In recent weeks, there's been a lot of ink spilled about so-called "predatory lenders" – a buzzword used in conjunction with a slew of misleading "statistics" and "facts" to paint an entire industry as patently ill-intentioned. Even this week in U.S. News & World Report, an overzealous regulatory advocate mischaracterized the industry, grouping those of us who are good actors in with the bad. ["Playing 'Whack-a-Mole with Predatory Lenders," Aug. 13, 2013]
This generalization couldn't be further from the truth. Many tribes, particularly those in the Native American Financial Services Association (NAFSA) offer responsible online lending products that are regulated by tribal entities and are made in accordance with federal law. These tribes have turned to the Internet as a new terrain for economic development and have finally found success through e-commerce and online enterprises.
This economic development goes a long way in Indian country. For too long, we have found our reservations set back as a result of isolated locations and sparse populations. The federal government has provided financial support to our tribes, but it hasn't been enough to lower already-staggering poverty rates or make critical investments in our reservations' infrastructures. In an age of tightening budgets and sequestration, these needs are exacerbated and they have cut Indian country deeply.
Let me be clear: there are bad actors in the lending business. There are actors who profit off the backs of Native Americans, aren't wholly owned by a tribal government and who are fundamentally dishonest about their lending practices. NAFSA vehemently opposes these tribes, and has taken a public stand against these shady enterprises.
Our members, on the other hand, act in the full interest of honesty and transparency. We provide a critical service to a wide segment of the population – those who lack access to traditional lines of credit. These consumers, who need just a couple hundred dollars to deal with an emergency until payday, can't get small-dollar loans from banks and find themselves repeatedly turned away by credit card companies and other credit providers.
Banks, of course, make enormous profits from overdraft and other fees, so in the absence of affordable forms of unsecured short-term credit, these online loans are actually the cheapest option for financially underserved consumers. For a nominal fee – not an APR – consumers can get what they need to make emergency car repairs, meet emergency family needs or keep from overdrafting until payday.
Recent actions from the very agencies claiming to protect consumers, then, ignore these stated facts. Without access to these financial services, agencies like the Consumer Financial Protection Bureau, New York Department of Financial Services, the Federal Deposit Insurance Corporation and others are leaving consumers with few options when disaster strikes. They, themselves, are preying on consumers who desperately need access to financial services to score cheaply-gained political points.
As agencies chase down the bad actors and seek to rid the industry of them, NAFSA members will continue to abide by the highest possible lending standards. Our best practices lead the industry in protecting consumers and set a high bar for everyone in the lending ecosystem. As these agencies continue their witch hunts, we expect them to take precaution in understanding the difference between illegal, dishonest lenders, and the properly-structured and consumer-friendly small dollar loan products offered by tribal governments.
Tribes who have long enjoyed a government-to-government relationship with the United States now find their sovereignty under attack. In an end run around our legal status, federal and state agencies are instead undermining tribes by intimidating our partners in the lending enterprise – the banks and third party processors who provide infrastructural support.
We propose a different solution. By working together and engaging in a constructive dialogue, sovereign tribes can continue to see economic development on their reservations, underserved consumers can maintain access to the credit they need, bad actors can be rooted out of the system, and the government doesn't find itself staring at a predator in the mirror.
Native American Financial Services Association