Beware of Tribal Payday Loans – Marketplace

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High interest payday loans are seen by critics as a fast track to endless debt cycles for borrowers. Are they a scam? Some would say yes, although they are legal. No one would dispute that they are dangerous. This is why many states have adopted regulations aimed at limiting the damage that payday loans can inflict on people’s personal finances.

But a new generation of payday loans has emerged that bypass state regulations – at least that’s what lenders are hoping for. These are loans made online by Indian tribes, which claim sovereign immunity from state and local rules. So-called tribal lenders say they only have to adhere to federal regulations, which tend to be much less stringent than those imposed by states.

To discuss these loans further, we spoke with Tom Feltner, Director of Financial Services at the Consumer Federation of America.

“Payday loans are very high cost loans, sometimes exceeding triple-digit interest rates – 300-400%. Payments are tied to your next payday date and typically rely on aggressive collection tactics such as holding a post-dated check or accessing your bank account directly via wire transfer, ”says Feltner.

Feltner says the vast majority of these types of loans are lump sum loans meaning the full amount is due on the borrower’s next pay day and if he cannot make that full amount he has additional interest charges – creating a dangerous cycle.

So what is the difference between traditional short term payday loans and those offered online through Native American tribes? Feltner says there is almost no difference.

“They are always very expensive. They still have payments tied to your next payday and they still rely on direct access to your bank account to enforce collection, ”says Feltner.

Many lenders claiming tribal-sovereign immunity are not actually managed directly by a Native American tribe, but rather managed by tribal members or other lenders in partnership with tribes. These lenders seek to circumvent strict consumer bans or protections in states that currently limit payday loans, such as costs or terms and conditions. These lenders claim that they are not subject to state law – but rather tribal law, which places few restrictions on these types of loans – and can make loans to anyone online in n any state in the country.

Since these tribal loans are billed as “emergency cash injections,” lenders often ask for a borrower’s bank account number, which can cause a big headache when they withdraw money. money directly from the account to pay interest. In some cases, the annual percentage rate of some of these loans may exceed 600%.

So what should consumers watch out for?

“Anytime a lender offers the option of getting money fast and requires you to give out personal financial information, such as a social security number or bank account number, that should alert consumers,” explains Feltner.

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