Lending Group Says Western Sky Tars Tribally Owned Lenders
(NPN) – Regulators, attorneys general and borrowers aren’t the only ones upset with Western Sky Financial, a Native American owned online “payday” loan company that was based on the Cheyenne River Indian Reservation in northern South Dakota.
The lender ended its business operations Sept. 3, 2013. While not sued in South Dakota, a variety of other states sued or took regulatory actions against the company for its lending practices. Some states alleged Western Sky charged some lenders for 1,000 percent interest.
These legal entanglements and resulting bad publicity has sullied the reputations of legitimate tribally owned lending institutions, according to the Native American Financial Services Association in Washington, D.C. The association represents most of the tribally owned lenders that provide short-term, unsecured loans over the Internet.
“We disapproved of that particular type of business model,” said Barry Brandon, NAFSA’s executive director, about Western Sky. “A membership requirement is that it has to be a federally recognized Indian tribe.”
Western Sky was operated by a single tribal member from the reservation, Martin Webb, according to Brandon. This fact, according to Brandon, is critical.
“Our businesses are created by tribal law, governed by tribal law, and all profits go right back into the governments’ accounts to fund essential services for the tribe,” Brandon said. “His (Webb’s) business was organized by the laws of S.D. We operate pursuant to tribal laws that we create.”
Western Sky’s demise has had an immediate impact on its members' reputations.
“Given the pervasiveness of their advertising campaign, everyone we’ve come in contact with—congress, state regulators, AGs—they had all seen those commercials and associated with that bad actor,” Brandon said. “It became a one size fits all. There was an assumption that we operated like Western Sky or were Western Sky.”
Brandon adds Western Sky’s and Webb’s action has harmed what tribes have spent 240 years trying to establish through the courts and Congress.
“That’s why everyone went after him and he lost,” said Brandon. He adds that there have been no successful legal challenges against tribally run lenders like NAFSA represents.
NAFSA has member tribes in Montana, Oklahoma, Michigan, California and North Dakota. There are no members from South Dakota’s Native American nations though NAFSA is in talks with one tribe concerning possible membership.
Brandon says the group formed a year ago by tribes involved in online short-term loans. Brandon, an enrolled member of the Muscogee (Cree) Tribe in Oklahoma and lawyer who has worked for the U.S. Departments of Justice and Interior says the group takes it lead from another former employer—the Indian Gaming Commission.
“The history of commerce in Indian country, frequently, when tribes engage in business activity, comes under scrutiny,” Brandon said. “We think it’s in our best interest to come together to organize and speak with a unified voice.”
Brandon also said the association said it needed to create structure around tribal businesses. He said this is necessary to show the outside world that the tribes also want organizations that are well organized, well run and fair to consumers.
Brandon says that approximately 90 percent of the online “micro loans”—loans from $500 to several thousand dollars—is provided by non-tribal companies, the other 10 percent by tribes. Most but not all of the tribally owned lenders are NAFSA members.
Brandon objects to the term “payday” loans and that they are predatory.
“That’s not a fair characterization,” Brandon said. “Most of our members have moved away from that type of loan to a short term installment loan.”
These types of loans are needed, according to Brandon, because some people do not have good credit or credit cards and may have immediate needs—like car repairs. The vast majority of borrowers, according to Brandon, are non-Indians.
“The people taking them out know they are unsecured and they are going to pay a fee,” Brandon said. “They are utilizing this because they don’t have a credit card or have bad credit. The person has to have a job and a bank account.”
And if problems arise, NAFSA says it helps its members address consumer complaints. Further, Brandon says most of its members utilize arbitration—sometimes over the phone--to solve disputes if informal means fail.
“You will not be coming to tribal court,” Brandon says bluntly.
For tribes to succeed in the lending business—which for some tribes is their only meaningful non-governmental revenue source—they have to take a professional, long-term approach, according to Brandon.
“At the end of the day, this is an exercise of their sovereignty, to create laws and operate a business in accordance with those laws,” Brandon said. “If a tribe has created an entity, we need to make sure they are run properly and regulated and make sure our customers are treated right.”