlikely the Coughlin decision discourages all
payday lending from exploiting tribal sovereign immunity status.
However, this decision adds pressure and potential scrutiny on lenders
who want to set up shop under tribal laws. Legal immunity is no longer a
given. As she said, "most of these [payday] lenders are not tribes,
there are other people behind the curtain running the business."

~ JAROD FACUNDO, WRITING FELLOW

Follow Jarod Facundo on Twitter <[link removed]>

[link removed]

CLICK HERE TO OPT OUT OF THIS NEWSLETTER SERIES
<[link removed]>

Click to Share this Newsletter

[link removed]


 

[link removed]


 

[link removed]


 

[link removed]


The American Prospect, Inc., 1225 I Street NW, Suite 600, Washington, DC xxxxxx, United States

Copyright (c) 2023 The American Prospect. All rights reserved.

To opt out of American Prospect membership messaging, click here
<[link removed]>.

To manage your newsletter preferences, click here
<[link removed]>.

To unsubscribe from all American Prospect emails, including newsletters,
click here
<[link removed]>.