Nine years later, state wins key verdict over tribal payday lenders

A decade after California financial regulators first went after a pair of online payday lenders with ties to Native American tribes, the California Supreme Court on Thursday handed the state a victory, ruling that case against the lenders can proceed.

At issue is whether the lenders, doing business through half a dozen different names including Ameriloan and OneClickCash, are immune from state lending laws because of their affiliation with the Miami Tribe of Oklahoma and the Santee Sioux Nation of Nebraska. Tribes and tribal entities are not subject to state laws.

The court ruled, though, that while the lenders were tribal entities in name, they had little connection to the tribes in practice. In a unanimous decision, the court found “scant evidence that either tribe actually controls, oversees, or significantly benefits from the underlying business operations of the online lenders.”

Instead, the court said it appeared that the lenders were controlled by Scott Tucker, the owner of Kansas City-area firm AMG Services. AMG and Tucker are not defendants in the California case but have been under federal scrutiny for years over payday lending businesses that regulators and prosecutors say used sham relationships with Native American tribes to flout state lending laws.

Federal prosecutors in New York this year charged Tucker with criminal racketeering and violations of federal lending rules. Tucker has pleaded not guilty and a trial is schedule to begin next year. In October, a federal judge in Nevada ordered Tucker, AMG and related parties to pay $1.3 billion to consumers who paid high and improperly disclosed fees, the result of a case brought by the Federal Trade Commission.


Payday lenders offer small loans, usually for just a few hundred dollars, and expect repayment once borrowers get their next paycheck. The loans often have annual interest rates topping 300%.

California and other states have licensing requirements and rules that govern how big payday loans can be and how much interest and fees lenders can charge. Tribal lenders, or entities claiming an affiliation with Native American tribes, say those laws don’t apply to them, allowing them to make bigger and pricier loans.

The California Department of Business Oversight first took action against the tribe-affiliated lenders in 2006 and sued them the following year, saying they were operating without licenses, making loans that were larger than the state’s $300 limit and charging illegally high fees.

Those allegations have yet to be addressed in court. Since the case was filed, the lenders argued they were outside of the state’s jurisdiction. Both the Los Angeles Superior Court and a state appellate court agreed, saying the state had no case. But the Department of Business Oversight continued to appeal the case, and Thursday’s ruling marks a long-sought victory.

Department Commissioner Jan Lynn Owen said the ruling “strengthens our ability to enforce laws prohibiting excessive fees and unlicensed activity by denying payday lenders’ ability to inappropriately use tribes’ sovereign immunity to avoid complying with state law.”

Still, the state will now have to make its case in the lower court.

Skip Durocher, an attorney for Miami Nation Enterprises, the entity that claims an affiliation with the Miami Tribe, said he will continue to argue that his client is a tribal entity.

“This is a fight about tribal sovereignty,” Durocher said. “We’re confident that when the facts are laid out, we’ll prevail.”

Attorneys for SFS Inc., the lender affiliated with the Santee Sioux Nation, did not returns calls for comment.

Regardless of the outcome of the case at hand, the ruling could have a big impact on the involvement of Native American tribes in the online lending business.

The state Supreme Court ruling is just the latest action challenging the way that outside firms like Tucker’s have sought to work with tribal entities to get around state lending laws, including rules that cap interest rates.

In August, a federal judge in Los Angeles ruled that Orange County lender CashCall used a sham relationship with a tribal entity to make loans that violated lending laws in 16 states. The judge in that case also argued that the tribal entity had too little involvement in the business for tribal sovereign immunity to apply.

Donald Putterman, a San Francisco attorney who specializes in consumer lending and financial regulation, said recent rulings show that some lender-tribe relationships have been poorly structured in the past, giving tribal entities too little involvement — and too little skin in the game — to pass muster.

But Putterman said he expects tribal lenders to use the recent rulings to make sure that their businesses are structured in ways that will allow them to continue to skirt state laws. The California Supreme Court ruling, he said, could be particularly helpful as it lays out clear criteria for determining whether a business affiliated with a tribe should be immune from state laws.

“This kind of decision, it essentially provides a guideline for what will work in California,” he said.

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