A growing number of websites offer short-term loans even for borrowers with credit problems, but these payday loans often have annual percentage rates of 400 percent or more. Consumer advocates complain that the companies offering these loans online are trying to avoid state laws that restrict or ban traditional storefront lending. Payday loans are illegal in 15 states, and nine others allow payday loans with strict rules that cap fees, require longer repayment periods, or limit the number of loans per customer, according to Pew Charitable Trust. State and federal regulators have begun to step up their pressure on banks to stop working with online lenders, but the industry is fighting back in court.
Many online lending websites also are operated by Native American tribes, which claim that their sovereign status does not require them to adhere to state lending laws. Some non-Indian online lenders also claim tribal sovereignty, even when their ties to tribes are loose, says Uriah King of the Center for Responsible Lending in Durham, N.C. “When we scratch the surface, they don’t look like tribal lenders,” King said. “They look like sham relationships that benefit the lenders, not the tribe.” In one case, lender AMG Services claimed to be owned by the Miami and Modoc tribes of Oklahoma and the Santee Sioux of Nebraska, even though the tribes reportedly received only 1 percent to 2 percent of the revenue from each loan. Sovereign immunity should not be used to conceal predatory lending, King says. “At the end of the day, a payday loan is a junk product that gets people deeper into debt, and it doesn’t matter if it’s a bank or nonbank or a tribe, the reality is that it’s just not a good product and it doesn’t matter who provides it,” he said.