Online Payday Loans Lending practices spark nationwide concerns

Tim Leeds Havre Daily News [email protected]

A business started last spring by the Chippewa Cree Tribe of Rocky Boy's Indian Reservation has brought the Tribe and the Montana state government into the middle of a legal question of rising intensity across the nation: Are Internet payday loan companies on Indian reservations subject to state laws and regulation? Judy Beck, spokeswoman for the Montana attorney general's office, said the office is investigating a complaint made against PDL Ventures at Rocky Boy. That investigation includes determining what jurisdiction the attorney general has over a business located on a sovereign Indian reservation, she said. The complaint alleges that the company withdrew more money from the complainant's bank account than was agreed upon in the loan, Beck said. Jurisdiction is an issue under increasing scrutiny in the United States, as more Internet payday loan companies spring up on Indian reservations, saying that they have immunity to state regulation or prosecution. That question is pending in Colorado, where the state Supreme Court soon will take up a case where two online payday lending companies say they are immune to prosecution and state regulations because they are incorporated by sovereign Indian nations. “We have broad concerns about any company using tribal sovereignty or any other means to evade oversight or licensing requirements as required by state law,” said Mike Saccone, spokesman for the Colorado attorney general's office. The entire concept of online payday lending also is under more observation, said Zan Deery of the Better Business Bureau office in Spokane. “This industry is really under a micro- scope by a lot of a g e n c i e s right n o w, ” she said. Many states i n c l u d i n g M o n t a n a h a v e passed, tried to pass or are proposing increased regulation of payday lending, including onl ine lending. Many states are taking the enforcement of their regulations on payday lending to court. “There is litigation going on about it all over the place, and the claim of tribal sovereignty adds another wrinkle to it,” said Jean Ann Fox of the Consumer Federation of America.

Rocky Boy enters world of online payday lending When taking out a payday loan, the customer agrees to pay the principal, usually between $100 and $500, plus interest on their next payday. The interest charged typically translates into an annual percentage rate from 300 percent to more than 1,000 percent. Typically, at the time the loan is issued, the pers o n taking out the loan leaves as collateral a check written to the loan company for the total amount due. With online payday lending, the person taking out the loan typically gives their bank account information to the loan company, allowing the company to deposit the loan amount directly into the bank account and then withdraw the repayment on the loanee's next payday. Rocky Boy started its business last spring and soon Started receiving complaints. The Better Business Bureau connected a large number of complaints from around the United States to the name PDL Ventures, and eventually attributed them to the Chippewa Cree Tribe's loan company. Neil Rosette, executive administrative officer for the Tribe, said in an interview in October that most of the complaints appear to be assigned to the Rocky Boy business in error. Many of the complaints were filed before the Tribe even started its business, he said. Other online payday loan companies also are using the PDL Ventures name, Rosette said. Since that interview, Rosette and other members of the Tribal government have not responded to calls asking for additional information.

Complaints on doing business Shela Styer of the Spokane Better Business Bureau office said Thursday the bureau had forwarded six more complaints to PDL Ventures in November. The bureau has since June forwarded 119 complaints filed from around the country, linked to 12 Web sites and companies doing business under seven different names, to Rocky Boy's online loan company. Under the bureau's policy, businesses have 30 days to resolve complaints after the bureau forwards them. After 30 days, the complaints typically are closed as successfully resolved, not resolved to the customer's satisfaction or not answered. Of the complaints, 107 remain unanswered. Of six complaint s forwarded i n November, PDL Ventures responded to two. Styer said Thursday the Rocky Boy business had not yet contacted the bureau to provide information about the business to correctly identify complaints against it. The complaints dealt with a variety of issues. The bureau connected all complaints in one way or another to PDL Ventures, leading it to assign them to Rocky Boy. In some cases, investigations into a business against which a complaint was filed led to the Better Business Bureau connecting the complaint to another business or businesses. In the complaints attributed to PDL Ventures, some people said an amount more than was agreed-upon was withdrawn from their account, or that instead of withdrawing the agreed upon amount on their next payday, the company assessed fees over a severalmonth period then withdrew the principal plus interest and the fees. Other complainants said companies deposited loans then started debiting payments without ever being contacted by or making contact with the person owning the account. Michael Lee of Rochester, N.Y., said the first he knew of the business against which he filed a complaint, Rocky Boy Technologies, was when he started seeing unauthorized transactions in his account. Rocky Boy Technologies deposited a loan without his knowing about it and started debiting payments, Lee said. Although the company has refunded some of the amount, after fees and charges are figured in, Lee said, he still is out $390. Ruth Beltran of Houston told a similar story about her complaint against Good Times Cash, which the Better Business Bureau connected with Red River Ventures, and of PDL Ventures. Beltran said she suddenly started receiving calls on her cell phone regarding collection on a loan. “I said, No, I don't have a loan, I don't even know what this is about,'” she said. Beltran said the calls continued and became more abusive, until she had a telephone conversation with a loan company collection agent and a representative of her bank. The collection agent finally hung up on the call after Beltran refused to give out her new bank account information to the collection agent she had closed the account the company had been accessing instead offering to mail the company the $75 left of the amount it deposited. The collection agent said, “I won't make any money off of that,” before hanging up, Beltran said. She said she has been trying to deal with the situation and repair its impact on her credit rating ever since, to no avail. She does not even know how the company accessed her account information, Beltran said. Dorenda Madkins of Oklahoma said the issue leading to her complaint against PDL Ventures concerned more money being debited than agreed upon has been a serious problem. “That company scammed me and put my family in a bad situation,” she said. “I took out a loan for $200 and ended up paying hundreds more.” Although it is not listed as a complaint attributed to the Rocky Boy business. The online loan business also has led to identity theft. Fox said that, among other problems with online lending, numerous cases have arisen in which someone has stolen other people's identities and taken out numerous online payday loans using the stolen information. “This is a real problem,” Fox said.

