CIRCUMVENTING STATE USURY LAWS WITH SOVEREIGN IMMUNITYRent a Tribe Loan Sharking

What is a loan shark? A loan shark is an individual or entity offering short term unsecured loans at illegally high interest rates. When the term "loan sharking" is mentioned, images of back alley deals and organized crime come to mind. That was yesteryears loan shark. Today, all you have to do is look online. A simple search on Google reveals that the payday loan business is thriving notwithstanding the state of the economy. Many of the website flagrantly advertise loans at rates that are grossly in excess of many State Laws. No less than 17 states have prohibited payday lending due to the rampant consumer abuse. Yet companies continue to operate in those states and many other states charging crippling rates of interest. Many companies are able to operate with impunity because the company is owed by an American Indian tribe. Courts have ruled that the tribes have sovereign immunity for business activities of the tribe even if it is off reservation or affiliated with a non-tribal entity. The latter has been referred to as "rent a tribe." Sovereign immunity is a legal concept that stands for the proposition that an independent sovereign can do no wrong and cannot be sued absent its consent. Pursuant to the various treaties between the United States and the different American Indian tribes most Indian reservations are essentially a separate country. On February 13, 2012, The Colorado Supreme Court ruled that the various payday loan companies are, in effect, arms of their tribes. In his decision, Judge Hoffman stated, "What the State has fundamentally misunderstood in this case is that tribal entities are immune, not their particular businesses, and therefore that tribal immunity does not depend in any way on the type of business a tribal entity engages in, with whom or for whatever purpose." Notwithstanding the Court orders in Colorado and California, there does not appear to be any Federal Case law directly on point. Due to the small amounts of money loaned and the suit being based on State law, the issue appears to have evaded Federal Review. An interesting scenario would involve an adversary proceeding within a bankruptcy court wherein the Federal; District Court assumes jurisdiction over all matters including cases dealing strictly with State Law. With the sovereign immunity of Indian reservations being a federal issue, the federal courts seem the most appropriate forum to litigate the issue.