Tribes accused of predatory lending, and some may have been fleeced as well

The Fort Belknap Indian Community in Montana, like many tribes, runs a lucrative online lending business.

Thousands of Minnesotans in financial predicaments have turned to Fort Belknap’s lenders for easy-to-access credit.

But those loans carry extremely high interest rates, ensnaring consumers in debt traps and allegedly breaking state and federal laws, Minnesota Attorney General Keith Ellison claims in a recent lawsuit. Fort Belknap tribal business leaders deny those allegations.

Yet while Fort Belknap is named in Ellison’s lawsuit, it is not an outlier in offering such loans. Tribes in the West and Midwest — including in northwestern Wisconsin and the Dakotas, though none in Minnesota — also run online loan businesses, and many have been sued by consumers over predatory lending.

“These internet tribal loans that are charging triple-digit interest rates are simply one of the most egregious forms of predatory lending,” said Lauren Saunders, an associate director at the National Consumer Law Center, which specializes in low-income consumer issues.

Consumer lending experts say tribal lenders target people who are financially desperate. But tribes with online lending businesses are usually struggling, too: Like Fort Belknap, they’re typically located in poor rural areas bereft of economic development.

Online lenders “employ tribal members, provide income to tribal communities and can be an important source of tribal economic activity,” said Monte Mills, director of the Native American Law Center at the University of Washington.

High-risk loan operations have long been controversial. But tribal lending comes with a twist since tribes are sovereign governments, immune from lawsuits. Nontribal companies associated with tribal lenders also are trying to take advantage of tribal sovereignty as a shield, consumers have claimed in scores of suits nationally.

Tribal lenders often partner with those outside businesses for everything from marketing to financing and loan servicing. Many consumer lawsuits allege that nontribal firms receive the bulk of earnings from tribal lending — not the tribes themselves.

In an echo of consumer litigation, an arm of the Lac Courte Oreilles Band of Lake Superior Ojibwe in northwestern Wisconsin accused its own nontribal partner of trying to fleece it.

Lac Courte Oreilles (LCO) Financial Services sued the U.S. Virgin Islands-based company in June 2022, alleging embezzlement and theft. “The court’s prompt intervention is required to enjoin years of defendants’ predatory and collusive business practices against the tribe and its business entities,” the suit said.

The online lending industry competes on speed, churning out loans quickly with little regard for credit history. Borrowers need to have income and a checking account, but that's about it.

“People typically take out predatory loans when they cannot afford basic, day-to-day expenses such as rent, utility and car payments,” said Anne Leland Clark, head of Exodus Lending, a Minnesota nonprofit that helps consumers mired in high-interest debt.

Currently, over 700 people are enrolled in Exodus’ no-interest refinancing program to pay off predatory debt; about 82% of them are people of color. Exodus considers loans predatory when they sport interest rates of at least 36%.

Loans made by tribal affiliates tend to have triple-digit rates, Clark said.

The Fort Belknap Indian Community’s lending operations have made thousands of online loans to Minnesotans bearing interest rates between 474% and 795%, Ellison’s office claims. His lawsuit lists over 40 examples of borrowers allegedly caught in online debt traps.

For instance, a Maple Lake woman said she took out a $700 loan to cover living expenses and ended up repaying $1,784. A St. Paul man reported he got a $600 loan to deal with expenses during COVID-19 and faced a 10-month repayment plan totaling $1,900. An Olivia man said he took out a $500 loan, paid back $666 — and then learned he must pay another $1,400, including interest.

Ellison's office wants a court injunction to stop the marketing, issuance and collection of allegedly illegal loans made in Minnesota by Fort Belknap-affiliated lenders.

His suit in U.S. District Court in Minnesota names two Fort Belknap tribal business leaders as defendants. Ellison alleges they breached state usury and deceptive marketing laws, as well as the federal Racketeer Influenced Corrupt Organizations Act (RICO), which covers unlawful lending.

The lenders invoke Fort Belknap’s tribal sovereignty to shield them from responsibility for making illegal loans in Minnesota, the suit alleges.

Indigenous nations have inherent sovereignty that predates the founding of the United States. Like states and the federal government, they have sovereign immunity from lawsuits. That immunity can extend to tribal businesses and individual tribal officials and employees.

“Tribal sovereignty exists in its own unique space, and sovereign immunity can be a contentious issue,” Mills said.

In a court filing, the Fort Belknap defendants say the federal court in Minnesota lacks jurisdiction over them — and that Ellison is misapplying RICO law.

“This case presents an intergovernmental policy disagreement between two sovereigns [the tribe and Minnesota] pursuing what each believe is best for its citizens; it could not be farther from the organized crime activity that Congress enacted RICO to combat,” the filing said.

The defendants further say Ellison is seeking “to interfere with the sovereign economic development efforts of a tribal business enterprise.”

