Monday, December 26, 2011

Tribes Use Sovereignty To Make High Interest Loans (Up to 360%)

An Indian reservation in the heart of Montana's farm country may seem an unlikely place to borrow a quick $600, but the Chippewa Cree tribe says it has already given out more than 121,000 loans this year at interest rates that can reach a whopping 360 percent.

As more states pass laws to rein in lenders who deal in high-interest, short-term loans, Indian tribes like the Chippewa Cree and their new online lending venture, Plain Green Loans, are stepping in to fill the void. The Internet lets them reach beyond the isolated Rocky Boy's Indian Reservation to borrowers across the nation, while tribal immunity has allowed them to avoid bans and interest-rate caps several states have set.

To Neal Rosette, Plain Green Loans CEO and the Chippewa Cree's former executive administrative officer, it's a win-win. The online lending venture is a resource for people who can't or won't borrow from banks, while it gives the tribe a steady revenue stream and jobs with unemployment on the reservation at nearly 40 percent.

Rosette said this model could be the successor to gambling for tribes looking for an economic boost. Some tribes have owned online lending businesses for several years, and Rosette said the Chippewa Cree and three other tribes have started the Native American Lenders Alliance to encourage more.

"I believe this is the new outlook for Indian Country, not just Rocky Boy," Rosette said. "We are sovereign nations and we have the ability to create our own laws that regulate our businesses such as this."

That's a problem for consumer groups and the states that have tried to bring such lending under control. The issue with these loans, consumer advocates say, is that their high interest rates make it too easy for a borrower to become trapped in a cycle of debt as they have to borrow more to repay their original loans.

Forty-two states and the District of Columbia have taken different regulatory approaches, from outright bans to interest-rate caps. Montana voters last year passed a ballot initiative that capped such loans at a 36 percent annualized interest rate, which has led to a nearly 83 percent drop in so-called deferred deposit lenders, according to Montana banking and financial institutions director Melanie Griggs.

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