Indian Nations Law Update - February 2017: Ninth Circuit Rejects Tribal Online Lenders’ “Co-Regulator” Argument
In Consumer Financial Protection Bureau v. Great Plains Lending, 2017 WL 242560 (9th Cir. 2017), the Consumer Finance Protection Bureau (CFPB) issued civil investigative demands (CIDs), i.e., subpoenas, to Great Plains Lending, LLC, Mobiloans, LLC, and Plain Green, LLC (Tribal Lending Entities), online lending companies created and owned by the Chippewa Cree, Tunica Biloxi and Otoe Missouria Tribes (Tribes). The CFPB’s stated purpose was “to determine whether small-dollar online lenders or other unnamed persons have engaged or are engaging in unlawful acts or practices relating to the advertising, marketing, provision, or collection of small-dollar loan products, in violation of Section 1036 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. § 5536, the Truth in Lending Act, 15 U.S.C. § 1601, the Electronic Funds Transfer Act, 15 U.S.C. § 1693, the Gramm-Leach-Bliley Act, 15 U.S.C. §§ 6802-6809, or any other Federal consumer financial law.”
The Tribal Lending Entities refused to comply, asserting that
they were not subject to the CFPB’s jurisdiction because they were created and operated by several recognized tribes and, as such, cloaked in tribal sovereign immunity, and
because the Consumer Financial Protection Act of 2010 (Act) defined the term “State” to include Native American tribes, the Tribal Lending Entities, as arms of sovereign tribes, were not required to comply with the investigative demands.
The district court rejected the Tribal Entities’ arguments and the Ninth Circuit Court of Appeals affirmed, holding that the Consumer Financial Protection Act was a law of general applicability, and it applied to tribal businesses, like the Tribal Lending Entities, and that none of the three exceptions to federal jurisdiction identified in the Court’s 1985 Donovan v. Coeur d’Alene Tribal Farms decision applied: “It is undisputed that the Tribal Lending Entities are engaged in the business activity of small-dollar lending over the Internet, reaching customers who are not members of the Tribes, or indeed, have any relation to the Tribes other than as debtors to the Tribal Lending Entities. Thus, the first Coeur d’Alene exception—whether ‘the law touches exclusive rights of self-governance in purely intramural matters’—does not apply.”
The Ninth Circuit’s decision is a significant setback for tribal online lenders. The Dodd-Frank Act vests broad authority in the CFPB to police online lending. Success would have provided key protection to tribal online lenders since tribal sovereign immunity largely protects them from state regulation. In a different case, the CFPB persuaded a federal court that violations of state laws regulating online lending could constitute violations of federal laws prohibiting deceptive practices. Taken together, these two decisions could empower the CFBP to step up their pursuit of tribal online lenders. It is also possible, however, that the Trump administration will curtail the CFPB’s authority.