Island Mountain Development Group made the Wall Street Journal today. Read the full story here........ Tribes Online Lending Faces Federal Squeeze Payday Loans Have Brought Jobs and Revenue, but Tribal Leaders Say Government Crackdown Jeopardizes Business By Dan Frosch and Alan Zibel July 23, 2014 7:56 PM FORT BELKNAP AGENCY, Mont.—Economic opportunity has long been hard to come by on this remote reservation near the Canadian border, where tribal members have relied on the government and a truck-stop casino for what few jobs existed. But since the launch of an online-lending business four years ago—offering short-term, or payday, loans to customers with bad credit—the two tribes that share this stretch of grasslands believe they have found a path out of poverty and crushing 50% unemployment. An abandoned convenience store hums with activity as young Native Americans sit at computers, tending to distant customers who seek loans with annual interest rates ranging from 100% to 782%. Online lending, made through 11 websites such as CashFairy and White Hills Cash, makes up a fifth of the revenue on this reservation of 4,300 and employs 70 tribal members, Fort Belknap officials say. However, tribal leaders contend the reservations newfound economic lifeline is in jeopardy because the business venture has been swept up in a broad federal dragnet that has curbed its access to banks. A Justice Department initiative, Operation Choke Point, has put pressure on financial institutions to stop working with businesses, including online lenders, that the department says defraud vulnerable customers. Banks say they face a push from regulators to cut ties with short-term lenders. As a result, tribes across Indian Country, where Internet lending has grown more popular, have been forced to scramble to find willing partners. You have generations of family here who have never known what it was like to get up and go to work, said Michelle Fox, a 37-year-old Dartmouth College graduate and member of the Gros Ventre tribe who returned home to Fort Belknap to help start the lending business. For us right now, its the difference between survival and non-survival. The Justice Department made clear to tribes it was only investigating suspected unlawful conduct, not targeting legal businesses, a spokeswoman said. In 2012, Wells Fargo & Co. told Fort Belknaps online-lending businesses it would no longer work with them, said a lawyer for the tribes. A Wells Fargo spokeswoman declined to discuss the matter specifically, but said that due to the need for closer scrutiny of short-term lenders, we are very selective about the companies we serve. This year, Fort Belknap also lost its payment processor, LST Financial Inc., after the processors North Carolina bank reached a $1.2 million federal settlement over allegations the bank knew or was deliberately ignorant that its services were being used to defraud consumers. The bank, which didnt admit wrongdoing, was forced to stop working with LST, cutting off the payment firms access to the financial system. Revenue from the reservations lending businesses subsequently fell 40% and hasnt fully recovered, Ms. Fox said. High fees are key to making short-term lending profitable. On one Fort Belknap site, Greenline Loans, a customer borrowing $300 agrees to make six payments of $113.52 over three months, which works out to more than $680. If the loan isnt paid, the lender can send it to a collections agency. Fort Belknap loans have a 10% default rate, Ms. Fox said. Tribal lending also faces opposition from some state authorities, who say tribes are trying to avoid state caps on interest rates paid by borrowers. Many states, including New York, Massachusetts and Maryland, have no payday-lending businesses because they set an annualized percentage rate of 36% or lower. Tribes counter that their status as sovereign governments allows them to issue loans over the Internet to anyone in the U.S., regardless of states consumer-protection laws. The Fort Belknap tribes say they no longer operate in states that limit payday lending. With no clear legal precedent, tribes around the country have been fighting federal and state officials in court. In January, a California appeals court ruled in favor of Oklahoma and Nebraska tribes that operate lending businesses, deciding that they werent subject to the states laws. Last year, a federal judge in New York sided with state officials who sought to block tribal online lenders, calling the tribes sovereignty argument wobbly. The U.S. Consumer Financial Protection Bureau is also battling with several tribes, seeking more information about their lending operations, while Justice Department officials have also been leery of tribal lending. Evidence we have collected reveals that a number of these Internet payday lenders have little or no true connection to the tribes and simply use the nominal relationship as a cover for their illicit practices, wrote Michael Blume, director of the Justice Departments consumer protection division, in a September 2013 memo. But tribal business groups maintain that many Native American lending ventures are owned, operated and regulated by tribes and that lending had provided a critical economic lift to places beset by poverty. The Native American Financial Services Association said it has 19 tribes with lending operations among its ranks, up from just a handful several years ago. In some cases, lending provides more than half of the operating budgets for tribes, contributing to schools, health care and infrastructure, said Barry Brandon, the groups executive director. Mark Azure, tribal council president of Fort Belknap, which is governed jointly by the Gros Ventre and Assiniboine tribes, said the tribes tried unsuccessfully for years to jump-start their economy—finally turning to lending as a short-term bridge to self-sufficiency. On the reservation, where trailers dot the empty prairie, Stevie Werk, a 22-year-old single mother of two, was unemployed before taking a job at the call center last year. She now makes $10 an hour, enough to help feed her family and qualify for a federal low-income homeownership program. There are not too many opportunities here, she said. But this helps out a lot.
Posted on: Thu, 24 Jul 2014 15:51:48 +0000