Maryland challenges sovereign immunity in tribal lending case

Numerous state laws apply to United States short term lenders. When a legitimate company operates outside the bounds of state law – such as with Native American tribal lending – state laws traditionally have not applied. In accordance with the Center for Public Integrity, such a legal divide has resulted in a legal clash between Maryland regulators and Western Sky Financial, a personal loans provider that claims affiliation with the Cheyenne River Sioux Tribe.

Western Sky claims sovereign immunity is there

Owner of Western Sky Financial, Martin Webb, has the exact same opinion. He says the company is saved by its short term loans activity amongst Native American tribes from laws in the state. When trying to make a stricter personal unsecured loan rule in Maryland, the state is arguing this statement in court. The argument Maryland has is that tribal immunity is being used by Native American lenders. Customers throughout the nation are able to get the short term loans though. All native personal loan companies can be affected by the ruling. The CFPB has to make this decision.

Western Sky in Maryland supposedly breaks laws

The Western Sky Financial loans issue has a right and a wrong according to Anne Norton as financial regulation deputy commissioner in Maryland:

"I don't think there's a lot of gray area in terms of what is or is not permitted," Norton said. "Under our reading of both how tribal immunity is interpreted and how it's been applied by the Supreme Court, we feel that these are loans that violate Maryland law."

There can be a 33 percent Annual Percentage Rate cap on an unpaid balance with Maryland law. Right now, Maryland short term loan regulation doesn’t apply to Western Sky Financial as it has, instead of a Maryland license, sovereign immunity as it is part of the Cheyenne River Sioux Tribe operating out of South Dakota and online. APRs charged for short term unsecured loans vary by state, but are generally at least three times higher than the Maryland cap.

The Indian Commerce Clause is there

Webb’s attorney argues that under the Indian Commerce Clause of the U.S. Constitution, tribes are the ones responsible for regulating consensual relationships undertaken between non-members and members of a tribe. Webb claims that he doesn't have to recognize any lending laws outside of the tribe as he claims to be a Cheyenne River Sioux Tribe member.

Norton claims that Western Sky Financial should not be protected because it is not an arm of the tribe even though Maryland does follow Cheyenne River Sioux Tribe sovereign immunity rules.

It remains to be seen on which side of the argument a court will rule. There are a lot of times in which the court tends to side with tribes though which makes several suspect Western Sky Financial will win. For example, there is the Wall Street Journal case of casino lending with the Lac du Flambeau Band of Lake Superior Chippewa.

Citations

Public Integrity

publicintegrity.org/blog/entry/3052/

Wall Street Journal

online.wsj.com/article/SB10001424052748703565804575238621598513454.html

Western Sky Financial

westernsky.com/

Western Sky Financial: No collateral required

youtube.com/watch?v=183C9NM4XMg