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A new settlement ending payday-like lending operations in Minnesota will put further pressure on Native American tribes that are on the defensive due to high borrowing rates across the country.
The Lac du Flambeau Band of Lake Superior Chippewa Indians has been telling its customers that the behavior is acceptable, but that stance is becoming increasingly difficult to maintain. Just before Thanksgiving, the Wisconsin tribe filed a civil lawsuit filed by Minnesota Attorney General Keith Ellison alleging that LDF violated state law requiring reasonable interest rates on loans by charging Minnesotans an annual interest rate of 200% to 800%. agreed to settle the lawsuit. The state also alleged that LDF violated consumer fraud, deceptive trade, and false advertising statutes.
In a consent decree, top LDF officials denied the allegations but agreed to stop making loans to Minnesotans unless the tribe complied with the state’s strict usury laws and other regulations, including licensing requirements. Officially agreed.
Tribal Council Chairman John Johnson Sr., the sole defendant in the lawsuit, also promised that the tribe’s lending department would forgive all outstanding loans of more than $1 million to Minnesotans. A judge must still approve the consent agreement.
“We will not allow Minnesotans to be exploited by predatory lenders,” Ellison said in a press release announcing the settlement.
Johnson did not respond to calls or emails seeking comment. He is the Managing Director of LDF Business Development Corp., which operates a variety of tribal businesses, including lending operations.
Johnson has previously said LDF’s lending practices are transparent and its recovery methods are fair and ethical. “When we provide unsecured loans, we reflect our commitment to assisting people facing emergency financial needs and provide support for the associated “We consciously accept the risk.”
Minnesota’s move to terminate LDF-controlled lenders comes after ProPublica extensively reported on LDF’s lending operations in August and September, and the tribe has become one of the major players in the tribal lending industry over the past decade. This was done shortly after it was discovered that it had grown. . Those loans contribute to the debt owed by people across the country. According to a ProPublica analysis, an LDF tribal-owned company appeared as a creditor in about one in every 100 bankruptcies sampled nationwide.
The Minnesota Attorney General’s Office said in a federal court filing that the state has received numerous consumer complaints about the tribe’s lending arm, LDF Holdings, which include “excessive interest charges. described the extreme hardship caused by “continued demands for payment”.
It cited the example of a Burnsville resident who took out a $1,398 loan with an annual interest rate of 795% in December 2023 from LDF company Lendumo. The loan amount snowballed to $8,593.
After Minnesota state officials contacted LDF on behalf of the borrower, LDF maintained that the loan was legal and not subject to state law, but Lendumo resolved the complaint “as a courtesy” — although additional not before demanding $389 in cash, court records state.
“This is the highest and most egregious annual interest rate we’ve seen,” said Exodus Lending, a Minnesota nonprofit that uses taxpayers’ money and private donations to refinance payday loans to borrowers. Executive Director Ann Leland Clark said. About a quarter of the loans refinanced since 2015 have been tribal loans, he said.
This summer, tribal council leaders agreed to a landmark settlement in a class action lawsuit in Virginia that canceled $1.4 billion in unpaid loans across the country and paid $37.4 million in damages and attorneys’ fees. . Of that amount, LDF officials will pay $2 million, and the rest will be paid by non-tribal partners involved in five tribal financial companies. A final approval hearing is scheduled for Dec. 13.
Despite the national settlement and the action in Minnesota, Mr. Johnson has not indicated that the tribe will exit the lucrative lending business or change its practices. ProPublica previously determined that LDF entered the lending business in 2012 and established at least 20 lending companies and websites, some of which are still active.
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LDF operates short-term installment loan business in collaboration with external companies. Unlike traditional payday loans, you don’t have to pay it back until your next payment period. Payments are usually made in installments over several months via automatic bank debit.
Lendgreen, one of the defunct websites associated with LDF, was the subject of a 2023 U.S. Supreme Court ruling. The ruling ruled that tribes must comply with U.S. bankruptcy laws, including provisions that protect debtors from ongoing collection efforts and harassment during the reorganization process.
Only a few dozen of the nation’s 574 federally recognized tribes offer online lending. Those who do do so believe it is an economic benefit to their communities and is highly coveted by tribal government operations, which often have limited options for expansion in remote areas of the country. They often think that it will bring them a certain amount of income.
According to ProPublica, LDF expanded its influence by partnering with multiple outside managers and investors. Revenue data is not made public, but the lawsuit says these outsiders have historically made the lion’s share of the profits in the tribal lending model of payday lending.
Flambeau Lake Tribal Chairman John Johnson Sr., sole defendant in Minnesota lawsuit over tribal lending practices Credit: Angela Major/WPR
In a previous email to ProPublica, Johnson described LDF’s lending operations as a force for community improvement. “The importance of our business goes far beyond simple economics. It is woven into the very fabric of our community and supports a myriad of vital services,” Johnson said. I wrote it.
LDF and other tribal lenders argue that Native American tribes have sovereignty and immunity that allows them to provide loans at exorbitant interest rates.
According to the state’s complaint, LDF’s loan documents contain clauses exempting Minnesota law, falsely claiming that Minnesota law does not apply because of sovereign immunity and limiting consumers’ right to dispute repayment requests. is unduly restricted.
The Attorney General’s Office also cited a letter from LDF Holdings to borrowers that read: [LDF lender] No state licensing is required. Your loan is legal. ”
The tribe emphasizes that it follows tribal law and federal law, which does not cap interest rates except for active duty military members and their families.
However, the state is not powerless to deal with this problem.
The court ruled that states cannot seek monetary damages from tribes, but they can sue the responsible administrators and obtain injunctions to prevent future harm.
“The truth is that out-of-state businesses and businesses incorporated under the laws of other sovereign states must follow Minnesota law when doing business in Minnesota,” Ellison wrote. .
The LDF settlement is Ellison’s second enforcement action against a tribal lender operating in Minnesota.
A Wisconsin tribe built a lending empire that charged borrowers 600% annual interest.
Wisconsin tribes left in desperate straits, exposed to high-interest loans, questionable affiliations and legal jeopardy
In February, his office secured a settlement agreement with top lending executives from Montana’s Fort Belknap Indian Community. The move would also bar the tribe, which has denied any wrongdoing, from making any future loans in Minnesota. The Fort Belknap business, which bills itself as an industry leader, disclosed in its annual report that it processed more than 300,000 loans nationwide in 2021. The tribe’s economic development department, which legal filings show derives most of its revenue from loans, reported more than $180 million in revenue that year.
In an interview with ProPublica in March, Ellison said other states with strong usury laws could follow Minnesota’s lead. “I hope other states see what we’re doing and take notice.” He declined to be interviewed for this article.
Minnesota enacted a law governing small loans in January 2024, strengthening its usury laws. The sliding scale system for establishment fees has been abolished and a stricter annual interest rate cap has been imposed. In most cases, the rate was 36%, but for licensed lenders that analyzed whether a borrower could repay, the rate rose to 50%.
According to the consent decree, Johnson told the attorney general’s office that the tribe stopped making new loans to Minnesotans as of Dec. 31, 2023, the day before the law took effect.