Criticisms of the industry Many consumer groups say that the entire concept of payday lending is predatory. “Online payday lending is bad just like payday lending is bad,” said Kathleen Day of the National Center for Responsible Lending. She said more and more companies seem to be locating on Indian reservations to avoid regulation, but she added that the location doesn't matter. “I don't care who is doing it. It is a bad thing,” Day said. But Lindsey Medsker of the Community Financial Services Administration of America said payday lending can be a good choice for some people. Studies show that most people taking out payday loans do so to cover some bill that comes due before their next payday, Medsker said. Those people have the option of not paying their bill and being assessed late fees or having services canceled, paying fees for bouncing a check, or taking out a short-term loan, she said. “These are people who do have other options and who are making a very reasonable and rational choice as to how they want to cover that check,” Medsker said, adding that late fees and bounced check fees often justify paying the cost of a payday loan instead. Medsker said the payday loan companies that are members of CFSA which include some businesses doing online lending, although the Online Lenders Association generally works with those operations follow regulations including abiding by the state regulations where they do business and offering a payment plan if consumers cannot make the full payment on the agreed-upon date. Lisa McGreevy of the Online Lenders Association said that members of the association must agree to adopt the best practices and code of conduct set by the association, and their membership can be canceled if they violate those practices. The OLA's guidelines include: Providing full disclosure of loan terms to customers; Providing a reasonable cancellation policy; Remaining in compliance with all applicable laws and regulations; Providing comprehensive Web site security and consumer privacy; Providing referrals to credit counseling, education and assistance where appropriate; Employing non-abusive collection practices; and Maintaining compliance with all Truth in Lending practices. McGreevy said actions listed in the complaints attributed to PDL Ventures would not be condoned by the association. OLA also offers consumer information on its Web site, including information on links to credit counseling and tips for the successful use of online short-term lending products. The consumer also should know with whom they are dealing with when making any f i n a n c i a l t r a n s a c t i o n s , McGreevy said. The association's Web site says it was formed in 2005 after leaders in the industry became concerned that many online lenders were not acting in good faith. "The first step was to eliminate the 'bad apples' and standardize the principles by which loans should be made," the Web site says. Medsker said that while not all payday lenders are reputable, that is not typical of the industry in general. “As with any industry, there are bad actors, and, especially in our industry, the bad actors give the rest a bad name,” she said. But Norma Garcia, attorney at the West Coast Regional Office Consumers Union in California, questioned that idea. Garcia said her organization, which publishes “Consumer Reports,” is concerned with the very nature of payday lending. “We're concerned with lending that takes advantage of a vulnerable population,” she said. Getting into payday lending tends to trap people in a cycle of debt, Garcia added. Once consumers pay off the loan, they usually don't have enough left to get through to the next payday and take out another. “Whether it's for an emergency or just money for people already in a bad situation, they are digging themselves in deeper,” she said. Medsker said responsible businesses avoid laying that debt trap. It isn't good business, she said. “These are businesses, not charities,” Medsker said. “They won't loan to people who can't pay the loan back.”

