GM 12-037

Colorado Supreme Court Holds that Two Tribal Payday Loan Businesses Have Tribal Immunity

A state court has barred the Colorado Attorney General from further investigating two tribally-owned on-line payday loan businesses, Cash Advance and Preferred Cash Loans, on the grounds of tribal sovereign immunity. The Colorado Attorney General alleged that the tribal businesses, which were not licensed by the State, were subject to and in violation of certain state regulations for payday loan businesses.

The Colorado Attorney General began his investigation nearly eight years ago after receiving complaints from consumers. In 2004, he issued cease and desist letters and later subpoenaed the two businesses. In 2005, after he sought contempt citations, two tribal corporations, Miami Nations Enterprises, Inc. (a corporation created by the Miami Tribe of Oklahoma) and SFS, Inc. (a corporation created by the Santee Sioux Nation of Nebraska), responded and moved to dismiss the contempt citations on the grounds that they owned Cash Advance and Preferred Cash Loans and, therefore, the prosecution was barred by sovereign immunity. We reported on earlier developments in this case in our General Memorandum 10-012 of January 22, 2010.

Eventually the case wound its way to the Colorado Supreme Court which held that if the businesses were arms of the Tribes then they would be immune from suit, even for activities occurring off tribal lands. The court also held that the State had the burden of proving that the businesses were not immune.

Upon remand to the Denver District Court, the court received additional evidence and concluded that Miami Nations Enterprises, Inc. and SFS, Inc. are businesses legitimately created pursuant to tribal law and are owned and operated by the respective Tribes. Therefore, both businesses enjoy tribal sovereign immunity, no matter in what state they operate.

The State conceded that both businesses were formed by their respective Tribes pursuant to tribal law, and are wholly owned by the Tribes. The State argued that the tribal laws did not specifically authorize payday lending, but the court said that was not required. The court found that the Tribes did have written lending criteria, which were followed, and that in fact the Tribes specifically approved each loan.

The court rejected the State’s claim that certain non-Indians were really the ones running the businesses. The Court agreed that if the Tribes were not really the ones running the businesses, then there would be no immunity. And, the State was free to subpoena those non-Indians to determine the truth of the matter.

The court emphasized that the type of business that a tribal entity chooses to engage in does not affect its immunity. All that matters is whether the tribal entity is an arm of the tribe. “[T]ribal immunity does not depend in any way on the type of business a tribal entity engages in, with whom, or for what ulterior purpose.”

The court noted that “there is a rich history of federal Indian law whose central premise is that, until and unless Congress decides otherwise, Indian tribes must be free to engage in economic activities in order to generate revenues to support tribal government and services.” The decision is subject to appeal to the Colorado appellate courts, and ultimately to the U.S. Supreme Court.

For your information, the Federal Trade Commission (FTC) has recently filed complaints against nine payday loan companies affiliated with tribes (not including the two described above), in the federal district court in South Dakota, alleging violations of the FTC Act, the Electronic Funds Transfer Act, and FTC regulations. Also, the Colorado Attorney General has asked the Obama Administration to look into payday loan companies affiliated with tribal governments. The Director of the Consumer Financial Protection Bureau told the media that “If there is legitimately a tribal entity that can oust a state of effective jurisdiction to enforce laws against that entity, it does not oust the federal government.”

Please let us know if you would like additional information regarding this matter.