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Federal Appeals Court Upholds New York Ruling on Internet Payday Loans Rejects Industry Misuse of Tribal Sovereignty

Thursday, October 2, 2014
Ellen Harnick
Diane Standaert

The Second Circuit Court of Appeals affirmed an earlier decision by the District Court for the Southern District of New York.

In August 2013, the State of New York issued cease-and-desist orders to more than 35 payday lenders offering and making internet loans to state residents at annual interest rates in excess of 300 percent – more than 10 times higher than what is permitted by New York state law. Beyond tribal lenders, these loans also included foreign ones with stateside headquarters where no interest rate caps existed for short-term loans. New York officials also alerted banks and other financial services companies of the illegal activity and asked them to ensure they were not facilitating electronic transfers of illegal loans.

Two payday lenders associated with two federally-recognized Indian Tribes subsequently sued New York, seeking to prevent the state's demands for compliance with the law. Instead, the District Court decided that New York's actions were appropriate.

Diane Standaert, Director of State Policy for the Center for Responsible Lending (CRL), issued the following statement:

The court's decision is an important reaffirmation of states' interest rate limits to effectively prevent predatory lending. The action rejects the payday lenders' attempts to circumvent state laws and instead ensures that banks and payment processors avoid illegal activity.

Payday loans are marketed and sold as a quick financial fix but create a harmful debt trap. Our research has documented the financial havoc wrought by unaffordable, triple-digit interest payday loans.

The decision strikes the right balance between respecting both tribal sovereign immunity, and states' interest in alleviating poverty and preventing illegal activity within their borders.

Standaert, along with CRL Senior Counsel Ellen Harnick, is a co-author of an amicus brief submitted to the Second Circuit in support of New York's efforts to uphold its century-old usury laws.

For more information, contact Charlene Crowell at or 919-313-8523.