Get Out of Your Tribal Loans

According to Check Cashing & Payday Loan Services, the size of the payday loan industry in 2022 will be $19.1 billion. And approximately 6% of Americans have used a payday loan in the last five years, according to Bankrate.com.

Tribal loans are undoubtedly the worst of all payday lenders.

What is a tribal payday loan?

Tribal lenders or tribal loans are short-term, small-dollar, payday loans owned and operated by a recognized Native American tribal government. They are payday lenders based on tribal land, with loans from companies owned by Native American tribes.

Trapped in a high-interest tribal loan? Here’s how to get help:

Check for lawsuits

There are some pending class-action lawsuits against tribal lenders. Do some research to ensure there isn't current legal action against your lender, which could help you break free or qualify for a settlement.

For instance, the Second Circuit Court of Appeals, in a decision against Think Finance and the officers of Plain Green Loans, the court has made it clear that online tribal payday lenders must comply with state interest rate limits, licensing laws, and other state laws, and can be sued through their officers for injunctive relief if they do not.

The Consumer Financial Protection Bureau (CFPB) has also taken action against four online lenders: Golden Valley Lending, Inc., Silver Cloud Financial, Inc., Mountain Summit Financial, Inc., and Majestic Lake Financial, Inc., for deceiving consumers by collecting debt they were not legally owed. 

In a suit filed in federal court, the CFPB alleges that the four lenders could not legally collect on these debts because the loans were void under state laws governing interest rate caps. Or the licensing of lenders and that the lenders made deceptive demands and illegally took money from consumer bank accounts for debts that consumers did not legally owe. 

Debt settlement

A third party typically handles debt settlement or debt relief, or debt adjustment, and when your debt is settled for less than what you currently owe, with the promise that you'll pay the amount agreed for in full. 

The debt settlement company acts as a go-between between you and your lenders or creditors to reduce or eliminate your debt. They negotiate your debt. They make you stop making payments until they have reached an agreement with your creditors, and you make payments directly to the debt settlement company until your debt is paid in full.

READ MORE: How does debt settlement work?

Use another loan to pay it off

Depending on your credit history, you may be able to qualify for a new loan to pay off the tribal loan. There are even loans for bad credit borrowers with high-interest rates but will still be less than what the tribal lender is charging you. There are several options, including personal loans, debt consolidation loans, payday alternative loans and credit card balance transfers or cash advances.

Does the government help with tribal loans?

While the federal government relaxed some rules on repaying loans such as student loans due to the ongoing COVID-19 crisis, settling the regulations did not include payday loans and cash advance loans.

The government does not have programs to help you repay your tribal loan, and sovereign immunity limits most regulation efforts.

However, the Consumer Financial Protection Bureau has signaled renewed enforcement of tribal lending.

Tribal payday loans vs. traditional payday loans

The big differentiator between tribal loans and traditional payday lenders is that conventional lenders are mandated to follow the federal payday lending guidelines to ensure proper lending practices; tribal lenders are not. 

Tribal lenders have sovereign immunity from federal and state laws and protection from outside litigation. It's like having a separate country within a country that operates autonomously. Tribal loans can charge any interest rate they wish that far exceeds state limits, provide loans with balances higher than state minimums, and even break the terms of their loan agreements with no federal ramifications.

What happens if I don’t pay back a tribal loan?

You'll get harassing phone calls from the lending company or debt collector. One or the other may try to take you to court and force you to pay. Though you won't go to jail for failing to repay, you could be sued, and the court could rule in their favor. The collector or lender will then be able to garnish your wages. 

The Federal Trade Commission recently got a preliminary injunction order against Western Sky Financial and other tribal payday lenders in South Dakota that sent letters to employers insisting they had the right to garnish wages without a court order. FTC attorneys say that tribal lenders "do not have the legal authority to garnish the pay of consumers who owe an alleged debt without first obtaining a court order." The suit also says it violates federal law to require automatic debits from a bank account to get a loan.

The dirty little secret among online payday lenders who violate state laws is that they cannot win in state court, regulators say. An FTC representative says she’s never seen a case where an online payday lender took a borrower to court because it’s illegal to make a loan without a license. If the lender is not licensed, the loan is not collectible, thus not enforceable. 

If someone makes you a loan that's illegal, either because they don't have a license or they violate usury laws, depending on your state, you may not be under any obligation to pay it back.

READ MORE: What happens if you default on a payday loan?