Tribal Sovereign Immunity Protects Payday Lenders From State Enforcement

Last year, the Commissioner of Business Oversight issued several alerts warning consumers that it has received complaints with respect to unlicensed firms offering payday (deferred deposit) loans in California. The common thread in each of these alerts is that the lender claims to be wholly owned by a Native American tribe and that the lender is therefore not subject to regulation by the Department.  The alert ends by “advising consumers that using a licensed payday lender benefits the consumer by providing protections against exorbitant fees and costs and recourse should there be a dispute with the lender.”

The Department has been aware of this activity for some time.  Seven years ago, the Department (then, the Department of Corporations) filed a lawsuit against several lenders alleging that they were providing payday loans over the Internet to California residents in violation of the California Deferred Deposit Transaction Law, Cal. Fin. Code § 2300 et seq.  Initially, the Department succeeded in obtaining a preliminary injunction, but this was vacated by the Court of Appeal.  Ameriloan v. Superior Court, 169 Cal. App. 4th 81 (2008).  After an evidentiary hearing, the trial court dismissed the case for lack of subject matter jurisdiction.  Now it was Department’s turn to appeal.

This week, the Court of Appeal affirmed the trial court, holding:

In the end, tribal immunity does not depend on our evaluation of the respectability or ethics of the business in which a tribe or tribal entity elects to engage.  Absent an extraordinary set of circumstances not present here, a tribal entity functions as an arm of the tribe if it has been formed by tribal resolution and according to tribal law, for the stated purpose of tribal economic development and with the clearly expressed intent by the sovereign tribe to convey its immunity to that entity, and has a governing structure both appointed by and ultimately overseen by the tribe.  Such a tribal entity is immune from suit absent express waiver or congressional authorization. Neither third-party management of day-to-day operations nor retention of only a minimal percentage of the profits from the enterprise (however that may be defined) justifies judicial negation of that inherent element of tribal sovereignty.

People v. Miami Nation Enterprises, 2014 Cal. App. LEXIS 45 (Jan. 21, 2014).

At Least The Department Won’t Have To Look Far For This Lender

Yesterday, the Department of Business Oversight issued a consumer alert regarding yet another unlicensed payday lender (this time without any alleged tribal affiliation).   What makes this alert interesting is the lender’s address - 1515 K Street, Suite 200, Sacramento, California.  That address should be very familiar to the Department as it is the address for the Department’s office in Sacramento.