For years, a handful of sketchy payday lenders have been using purported affiliations with tribal lands to try to skirt federal and state laws. But courts and regulators have recently been cracking down on these operations, saying that a tribal connection does not shield a business from prosecution. One operation facing charges from the Federal Trade Commission has now agreed to pay nearly $1 million in penalties over charges that it illegally garnished borrowers’ wages and wrongfully sued them in tribal courts.

Back in 2011, the FTC sued Martin Webb, operator of various online payday lending operations, including Great Sky Financial and Western Sky, whose TV ads are likely familiar to regular viewers of cruddy daytime and late-night TV shows, for allegedly attempting to garnish borrowers’ wages without first obtaining a court order, in violation of the FTC Act.

These same companies were subsequently accused of suing borrowers in a South Dakota tribal court that had no jurisdiction over these loans. The tribal court has no jurisdiction over people who are not members of the tribe and who do not reside either on the reservation or elsewhere in South Dakota.

“Regardless of tribal affiliation, debt collectors must comply with federal law,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection.

The defendants surrendered around $420,000 following a partial judgement in favor of the FTC back in Sept. 2013, shortly after Western Sky announced that it would have to stop funding new loans.

The recently announced settlement adds another $550,000 in penalties to that total, settling charges that Webb and his companies violated the Credit Practices Rule, which prohibits payday lenders from requiring borrowers to consent to have wages taken directly out of their paychecks in the event of a default.

Western Sky is under investigation or being sued by authorities in several states, including Colorado, New York, Oregon, Minnesota, and Maryland.

It and other payday lenders located on tribal lands have repeatedly been accused of issuing triple-digit interest loans to borrowers in states that either outlaw payday lending or have established interest rate caps that effectively ban payday operations from lending.

The federal Consumer Financial Protection Bureau recently announced that it is in the late stages of drafting lending reforms that would hopefully curb some of the more predatory aspects of payday lending.

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