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New York's Attack on Tribal Lenders Is a Threat to All Natives

Despite a clear precedent in last year’s victory by tribal lenders against Colorado regulators, New York state authorities are mounting yet another attempt to erode tribal sovereign rights to operate businesses without state interference.

New York’s banking czar, Benjamin Lawsky, issued a written order August 6 against internet lenders – including many tribal entities – demanding that they stop making loans to New York state residents, a threat to revenue streams that support tribal education, health care and other essential services.

Lawsky is the former Chief of Staff to Gov. Andrew Cuomo, who appointed Lawsky as executive director of the state’s new Department of Financial Services. His letter went out to 35 lenders and 112 banks that help process the loans.

Despite his experience as a former federal prosecutor, his reference to “illegal payday loans” shows a complete disregard for the centuries-old federal doctrine of tribal sovereignty, in which states have consistently been prohibited from meddling in the business affairs of Congressionally recognized tribes.

His letter made no distinction between lenders which are arms of sovereign tribal entities and those which are not.

One article reporting on the action also noted that Lawsky, whose agency is confronting a deadline on the statute of limitations for prosecuting the giant lenders responsible for the 2007 mortgage lending crash, has often referred to his prior cases as “collecting scalps.”

His action comes on the heals of catastrophic cuts of $552.7 million in federal funding to date for Indian health clinics, schools, housing and child care prompted by the budget sequester. Funding for the tribes was supposed to be exempt from the sequester, the game of political chicken played by Congress in its budget standoff with President Obama, but the exclusionary language was left out.

New York’s action is “an insult to tribal nations,” who were not consulted prior to the order, and “ignores over two centuries of federal Indian law," said Barry Brandon, executive director of Native American Financial Services Association, a group of 16 tribes that offer short-term loans over the Internet. Brandon’s remarks were contained in a letter to Lawsky.

New York’s action ignores the sovereign immunity of recognized Indian tribes, as repeatedly upheld in the Supreme Court and in numerous states. First expressed in Article I, section 8, of the United States Constitution, the courts have since consistently found that any erosion of Tribal Sovereignty would lead to a complete loss of the rights of recognition granted to the tribes by the federal government.

And a very recent case, in Colorado, even upheld tribal rights under circumstances very similar to those in New York. In State of Colorado v. Cash Advance and Preferred Cash Loans, fully recognized as “arms” of Congressionally acknowledged tribes, dragged on for seven years with a final ruling that proved to be an overwhelming tribal victory.

In his 2011 order in the Colorado case, Denver District Court Judge Morris B. Hoffman found:

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“Indian tribes were of course governing themselves in the New World long before the territorial claims of European colonial powers. The United States Supreme Court held as early as 1831 that congressionally-recognized Indian nations retained their sovereignty even as those nations’ ancestral lands became absorbed into the United States. Congressionally-recognized Indian nations are immune from suit, meaning that they can be sued in courts of the United States or in any state courts only if Congress expressly permits such a suit, or the Indian nation waives immunity and consents to the suit.”

Hoffman also issued several corollaries highly relevant to New York’s recent actions that stem from the principles of tribal immunity, including:

“Tribal immunity knows no territorial bounds… Indian nations are immune from suit period, whether the subject of the suit is activity on or off Indian lands.

…enforcement actions… are “suits,” to which federally recognized Indian nations are immune.… tribal immunity applies to a tribe’s governmental and commercial activities alike. There is a rich history of federal Indian law whose central premise is that, until and unless Congress decides otherwise, Indian tribes must be free to engage in economic activities… these critical tribal economic activities must often be conducted through business entities recognized by state law – corporations, limited liability companies, etc. Tribes must therefore be permitted to engage in business through these kinds of legal entities without risking their immunity…

“A tribal entity engaged in business does not lose its immunity simply by contracting with non-Indian operators of the business. Here again, the idea is that Indian nations must be encouraged to generate revenues to fund their governments and activities, and must therefore be free to enter into commercial areas where they have no expertise, but can acquire the necessary expertise through non-Indian operators…”

But, as always, smaller, Indian-owned entities are easy targets for state officials looking for sensational headlines.

On Aug. 14, the Native American Financial Services Association responded with a letter to Bank of America, J.P. Morgan Chase, Capital One Financial, Wells Fargo and other banks involved in the Automated Clearing House for internet loans contending that Lawsky’s action is an illegal infringement on their rights:

“Tribal Nations, with the support and encouragement of the federal government, have engaged in significant economic development efforts, including operating online lending entities now targeted… We want you to be aware that we view these actions as a direct threat to tribal sovereignty and our efforts to develop economic self-sufficiency.”

New York’s attempted crackdown on online loans offered by tribal companies completely ignores the federal doctrine of tribal sovereignty and demonstrates a clear failure to conduct basic research revealing the obvious example of the Colorado case. The same can be said of the misguided efforts of several federal agencies, including the FDIC, which also lack required Congressional sanction.

If New York follows in Colorado’s footsteps, it will do so at great expense to New York taxpayers, with the estimated losses of legal fees in Colorado measured in millions of dollars.

Jane Daugherty, former associate professor of journalism at Florida International University, is a doctoral candidate at the University of Miami School of Communication. An investigative reporter and editor for 25 years, she is a four-time winner of the Robert F. Kennedy Journalism Award for coverage of the disadvantaged and was named a Pulitzer Prize finalist in commentary in 1994. Her great-great-grandmother was a member of the Creek nation who fled Indian removal.