Judge Rules Payday Lender With Tribal Affiliation Has To Play By FTC Rules

Predatory payday lenders can no longer escape federal regulators by claiming affiliations with American Indian tribes. A U.S. District Court handed the Federal Trade Commission a significant victory in the crackdown of such deceptive payday lenders.

On Wednesday, the FTC announced that a U.S. District Court judge upheld a magistrate judge’s 2013 ruling that the agency has authority to regulate certain companies associated with Indian tribes, along with those companies’ employees and contractors.

“This ruling makes it crystal clear that the FTC’s consumer protection laws apply to businesses that are affiliated with tribes,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.  “It’s a strong signal to deceptive payday lenders that their days of hiding behind a tribal affiliation are over.”  

The issue came to light in 2012 when the FTC sued AMG Services for engaging in unfair and deceptive practices against consumers. The company allegedly violated the FTC Act by piling on undisclosed and inflated fees, and by threatening borrowers in debt collection calls with arrest and lawsuits. Additionally, the company violated the Truth in Lending Act by providing consumers with inaccurate loan information and violated the Electronic Fund Transfer Act by requiring consumers to preauthorize electronic withdrawals from their bank accounts.

AMG Services argued it was exempt from FTC enforcement because of their affiliation with American Indian tribes.

At the time, local law enforcement had fielded more than 7,500 complaints about the business and the Colorado attorney general, who had been investigating the company for eight years, accused the business of setting up affiliations with tribes just to protect it from regulation. Denver District Court, however, ruled that the connections were legit.

Last year, Magistrate Judge V. Cam Ferenbach found that payday lenders cannot avoid key federal consumer protection statutes simply by aligning with tribes. Today’s ruling upholds the decision.

Previously, the FTC reached a partial settlement with principal AMG defendants in which the company is barred from using threats of arrest and lawsuits as a tactic for collecting debts, and from requiring all borrowers to agree in advance to electronic withdrawals from their bank accounts as a condition of obtaining credit.

The FTC will continue to pursue other charges against AMG Services, including allegations that it deceived consumers about the cost of their loans by charging undisclosed charges and inflated fees.

Payday lending businesses that align themselves with American Indian tribes have come under greater scrutiny by federal regulators in recent years.

In August, Western Sky Financial, a payday lender operating out of a tribal reservation in South Dakota, announced it would discontinue offering loans after facing lawsuits form around the country over three-digit interest rates for its loans. The company had perviously claimed they were not bound by state law because of their tribal affiliation.

AMG Services and Western Sky are just a few of the payday operations that claim they are not bound by state law because they operate on tribal reservations. And Wednesday’s ruling gives new life for a push by federal consumer protection agencies to rein in the payday lending industry.

U.S. District Judge Finds that FTC Can Sue Deceptive Payday Loan Business Regardless of American Indian Tribal Affiliation [Federal Trade Commission]