Internet complications Taking out a payday loan over the Internet can make things difficult for the consumer. Fox said taking out any loan online creates a risk. “We think the entire product is hazardous and defective,” she said. “Nobody should be making loans through electronic access.” Deery said not being able to see and talk to the lenders, like consumers can in an actual storefront business, makes it difficult to find out who is making the loan. “You don't really know who is handling the money,” she said. As with any business, Deery said, consumers should do some research before making a decision. With online loan companies, that can be more difficult, however, because some payday lenders work under a variety of different business names and Web sites. Even worse, she said, the first business contacted might be selling or providing the consumer's information to other businesses. “It creates a lot of stress. You can be lost and confused, you don't know who is doing what or who is handling the money,” Deery said. “It's a logistical nightmare. It's something that people shouldn't have to deal with.” Beltran, describing the process she went through to file her complaint, listed a trail of confusing changes as she and the Better Business Bureau tried to find out to whom the complaint should be sent. “It appears they change their offices regularly,” she said. Her complaint was forwarded from one Better Bureau Business office to another as different locations for the head offices of the payday loan company were found. The Better Business Bureau finally linked the complaint to PDL Ventures in Rocky Boy which the Chippewa Cree Tribe says may be in error, and the complaint was sent to the Spokane office. “It seems (the Better Business Bureau is) having difficulty finding out where they are so they can even send (the complaint) to them ,” Beltran said. “It's like they're this ghost company that's causing a lot of damage.”

State regulation The Montana government recently has tried unsuccessfully to increase regulation of the payday loan industry. Two bills were sponsored in the 2007 Legislature, including a proposal in the Senate requested by the state attorney general. That bill would have established a procedure to set up payment plans on payday loans as well as limiting APR to 36 percent. Another bill in the House also would have limited APR to 36 percent. Both of those bills died in committee without any vote. The topic was brought up again in the last legislative session, with a bill limiting payday loans and title loans to 36 percent APR nearly coming out of the House Business and Labor Committee. After the bill stalled with a 9-9 vote in committee, a vote on the floor to bring it out for debate died 51-49, with 60 votes needed to bring it out of committee. Democrats Bob Bergren of Havre and Tony Belcourt of Box Elder voted in favor of bringing the bill out of committ e e. Re p u b l i c ans Wend y Warburton of Havre, Roy Hollandsworth of Brady and Edward Butcher of Winifred voted against it. The motion died on a nearly party-line vote, with Rep. Jesse O'Hara of Great Falls the only Republican voting in favor. All Democrats voted to bring the bill out of committee. Many states are working to increase regulation of the industry. The National Center for Responsible Lending reports that a decision to require online lenders doing business in Pennsylvania to obtain state licenses and abide by state laws restricting APR to 24 percent was upheld in court. Cash America International, which issued loans in Pennsylvania with APR up to 1,141 percent, appealed the decision. Other state governments, i n c l u d i n g i n Ar ka n s a s , Wisconsin, Massachusetts and West Virginia, have in recent years passed new laws regulating the industry, or prosecuted abuses by payday lenders. Garcia said a push in the other direction also is happening in California. Legislation proposed in the last session dealt with payday lending. Part of the bill would allow licensing of online payday loan companies, but with little regulation, she said, adding that Consumers Union opposed the bill. “It would have led to the proliferation of payday lending without protections,” she said. Consideration of that bill has been put on hold, Garcia said, and it will be taken up again next year.

Tribal sovereignty The issue of tribal sovereignty has complicated the situat ion in many states. In Montana, the investigation by the attorney general's office includes determining whether it has any jurisdiction over Rocky Boy's PDL Ventures. Beck said that, in situations that do not involve tribal sovereignty, a company making a loan to a Montana resident would typically be under the jurisdict ion of state law, although attorneys representing the lender could contest that. The final decision in each situation would depend on the specifics of the case. Genera l l y, however, because the lender entered into a contract with a Montana resident the Montana courts would have jurisdiction, Beck said. The state in which the business is located also would have jurisdiction over the transaction, although that does not preclude the state where the consumer l ives, such as Montana, from having jurisdiction. Further, specific parts of the loan agreement could affect what states have jurisdiction, and if the company was affiliated with a national bank, federal laws and regulations might preempt state law. Tribal sovereignty further confuses the issue. Companies saying they are arms of a tribal government have said they are immune to state regulation because they are part of a sovereign nation. That is an issue which the Montana attorney general is now researching in terms of Rocky Boy's PDL Ventures, Beck said. Some state agencies say they have no jurisdiction over the Rocky Boy loan company. Linda McCulloch, secretary of state, said that because the business is on a reservation and does not do business with Montanans off of the reservation, they do not have to register with her office. Chris Romano of the Montana Division of Banking said the same. “We are familiar with PDL Ventures,” Romano said. “We do not have jurisdiction because of the tribal sovereignty.” Romano said a few people from out of Montana have made inquiries about PDL Ventures, although none have been formal Complaints to the division. Coleen Smith, Bet ter Business Bureau's Montana director of accredited business relations, said the lack of state oversight leads the bureau to recommend people with complaints not resolved to their satisfaction file the complaints w i t h f e d e ra l age n c i e s. Complaints can be filed online wi th the Fede ral Trade Commission at www.ftc.gov and wi th the Internet Cr ime Complaint Center of the FBI, National White Collar Crime Center and Bureau of Justice Assistance at www.ic3.gov. Debbie Dujanovic Bertram, public information officer for the FBI in Salt Lake City, said she could not comment on whether the bureau was investigating any complaints against PDL Ventures. “We don't confirm or deny investigations,” she said.

