A local tribal government has started a new online lending business, with representatives saying it is a different product and a new tactic for economic development than a controversial business started two years ago.
Some experts are saying it is just a new slant on predatory lending.
The Chippewa Cree Tribe of Rocky Boy’s Indian Reservation held an open house for its online lending product Plain Green LLC Friday, saying the business already is providing good jobs for tribal members, revenue for the tribe and offering a product not normally available through banks and most online lenders.
“I look at it as a way to bring the tribe out of dependence on the federal government, ” Plain Green Chief Executive Officer Neal Rosette Sr. said in an interview during the open house.
“I look at this as some kind of hope for our youth, ” he added.
He said the company — started in April — has provided hundreds of thousands of dollars to the tribal government, as well as paying its local employees and working on its own on other projects to improve the reservation.
He said when the tribe entered the online lending business two years ago, it “jumped in with both feet.
“We probably should have done more research, ” he added.
The tribe learned some lessons and is approaching Plain Green loans differently, he said, adding including researching the industry, working with several industry and legal experts to organize and operate the business, and having a strong focus in training and employing local workers to provide quality service and good local wages.
Back in a controversial industry with a different product, different model
Rocky Boy caught attention in 2009 when it started an online payday loan business, with the primary name used PDL Ventures. Questions arose about where the business started, whether it truly was a tribal business or just some company affiliating with the Chippewa Cree Tribe to evade state lending laws. There were complaints about the quality of service as well as the high interest rates of the loan.
Rosette said the tribe is in the process of terminating PDL Ventures and is no longer operating that site.
Plain Green loans is different than a payday loan company like PDL Ventures, Rosette said. The company offers short-term loans at considerably lower interest — the example on the company website says a first-time six-month $600 loan has 359.01 annual percentage rate of interest, compared to some payday loan rates of 600 to 1,000 APR or higher — with terms and rates that improve for return customers and a focus on quality customer service.
After four loans, the customer can qualify for a loan at 60 APR, says a newsletter article released by the company.
But some industry watchdogs say the push toward online, unsecured short-term loans is just another shift by the lending industry from payday loans to other vehicles as states enact stricter rules over the business. Montana voters last year approved limiting payday loans to 36 APR.
“We’re focused on the ones still structured as payday loans, but the lines are getting very blurred, ” said Jean Ann Fox of the Consumer Federation of America.
Fox said she doesn’t see much distinction between paying high interest rates in a single payment in two weeks or four weeks — which often led consumers to immediately take out another payday loan — or paying a smaller amount every two weeks for six months at 360 APR.
“Essentially, they just have just stretched it out over a longer period of time, ” she said.
Plain Green Chief Operating Officer Billi Anne Morsette said the tribal officials looked at the pros and cons of the loans before entering the business, and that the key factor was the benefit to the tribal members.
“It will assist the tribe in becoming self-sufficient, ” she said. “It provides jobs and helps in the community, helps with health care, with housing. ”
She said in the newsletter released by the company that once people become familiar with the product and find that it does not require a full repayment of the balance of the loan plus interest on the customer’s next payday, “They will quickly understand that Plain Green is not predatory and is not in the business of offering payday loans. ”
A necessary service?
Rosette said the loans are a necessary service. Most banks or loan companies will not offer an unsecured loan for a few hundred dollars in a short-term loan, he said. If someone needs a small loan for something like car repairs or some other issue, a company like Plain Green is their only alternative, he said.
But consumer groups like Consumer Union, the publisher of Consumer Reports, and entities like the Federal Trade Commission, have said other alternatives are a better solution. The best are making sure people don’t need a loan, such as setting up an emergency fund, going through credit counseling or talking to businesses where money is owed to make special arrangements.
If a loan is needed, people can look at other alternatives, says the Consumer Federation of America’s payday loan website. People can talk to friends or relatives about taking out a loan, look for cheaper loans, see if their own bank or credit union offers small short-term loans to its clients, or even use a credit card at a lower rate, the site says.
But Rosette said the high interest rate is a necessary part of the industry. Offering unsecured loans means there will be a high default rate, he said. The interest rate must be high to offset those losses, he said.
The Plain Green website main page has an entry at the bottom of the main page telling the viewer that the loans are an expensive form of credit intended to meet short-term needs, and suggesting alternate sources of money.
Rosette also said the tribe wants to fill the niche for unsecured, short-term loans with a good product and quality customer service.
“We want to be one of the good players, ” he said.
State and tribal laws
Another issue is lending caps set by state law, and whether Internet services have to abide by those laws.
The issue has become increasingly hotbutton, with many states taking legal action or reaching agreements with online lenders to not make loans to their citizens. West Virginia, for example, has successfully taken action against numerous companies over the last several years, keeping those companies’ business away from that state’s residents.
