A top New York State regulatory agency sent cease-and-desist letters last week to 112 banks and 35 lenders that offer or facilitate short-term, high-interest payday loans to consumers online. The letters from the Department of Financial Services (DFS) warn that the businesses are charging interest rates far above the state's cap of 25% annually.
But Native American tribes are asking the regulator to leave their payday loan businesses alone. Native American tribes operate many of the targeted lenders, and thus do not fall under federal or state jurisdiction.
Although many of the companies are not incorporated in New York, Ben Lawsky, superintendent of the DFS, claims jurisdiction because in some cases New Yorkers purchased the loans.
Representatives of the Native American Financial Services Association (NAFSA) expressed outrage over Lawskys letter, which they believe violates the sovereignty of 16 Indian tribes based in the Midwest and western United States.
The United States federal government views itself in a unique government-to-government relationship with Indian tribes, said Barry Brandon, the executive director of NAFSA, in an interview with The Daily Caller News Foundation. [Court] cases have held many, many times that states do not have any jurisdiction over Indian tribes. How is it that the state of New York can tell these Indian tribes, who are operating lawful businesses created under tribal law, what to do?
Brandon said that all Native American lenders under NAFSA operate according to federal law and meet strict best practices standards. He said it appears the DFS is discriminating against tribes, he told The Daily Caller.
John Berlau, a scholar from the free-market Competitive Enterprise Institute, said Lawsky has overreached concerning claims the loans carry triple- and quadruple-digit interest rates, stating that assertions of 1,000% interest rates are actually annual interest. He also said the majority of payday loans are repaid within two to four weeks.
Ironically, a payday loan can be of lower cost often than overdraft fees, Berlau told The Daily Caller. When they eliminate these short-term, non-bank loans, the irony is theyre leaving consumers with marginal credit even more at the mercy of banks.