Enforcing state law Norman Googel, assistant at torney general in West Virginia, said that state has aggressively pursued enforcing its regulations. “Payday lending has always been illegal in West Virginia, although the industry has tried to get around the laws,” as they do in many states, he said. Googel said that since focusing on the issue in 2005, West Virginia has settled complaints with about 70 Internet payday lending companies and nearly 30 more collection agencies trying to collect on online loans. “The battle will probably be going on for years, but we feel we have made significant progress,” Googel added. He said West Virginia Attorney General Darrel l McGraw's Consumer Protection Division Monday filed two new suits. The first names a series of interconnected corporations and individuals who jointly operated at least four Web sites making payday loans using the trade name “FFD Resources.” The other addresses four companies attempting to collect payments on payday loans in West Virginia. “It is now more important than ever to stop modern day loan sharks from preying on West Virginia consumers who may be tempted by difficult financial circumstances to apply for payday loans on the Internet,” McGraw said in a press release announcing the filing of the suits. One way companies tried to get around the law was to say they were associated with a bank in another state, which actually was issuing the loan, Googel said. The companies claimed that put them under federal jurisdiction and made them exempt from state regulation. “Regulators call that a renta- bank' scheme,” he said. Googel said that effectively has been outlawed. The use of the Internet is another common tactic, he said. Companies making loans online take the stance that they are not regulated in any way by the state in which they make a loan. Many online loan companies do not register in the states where they make loans and ignore state regulation, Googel said. Another tactic is to incorporate on an Indian reservation, then claim sovereign immunity, he said. “In Colorado they have been fighting that even longer than we have and have not resolved it,” Googel said, adding that it also is a high-priority issue in California. A major question is whether the company is truly part of the tribe in question, he said. “We have investigated lenders who claimed to be Indian tribes. Whether they were or not is the question: Were they really Indian tribes or just partnering with tribes just like a rent-a-bank scheme?” he said. Some of the settlements in West Virginia, which included the businesses ceasing to make loans in the state and paying back the state residents, have involved businesses operating from reservations.

Colorado Supreme Court case Fox said the case pending before the Colorado Supreme Court gets to the heart of the issue. “A lot of folks are waiting to see how the Colorado case turns out,” she said. Saccone said the case hinges on what authority the attorney general has to investigate a case relating to payday loan companies on reservations. Representatives of the companies in question say that, being located on Indian reservations, the state has no jurisdiction over them. During an investigation into complaints against two online payday loan companies, Miami Nations Enterprises Inc. and SFS Inc. filed a joint motion to dismiss. The motion said those corporations, doing business as Cash Advance and Preferred Cash, were incorporated by the Indian tribes Miami Nation of Oklahoma and Santee Sioux Nation, respectively. Because of this, the businesses were immune to prosecution due to the doctrine of tribal immunity, the motion said. In 2007, a Colorado trial court denied the motions to dismiss, finding that the companies had been doing business in Colorado, not on tribal land. The cour t orde red Cas h Advance and Preferred Cash to appear at a hearing on contempt citations for not providing information requested in subpoenas. When the representatives did not attend the hearing, the trial court issued arrest warrants on officers of the companies and on the executive officer of two Carson City corporations identified as doing business as Cash Advance and Preferred Cash. The companies appealed the decision, and those warrants were s tayed pending the appeal. A Colorado appellate court in 2008 remanded the case to the trial court, finding that it had properly found that the companies were doing business in Colorado, not on tribal property. To determine if immunity applies, the trial court has the authority to obtain and examine appropriate documents requested in order to make a ruling, the appellate court found. An appeal of that decision is pending before the Colorado Supreme Court. Go o ge l s a i d t h a t t h e Colorado case is of interest to people dealing with the question of tribal sovereignty and payday lending, but that it only will impact Colorado state law directly. “It's a battle that may have to be fought all around the country. It may have to be settled in the U.S. Supreme Court,” he said.

Options to payday loans

The Better Business Bureau recommends on its Web site that people check into other alternatives before applying for a payday loan. The bureau recommends: Checking with a bank or credit union about taking out a short-term loan, which allows working with their representatives if the person interested in a loan has questions; People having trouble making payments contacting their creditors or loan service companies as quickly as possible to find out if a payment could be made later; Using a credit card, which is generally costly but likely will be less expensive than a payday loan; and Determining if payments on non-interest expenses such as utilities could be delayed and setting arrangements to make payments.