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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Sep 23, 2013

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Western Sky, a tribal owned payday loan company, has announced it will be ceasing operations.

The company rose to prominence as being one of the few overtly advertised payday loan lenders featuring a Native American spokesman in commercials and a logo with three tipis.

According to the company’s website, operations ceased on September 3, 2013. Subsequently, 94 members of the Eagle Butte community, where the company is based, are reported to have lost their jobs.

The company alleges that regulators in New York and several other states pressured banks and payment processors to cease doing business with Western Sky — in essence, starving the company of necessary resources.

Western Sky hasn’t yet announced that they will pursue to have these regulations overturned, but experts who spoke to unanimously agreed that Western Sky cannot legally be regulated by state governments due to one important legal privilege: sovereign immunity.

The Power of Sovereign Immunity

Sovereign immunity means that tribal nations cannot be sued since they are legally considered to be domestic dependent nations that exist within the boundaries of the United States. In effect, states do not have the authority to regulate Native American tribes, just as individual states do not have the power to enter into treaties with foreign countries.

A recent situation in Oklahoma highlights how limited states are when it comes to dealing with tribal governments. 

Back in January 2012, the Oklahoma Attorney General’s Office announced it would work with the Department of Consumer Credit to monitor the payday loan lending conducted by Modoc and Miami tribes. The tribes were later named in a lawsuit by the Federal Trade Commission for alleged deceptive lending practices, but the situation was concluded when the Department announced it could not resolve complaints against the tribes and their payday loan operations since they have sovereign immunity.

Oklahoma State Rep. Mike Ritze said that sovereign immunity is not absolute though.

He was told that under the United States Constitution, the United States Congress has plenary power — which is absolute authority over a very specific subject — to regulate commerce with Indian tribes, despite the fact that tribes have sovereign immunity.

“According to federal case law, only Congress can limit tribal sovereign immunity or an Indian tribe may waive their immunity,” said Ritze.

Even though states logically try to regulate tribes within their borders, they effectively lose power at the beginning of tribal territory.

Mini-Canadas in America

William Boulware, Adjunct Professor at the Chicago Kent College of Law, explained that the three-way powerplay between states, the federal government, and tribes is incorrect due to a legal technicality.

“Tribes are Mini-Canadas,” he said. “The general laws of the state would be inapplicable unless there is federal intervention. They would be allowed and could be allowed to operate these payday loan operations within the reservation boundaries.”

According to Boulware, tribal payday loan operations are under the legal oversight of the area in which they originated from — in this case, tribal land.

While this may be a loophole in the eyes of many anti-payday loan regulators, in actuality, Congress is solely empowered to regulate affairs with tribal government, preempting state laws and powers.

“It would be like Minnesota trying to influence what’s going on in Canada,” said Boulware.

He raised the possibility that Western Sky’s competitors in the payday loan industry may be the ones who pushed regulators to single out the tribal-owned lender. After all, given how advantageous sovereign immunity can be, Western Sky is sure to have envious rivals.

Even though relations between the federal government and Native Americans have been historically violent, Boulware was quick to cast doubt on any of this regulatory pressure as being racially motivated. After all, it is not as if state regulators are banding together to pursue all tribal-owned payday loan companies. Rather, the reason for the government’s attention may be the way in which Western Sky was incorporated.

“Some tribes were incorporated in a way that they have broad reach,” Boulware said. “Some tribes have federal oversight and they have to submit regulatory changes to the federal government. If approved, they have approval on the ordinances allowing for high interest and terms.”

Boulware does see a chance for a more positive future though. Since tribal economies are tied to local economies, there is a need for cooperation and coexistence. Tribes even meet with local governments to discuss taxation issues.

“It is in the best interests of tribes to have fair dealing and reasonable market rates,” he said. “I think it’s going to be an education process and a business process, with business and state officials working with state governments to find a happy medium, the balance is definitely possible.”