Federal Trade Commission Settles Online Payday Lending Suit Extending Its Jurisdiction in Indian Country

On July 18, 2013, the Federal Trade Commission (FTC) partially settled a lawsuit it brought in federal district court against several firms and individuals who are engaged in online payday lending businesses for several Indian tribes. Under the terms of the settlement in FTC v. AMG Services, Inc., the lending firms agreed to stop collection tactics that included threats of arrest, imprisonment, and/or lawsuit. The lending firms also agreed to stop requiring borrowers to approve electronic withdrawals from their bank accounts in order to get loan approval. The lending firms also agreed to file detailed compliance reports that also identify all owners, their contact information, and their involvement with each other.

The firms in the case are owned by three tribes, the Miami Tribe of Oklahoma, the Modoc Tribe of Oklahoma, and the Santee Sioux Tribe of Nebraska (these tribes were not included as defendants in the case). The FTC alleged that the payday lending firms were engaging in unfair lending practices under the FTC Act, the Truth in Lending Act (TILA) and the Electronic Fund Transfer Act (EFTA). The defendants asserted tribal sovereign immunity in claiming that the FTC has no authority to regulate the defendants because they are acting as arms of the tribes themselves. The defendants also claimed they were not “for-profit corporations” and so the FTC Act did not cover them.

The federal magistrate in the case recommended that summary judgment be granted to the effect that the FTC Act applies to Indian tribes and thus gives the FTC jurisdiction to enforce the FTC Act, TILA, and EFTA against the defendants. The magistrate, however, also found that there was a factual dispute as to whether the defendants were for-profit corporations under the FTC Act and thus refused to recommend summary judgment on that question. Rather, if the magistrate’s recommendations are approved, the case will proceed to a trial on that issue.

The magistrate relied on Fed. Power Comm’n v. Tuscarora Indian Nation, 362 U.S. 99 (1960) and Donovan v. Coeur d’Alene Tribal Farm, 751 F.2d 1113 (9th Cir. 1985) for the proposition that laws of general applicability, such as the FTC Act, apply to Indian tribes. The magistrate wrote:
The court finds that the FTC Act (1) is one of general applicability, (2) is silent as to Indian Tribes, (3) provides for specific exemptions, none of which exempt Indian Tribes, arms of Indian Tribes, or employees of arms of Indian Tribes, and (4) gives the FTC the authority to bring suit against Indian Tribes, arms of Indian Tribes, and employees and contractors of arms of Indian Tribes. The court also finds that the FTC is given the authority to enforce TILA and EFTA ‘irrespective of’ any jurisdictional tests under the FTC Act.

The FTC and the payday lending firms did not settle the FTC Act allegations of undisclosed charges and inflated fees. The approved settlement applies only to the named defendants and the settlement stipulates that the defendants do not admit violating federal laws.

The activities of some tribes in payday lending has been growing rapidly since at least 2004, see our General Memorandum 12-037, dated March 9, 2012, reporting on a Colorado trial court decision (favorable to tribes). This appears to be a subject that will eventually reach the U.S. Supreme Court.

We will continue to monitor developments in this case as well as other cases where the FTC or the Consumer Financial Protection Bureau takes the position that the FTC Act, TILA, EFTA, or the Consumer Financial Protection Act (commonly known as “Dodd-Frank”) applies to Indian tribes involved in payday lending.