Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

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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: Aug 6, 2012

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Thanks to their legal advantages as Native Americans, Indian tribes have joined the ranks of online payday lenders in order to acquire profits.

Online payday loans are simple cash advance loans that are lent online. These payday loans are usually lent indiscriminately, and come in small amounts of only a few hundred dollars.

But since these cash advances are lent to virtually anybody with a checking account, they often carry very high interest rates. These high interest rates are one of the reasons that consumer advocates have been trying to implement regulation on both state and federal levels to restrict these loans.

Fortunately for tribes, Native Americans are legally shielded by sovereign immunity from much of the legislation being pushed through our local and federal government.

Reservations are granted sovereign immunity by the U.S. Government. In addition to permitting Native Americans limited autonomy within Indian-owned land, sovereign immunity grants certain legal protections for business operations owned by Native Americans as well. Interest-rate caps and payday loan regulation are not legally enforceable on tribal property. This far reaching immunity grants Tribal-owned online payday lenders the right to legally lend in states where non-Native-American-owned payday lenders are banned.

In fact, these legal protections brought by sovereignty are the same that allow them to operate casinos on tribal land.

Despite modern stereotypes that all Indian tribes maintain profitable casinos, not all tribes are near population centers that would make the construction and operation of casinos profitable. Additionally, not all tribes who are fortunate enough to operate casinos are able to generate sizable profits. Tribes that struggle with or without casinos have hoped to generate more income by beginning online payday lending or partnering with payday lenders.

Native Americans are not the only group to realize the potential their tribal legal status permits them. Lenders in various states are eager to rush into partnerships with various Tribes in order to benefit from sovereign immunity.

Tribal-based online payday loans can carry massive interest rates. Some have been known to carry the equivalent of an annual interest rate above 750 percent. Lawsuits against Tribal-affiliated online payday lenders usually fail regardless of accusations of predatory lending. Despite the failure of state regulators to police Indian-affiliated online payday loans, federal agencies—such as the Federal Trade Commission and Consumer Financial Protection Bureau—have begun to monitor the industry with interest.