Payday Lenders Using Rent-A-Tribe Scam Enjoy Sovereign Protection from Law Suits and State Oversight

A report by the Center for Public Integrity, says that Internet-based payday lenders operating in California, New Mexico, West Virginia and Colorado are claiming to be “tribal enterprises” of Native Americans, providing them certain benefits of sovereignty, including immunity from lawsuits and state oversight. But one sensational case in Kansas is gaining media attention and calling to light how widespread the practice really is.

Filed in Kansas City last year, a Federal Racketeer Influenced and Corrupt Organizations (RICO) class action lawsuit claims that the owner of a payday loan company, a felon, used a so-called “rent-a-tribe” scheme to avoid criminal and civil liability for illegal loan practices.
According to court records, Scott A. Tucker is not licensed to issue payday loans, and cannot obtain a license, due to his felony convictions for mail fraud and making false statements to a bank. Tucker disregarded his past and entered into a rental agreement with the Miami Tribe of Oklahoma in 2003, and later with the Santee Sioux Tribe in 2005.

Under the Miami of Oklahoma contract, Tucker agreed to provide $5 million in capital to the tribe in exchange for permission to staff his office on tribal lands, allowing him he believed, to use the Tribe’s name as a front, and giving him immunity from state and federal lending laws.
One plaintiff in the case states that he received a loan from Tucker’s company in the amount of $300 but an interest rate of 608.33 percent, far in excess of the maximum rate allowed by Kansas law.

As a “tribal enterprise” Tucker operated various payday loan trade names, including United Cash Loans, which provided money online from an office in Overland Park, Kansas.
Until January 2012, payday lenders were regulated by a patchwork of laws without federal oversight. Today however, the Consumer Financial Protection Bureau (CFPB) provides supervision to ensure compliance with federal laws so that the type of arrangement described above can be shut down.