A clampdown on payday loan companies in the US has seen some companies adopt an elaborate ruse to escape interest-rate regulations, according to Bloomberg, with $4 billion worth of loans supplied by Native American tribes last year.
One of the country’s largest short term lenders, American Web Loan, is an internet-based company that works out of a collection of trailers, charges a staggering 795% APR on “payday” loans and takes repayments directly from the recipient’s bank account. In many US states, its terms would be completely illegal, but the company is officially owned by the Native American Otoe-Missouria tribe and so has sovereign status – exempting it from state rules.
Chairman John Shotton says that schemes like this are crucial for bringing in income to support his impoverished tribe, but his predecessor Charles Moncooyea, who arranged the deal, says that the tribe only actually sees 1% of profits. The rest of the $100m bounty, he says, goes to Mark Curry – a payday-loan mogul whose previous attempts to exploit loopholes have fallen foul of regulators, and whose ventures are backed by New York hedge fund Medley Opportunity Fund II LP.
“All we wanted was money coming into the tribe,” Moncooyea commented. “As time went on, I realized that we didn’t have any control at all.”
Hutton and Curry both deny this, saying that the tribe retains hefty profits and that Curry’s role is simply to provide a call centre-style service, but the authorities are unconvinced. New attempts to curb the practice have seen some jurisdictions insist that the schemes must have a banking partner to handle payments, before writing to financial institutions to warn them that such partnerships may be illegal.
“What we’re seeing is this cat-and-mouse game,” said Bruce Adams, general counsel for the banking regulator in Connecticut. The state, alongside at least eight others, have been chasing down schemes linked to Curry for the past six years.
“What they’re doing now is, frankly in my view, committing criminal usury and hiding behind this claim of sovereign immunity,” he said.
“If payday lenders are just using tribes and tribal land as puppets to perpetuate their attempts to lend into states where payday lending is illegal, that’s deeply disturbing,” added Benjamin Lawsky, superintendent of New York’s Department of Financial Services.