The Fort Belknap reservation, home to the Gros Ventre (Aaniiih) and Assiniboine (Nakoda), is in northern Montana, about 40 miles south of Canada. Poverty rates there hover around 50%, and online lending provides an economic jolt.

Lending accounts for more than 90% of the revenue earned by Fort Belknap’s business arm, Island Mountain Development Group, the company’s CEO, Evan Azure, said in a recent court filing. (Azure is one of two tribal members named in Ellison’s suit.)

“Without those [lending] businesses, the funds that [Island Mountain] generates for the tribe would decline drastically,” Azure continued.

A fifth of Island Mountain’s net income goes directly to the tribe; the rest is reinvested in tribal businesses or spent on projects benefiting tribal members, including a $2.6 million housing development, the filing said.

Plus, tribal lending is a major source of employment: Island Mountain has 394 workers, 84% of whom are Native Americans.

Island Mountain got into online lending in 2011, initially relying on “third parties” to better understand the lending business and its regulation, Azure said in a federal court filing in Alabama.

By 2017, the tribe "had learned the lending business well enough to do it on its own," terminating its third-party management agreements, the filing continued.

In 2022, an Alabama consumer sued a Fort Belknap loan business, several tribal members and a nontribal company and its CEO for illegal lending. The suit claims that funding, marketing and other resources for Fort Belknap’s lending operations were at least partly provided by nontribal businesses.

“That is something we are concerned about and looking into,” said Jessica Whitney, a Minnesota deputy attorney general.

In lawsuits nationwide, consumers often allege that nontribal firms engage in “rent-a-tribe” schemes to take advantage of tribal sovereignty. “The concept of tribal sovereignty is being grossly abused,” said Daniel Edelman, a Chicago attorney.

Edelman’s firm has represented consumers in suits against several tribal lenders, including affiliates of the Lac Courte Oreilles and Lac du Flambeau Ojibwe bands in Wisconsin, and the Mandan, Hidatsa and Arikara (MHA) Nation in central North Dakota.

Tribes see the "rent-a-tribe" moniker as a pejorative, say Native American law experts.

"It distorts if not ignores the importance and ability of tribal governments to manage and come up with complicated financial agreements," said the University of Washington's Mills. Mills said that as with casinos, tribes have worked with outside companies to develop expertise.

The poverty rate for the Lac Courte Oreilles band near Hayward, Wis., is also well above the national average, and the tribe, too, turned to online lending for an economic boost.

It joined forces with Cane Bay Partners VI, a management consultancy based in Christiansted, U.S. Virgin Islands, with a history in online lending, including with the MHA Nation.

In 2013, Cane Bay’s co-founder Kirk Chewning pitched the tribe on a “full-service” relationship including underwriting expertise, customer service and, notably, access to credit, the tribe’s lending arm, LCO Financial Services, said in a federal court filing.

By 2017, the tribe had disagreements with Cane Bay, including over profits and a lack of lending-related employment on the reservation. Cane Bay and the tribe renegotiated some parts of the agreement, the court filing said.

Then in 2020, the tribe sought greater control after a veteran St. Louis financial executive was hired to run LCO Financial Services.

The new CEO, Scott Soli, found “irregularities” in financial statements, and confronted Chewning about allegedly skimming money from the tribe, according to LCO’s 2022 suit against Cane Bay and Chewning.

“Unbeknownst to the tribe, Chewning and Cane Bay really sought the framework of a thinly veiled, carefully structured ‘rent-a-tribe’ scheme — a business that was tribally owned and operated on paper, but in reality, merely a front for nontribal companies,” the suit said.

In a statement, Cane Bay denied all allegations in the suit. "The matter was resolved to the satisfaction of all the parties," the statement said. Court records indicate the tribe dropped the suit soon after Cane Bay told the court the "contract dispute" must go to arbitration.

Cane Bay and its affiliates no longer have contracts with LCO Financial, Cane Bay said. The tribe declined to comment.

Since Soli started in 2020, online lending has become a significant financial contributor to the Lac Court Oreilles band.

LCO Financial Services was providing $500,000 a month to the Lac Court Oreilles general fund by 2022, up from $40,000 a month in 2020, according to an April post on the tribe’s website. Revenue was expected to rise to $750,000 in May 2023 and $1 million this February.

The lending business has grown enough that Soli established a second call center in his home base of St. Louis. It has been difficult to find enough workers for the call center on the Lac Courte Oreilles reservation.

The Lac Courte Oreilles tribal council renewed Soli’s contract in April, but by a 3-2 margin, the April post said. Two council members were worried that while Soli has done a good job, he’d move operations to St. Louis.

Meanwhile, the tribe and Cane Bay have been defending itself against illegal lending lawsuits by three consumers filed in the past 18 months. Settlements were reached in two of them, including one just this month.