An Indian reservation in the heart of Montana's farm country may seem an unlikely place to borrow a quick $600, but the Chippewa Cree tribe says it has already given out more than 121,000 loans this year at interest rates that can reach a whopping 360 percent.
As more states pass laws to rein in lenders who deal in high-interest, short-term loans, Indian tribes like the Chippewa Cree and their new online lending venture, Plain Green Loans, are stepping in to fill the void. The Internet lets them reach beyond the isolated Rocky Boy's Indian Reservation to borrowers across the nation, while tribal immunity has allowed them to avoid bans and interest-rate caps several states have set.
To Neal Rosette, Plain Green Loans CEO and the Chippewa Cree's former executive administrative officer, it's a win-win. The online lending venture is a resource for people who can't or won't borrow from banks, while it gives the tribe a steady revenue stream and jobs with unemployment on the reservation at nearly 40 percent.
Rosette said this model could be the successor to gambling for tribes looking for an economic boost. Some tribes have owned online lending businesses for several years, and Rosette said the Chippewa Cree and three other tribes have started the Native American Lenders Alliance to encourage more.
"I believe this is the new outlook for Indian Country, not just Rocky Boy," Rosette said. "We are sovereign nations and we have the ability to create our own laws that regulate our businesses such as this."
That's a problem for consumer groups and the states that have tried to bring such lending under control. The issue with these loans, consumer advocates say, is that their high interest rates make it too easy for a borrower to become trapped in a cycle of debt as they have to borrow more to repay their original loans.
Forty-two states and the District of Columbia have taken different regulatory approaches, from outright bans to interest-rate caps. Montana voters last year passed a ballot initiative that capped such loans at a 36 percent annualized interest rate, which has led to a nearly 83 percent drop in so-called deferred deposit lenders, according to Montana banking and financial institutions director Melanie Griggs.
But as the cap drives lenders out of the state, more people are turning to the Internet, which adds the danger of passing along personal bank account information that can be distributed to other lenders and brokers and can lead to overdrafts.
"When they were getting it from brick-and-mortar businesses it was easy to monitor how many people were getting payday loans. Now that it's all on the Internet, it's harder to monitor," Griggs said.
The Chippewa Cree tribe says its loans are not payday loans, those two-week loans with annualized interest rates of more than 600 percent or more. Instead, the tribe says, its highest annualized interest rate is 360 percent. Payments are made over a period of months, usually in monthly or biweekly installments.
By any account, those rates are still very high. By the company's own example, a first-time borrower who takes out a $600 loan would end up paying $1,261.32 over 12 bi-weekly payments.
Less than a year old, Plain Green Loans already has an F rating by the Better Business Bureau after the agency received 20 complaints mainly dealing with billing and collection issues. Eleven of the complaints were resolved, but the company didn't respond or failed to resolve the other nine, according to the BBB.
Rosette said those complaints are relatively few when compared to the thousands of loans the company has administered.
"We've got a process in place that we believe is very quick at handling any type of complaint that we get. That's part of this industry, complaints, regardless of who you are," Rosette said.
As long as it doesn't make any loans to Montana residents, state prosecutors plan to let Plain Green Loans and the Chippewa Cree tribe be.
"We haven't looked specifically at the tribe," said assistant attorney general Jim Molloy. "We've not pursued it based on the understanding with the tribe that they're not lending to Montanans."
Rosette confirmed that the tribe is not lending to Montana residents, but he bristled at the idea that the state could enforce its rate cap even if the tribe were lending in the state.
"If we wanted to defend our position in Montana, we could. But why? It's a small market. It wasn't worth the fight if there was one," Rosette said.
Other states have entered legal battles with lending businesses owned by tribes. A closely watched case is playing out now in Colorado, where the state is attempting to sue Western Sky Financial, an online lender owned by North Dakota's Cheyenne River Sioux Tribe.
Colorado is trying to prevent Western Sky from making loans within its borders, while the tribe counters that the state is attempting "to reach into the reservation and regulate commercial activity."
Other legal battles are being fought or have been fought in California, West Virginia, Missouri, New Mexico and Maryland, creating an unsettled regulatory environment, said Jean Anne Fox, director of financial services at Consumer Federation of America, a consumer advocacy group in Washington, D.C.
"It's a real threat to the ability of state regulators to enforce the loan market to police caps and other consumer protection measures," Fox said.
Some non-tribal businesses have seen tribal immunity as a shield that they can use to make high-interest loans outside of the regulatory spotlight and a way to avoid state law enforcement, Fox said. So they affiliate themselves with the tribe and conduct business under that shield, she said.
It can be difficult to obtain records that define the relationship between a tribe and non-tribal entity. That's the case with Plain Green Loan's relationship to a Fort Worth, Texas-based company called Think Finance Inc.
Think Finance says on its website that Plain Green Loans is one of its "products," along with online lenders owned by two other tribes.
"Our latest product, Plain Green, launched in April. Customers in need of emergency cash can apply online in minutes, get an answer in seconds, and get cash as soon as the next day," a Think Finance press release from September reads.
Neither the tribe nor Think Finance returned calls and emails for comment on the relationship between the companies. Better Business Bureau spokeswoman Chelsea Dannen said her agency also tried to contact Think Finance to clarify the relationship but received no response.
Rosette said Plain Green Loans is wholly owned by the tribe, though he acknowledged that his staff of 25 isn't equipped to handle the volume. It employs a Las Vegas call center and uses brokers to provide it with databases of potential borrowers. It borrows just enough money each day to cover its loans.
There are a lot of things the tribe won't disclose. Rosette says the default rate is on Plain Green loans is proprietary information. He won't name the companies the tribe is involved with or say where company borrows its money or at what rate.
If it turns out that Plain Green Loans is not a bona fide tribal lender, that could change state prosecutors' laissez-faire approach to the company, Molloy said.
But just the obscurity and the uncertain relationship between the tribe and the Texas company exemplify the underlying problem with tribal online lending businesses, Fox said.
"We're not sure who's doing what here," Fox said.