New York Superintendent of Financial Services Benjamin Lawsky is locked in a legal battle with two Indian tribes as he tries to determine whether states can block online lenders that operate outside their borders. The tribes include Oklahoma's Otoe-Missouria Tribe and the Lac Vieux Desert Band of Lake Superior Chippewa Indians, located near the Wisconsin-Michigan border.
The case is before Judge Richard Sullivan in U.S. District Court for the Southern District of New York and stems from Lawsky's efforts last month to stop online payday lenders from making loans to consumers in the state. The decision could help determine how far online lenders, including those associated with Indian tribes, can go in their businesses that do not comply with state laws.
State crackdowns on payday loans have prompted many lenders to shut down entirely. Western Sky -- an online lender owned by a member of the Cheyenne River Sioux Tribe -- recently announced that it stopped making new loans and laid off 94 employees, citing pressure by state regulators. Last month, Lawsky dispatched cease-and-desist letters to it and several other online lenders and called on banks to end their transaction-processing relationships with such businesses. Indian tribes argue that the sovereign-nation status that permits them to operate casinos should apply to electronic commerce such as online lending. Offering online loans to customers, the tribes argue, is legal in the same way that New York residents can travel to casinos in Connecticut. New York officials, however, argue that states have authority to regulate tribes' conduct off the reservation.