Despite having some of the toughest regulations prohibiting high-interest, short-term loans, New York has continued to face issues in the form of illegal online payday lenders who claim to have affiliation with Native American tribes. But those issues came a step closer to being resolved late last week when two American Indian tribes with online lending operations abandoned an effort to block the sate from restricting their businesses.

The Wall Street Journal reports that the Oklahoma-based Otoe Missouria Tribe and Michigan-based Lac Vieux Desert Band of Lake Superior Chippewa Indians dropped their federal lawsuit against New York that claimed the state’s campaign against payday lenders was in violation of their rights as sovereign tribes.

Last year, New York banking regulators urged banks to stop processing payments for lenders that violate the state’s 25% cap on interest rates. That November, New York sent cease and desist orders to dozens of online payday lenders to make them stop pursuing residents through advertisements in the state.

Shortly after that, the tribes filed the lawsuit saying their operations were located on reservation land and not subject to oversight by any state.

But the tribes’ argument suffered a devastating blow in October when a federal appeals court denied a temporary injunction that would have barred New York from restricting tribal lending while the case was litigated, the WSJ reports.

The two tribes issued a statement on their decision to drop the case, saying their fight has “consumed considerable resources.”

“While we hoped when we first pursued this action that we would be able to quickly undo the damage caused and avoid a prolonged and material interruption to our businesses, the fact of the matter is the state’s unjust interference in the businesses of the tribes have caused irreparable harm that further legal proceedings would simply be unable to remedy,” a spokesperson for the tribes said.

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

Back in May, consumer advocates say a decision from the U.S. Supreme Court in regards to a Michigan Native American tribe’s alleged illegal casino could prove to be a game changer for the often predatory payday loan industry.

The court’s decision, while it didn’t appear to have much to do with payday lending, made it clear that states have options when a tribe conducts activity off-reservation.

Officials with the National Consumer Law Center said at the time that the decision makes a clear statement that states can “shutter, quickly and permanently, an illegal casino” and that the same is true for illegal payday loans that claim tribal affiliation.

In March, a U.S. District Court judge upheld a magistrate judge’s 2013 ruling that the Federal Trade Commission has authority to regulate certain companies associated with Native American tribes.

That ruling revolved around Colorado-based AMG Services’ claim that it was exempt from FTC enforcement because of its affiliation with American Indian tribes.

In August 2013, Western Sky Financial, a payday lender operating out of a tribal reservation in South Dakota, announced it would discontinue offering loans after facing lawsuits from 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.

Tribes Drop Payday-Loan Suit Against New York State [The Wall Street Journal]

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