Maryland challenges sovereign immunity in tribal lending case

Saturday, August 9th, 2014 By

The Western Sky Financial corporate logo, which depicts three teepees within the image of a setting sun.

Western Sky Financial claims Maryland short term loans regulation does not apply to its business, due to tribal immunity. (Photo Credit: CC BY-ND/Stephen Bridenstine/Drawing on Indians)

There are a variety of state laws that apply to licensed payday lenders. When a legitimate company operates outside the bounds of state law – such as with Native American tribal lending – state laws traditionally have not applied. According to the Center for Public Integrity, such a legal divide has resulted in a legal clash between Maryland regulators and Western Sky Financial, a personal loans provider that claims affiliation with the Cheyenne River Sioux Tribe.

Western Sky claims sovereign immunity

Western Sky Financial owner, Martin Webb maintains that his company’s short term loans activity amongst Native American tribes protects it from state laws. This is an argument that Maryland is challenging in court as it attempts to tighten the reins on personal loans legislation in the state. Maryland claims Native American lenders use tribal immunity to skirt existing laws and offer short term loans to customers nationwide. Critics of the industry await a Consumer Financial Protection Bureau ruling on whether industry-wide reforms will also impact native payday lenders.

Western Sky violates Maryland law, claims commissioner

Maryland deputy commissioner for financial regulation Anne Norton sees the Western Sky Financial personal loans issue in black-and-white terms:

“I don’t think there’s a lot of gray area in terms of what is or is not permitted,” Norton said. “Under our reading of both how tribal immunity is interpreted and how it’s been applied by the Supreme Court, we feel that these are loans that violate Maryland law.”

Maryland law caps payday lending APRs at 33 percent on the unpaid balance. As Western Sky Financial does not hold a Maryland license – the company operates online out of South Dakota and claims sovereign immunity as a member of the Cheyenne River Sioux Tribe – it currently operates outside the bounds of Maryland short term loans regulation. APRs charged for short term personal loans vary by state, but are generally at least three times higher than the Maryland cap.

Indian Commerce Clause and legal precedence

Webb’s attorney argues that under the Indian Commerce Clause of the U.S. Constitution, tribes are the ones responsible for regulating consensual relationships undertaken between non-members and members of a tribe. As Webb claims membership in the Cheyenne River Sioux Tribe, he believes his business should not have to recognize non-tribal payday lending laws.

While Maryland does recognize the sovereign immunity of the Cheyenne River Sioux Tribe, Norton argues that Western Sky Financial is not an arm of the tribe, and hence should not be protected.

It remains to be seen on which side of the argument a court will rule. However, as numerous instances of legal precedence in which federal courts have ruled in favor of native tribes exist – such as in the case of casino lending with the Lac du Flambeau Band of Lake Superior Chippewa reported by the Wall Street Journal – legal experts would not be surprised if Western Sky Financial’s protection continues, inseparable from Webb’s personal status.

Sources

Center for Public Integrity
Wall Street Journal
Western Sky Financial

Western Sky Financial: No collateral required

Previous Article

« Natalie Munroe blog raising questions of teacher free speech

One teacher's blog, which didn't identify her school or students, may lead to her losing her job after students and parents found it online. Classroom
Next Article

Are You Paying Too Much For Stocks? »

Using a small loan to make up for the shortfall because you paid too much for stocks is not very smart. Learn how to protect and grow your money. If you are a lemming investor, please don't use small loans to finance your lack of creativity. You'll be shocked at how much it can cost you.

Other recent posts by Steve Tarlow

Lansing Journal article shortchanges payday loan facts

The Lansing State Journal has added to the pool of uninformed articles attempting to scare people away from taking a payday loan. READ ON…
A woman peering through a magnifying glass, happy to have discovered something. Perhaps if the Lansing State Journal had used a magnifying glass when writing their recent payday loan scare piece, they'd see that they are missing lots of evidence.

Payday loans in Colorado and the threat of HB 1351

Colorado passed HB 10-1351 (aka HB 1351) by a narrow margin. Numerous consumer groups expect the state to lose 1,600 jobs or more. READ ON...
The Colorado legislature building, where payday loans HB 1351 placed unreasonable restriction upon payday lending in the state.

Avoid the debt settlement agreement benefit on your credit card

The Government Accountability Office urges consumers to think carefully before opting for a debt settlement agreement on their credit card.
A credit card secured by chains and locks.