Circumventing State Consumer Protection Laws: Tribal Immunity and Internet Payday Lending

BY Heather L. Petrovich

As tribal payday lending becomes more prevalent, there is a dire need for federal action to halt the trend’s momentum. In 2010, tribal payday lenders made up “[m]ore than 35 of the 300” Internet payday lenders and made “about $420 million in payday loans.” The need for regulation of this conduct is imminent—“[s]ome observers predict that the number of tribes with payday-loan operations eventually could climb close to the 400 that now have casinos.” Additionally, various lenders have shown an interest in copying the tribal lending business model, which will likely result in additional industry growth. In the absence of federal regulation, the number of companies targeting consumers will increase, rendering previous state regulation efforts futile.

This Comment argues that federal action is necessary to block attempts by payday lenders to bypass consumer protection laws by organizing as tribal entities. Because the federal government does not currently regulate payday lending and tribes are immune from state suit, states are unable to protect their consumers from the practices that they have previously fought to curtail. Due to these obstacles, this Comment proposes possible solutions that can prevent tribal payday lending companies from circumventing state consumer protection laws. Part I provides background information introducing the specific problems that states have encountered in their initial regulation efforts against these companies. Part II describes why tribal payday lending cases are so rare and analyzes this body of case law. Part III analyzes why state regulation is inadequate and the reasoning behind the need for a federal response to this practice. Finally, Part IV examines what courses of action may be taken and which of those proposals are most likely to quickly and effectively address the problem.

DOWNLOAD PDF | 91 N.C. L. Rev. 326 (2012)