Fox said the online lending market continues to grow. As more and more states take action setting caps on interest rates, more and more storefront lenders shut down, but are replaced online.
“The Internet side of the payday or short-term … loan is the growth side of the business, ” she said.
The issue of tribal sovereignty and immunity raises yet another wrinkle.
Several payday loan companies have claimed immunity from state regulation and prosecution because they are on Indian reservations, part of a sovereign tribal government.
That issue is being worked out in several court battles, including a high-profile case in Colorado, where two companies claimed immunity from prosecution or regulation because, each said, they were owned by Indian tribes.
Mike Saccone, spokesman at the Colorado Attorney General’s Office, said the Colorado Supreme Court ruled last year that, if the businesses are legitimate arms of a sovereign tribal government, they are immune from state regulation. The Attorney General’s Office now is in the process of obtaining documents to determine whether the businesses it is investigating are legitimate tribal entities or operations owned by a business using a “rent-a-tribe” model, paying a tribe to be able to use its name to gain immunity.
In the newsletter, the Plain Green loan officers discuss the impacts of the Colorado case, and how the Chippewa Cree Tribe worked to create a business owned by the tribe that is part of the “sovereign business model. ”
Not available in Montana
Rosette said the services of Plain Green are not available in Montana. He said the reason for that is that tribal members, who are the ultimate owners of the tribally owned business, would be eligible. Offering loans to the business’ owners would be a conflict of interest, he said.
He added that Plain Green would like to be able to offer loans in the state, although because of the small population here, it is not much of a market anyway.
Jim Molloy, chief of consumer protection in the Montana Attorney General’s Office, said discussions have been held with the tribe about Plain Green. While no formal agreement has been made, there is an understanding that the business will not offer loans in Montana, he said.
If loans were made to Montanans at rates higher than the state law allows, that would raise the issue of jurisdiction and immunity, he said. That raises the question as to whether the state could take action against the business.
“We hope we would not have any problems with that because of the assurances that they won’t offer the loans in Montana, ” Molloy said.
Tribal and federal regulation
The newsletter also discusses regulation of the tribal business.
Instead of having to deal with 50 regulatory bodies on the state level, it says, it would only have to deal with the particular tribe’s licensing and regulatory requirements.
Rosette said Friday that the state is working with federal regulators and keeping the business in line with federal regulations and laws.
“The work we’re doing is above and beyond the federal guidelines, ” Rosette said.
He said the business also is working to make sure its employees are well-trained, understand the product and the regulations, and provide quality service.
When Plain Green first started business, the employees scored very highly in a standardized test conducted by the online lending business to score the quality of the business. The industry average is a score of 50, with Plain Green’s representatives averaging 65, he said.
The Better Business Bureau has been fielding complaints about the business, although the amount is much lower than when PDL Ventures started operations.
BBB listed 12 complaints about the business, with all but one resolved by Plain Green.
Rosette said the one that was not resolved was due to the customer not following through in the resolution process. He added that, with the number of loans made, the complaint ratio is for a fraction of 1 percent of the business’s transactions.
Benefiting the tribe
The business already is helping members of the tribe, Morsette said. The company is paying 13 tribal members so far in its call center, with a total of some 20 people working in the building, an attachment of the Chippewa Cree Construction building outside of Box Elder.
In its first five months, the business has gained more than 100,000 customers, grossed $2.195 million from service fees, turned over more than $896,000 to the tribe, and put more than $248,000 in its own investment account.
That fast start shows how much the product is needed, Rosette said. Banks simply do not offer short-term loans in the amounts Plain Green does, he said.
“I’m amazed at how huge the need is in the country, ” he added.
The business’s account also is being used to help tribal members, Rosette added, for improvement projects such as work on the softball field on the edge of Box Elder.
Rosette said the tribe is looking at other possible online businesses that could be operated out of the call center, not necessarily in the field of lending. The building soon could be filled with 50 workers, he said. The success, so far, of Plain Green is shoring up the idea that online businesses could be the wave of the future at Rocky Boy.
“It’s been a pleasant surprise, ” Rosette said.
Plain Green loan rates: Four examples
The terms of Plain Green loans are listed on the company’s website, including payments on sample loans showing the improved rates for returning customers.
• Sample first-time loan: A $250 to $800 loan with a 360 APR; A $600 loan would require 12 biweekly payments of $105.11, for a total of $1,261.32.
• Sample second loan: A $1,000 loan, with a 240 APR would require 18 biweekly $115.78 payments, for a total of $2,084.04.
• Sample third loan: A $1,600 loan, with a 120 APR, would require 24 biweekly $111.52 payments, for a total of $2,676.48.
• Sample fourth loan, A $2,500 loan, with a 60 APR, would require 30 biweekly $116.31 payments, for a total of $3,489.30.