What exactly is a “tribal lender” and how is it different from a payday lender?
As you may already know, payday lenders use a lot of different terms to describe their product. Cash advances, paycheck loans, payday advances, cash loans. One of the terms that comes up regularly is Tribal Loans. Is this just one more way of talking about payday lending?
Yes and no. Tribal loans can be payday loans, but it can mean a lot more than that. While some people might use the terms interchangeably, they are two different things.
A payday loan is a short-term loan that is secured with your coming paycheck as collateral. In essence, you are paying a fee (or interest) to get your pay without waiting until your pay date. These kind of loans are designed to last from a few days to as a long as a month, and aimed at people who the big banks can’t or won’t help.
A tribal loan, on the other hand, is any loan that originates from the sovereign land of a recognized Native American tribe. While many tribal lenders have gotten into the payday loan business, that is actually just a small part of a bigger picture.
The federal government has extended sovereignty to many Native tribes. This gives tribal lands freedom from control of state and local governments, and allows them to be largely autonomous. They are not regulated by any state lending laws, nor are they affected by any state consumer protection legislation. This gives them tremendous freedom in deciding how to loan money, who to lend it to, and what rates and fees to charge.
Tribal lenders can loan money within the tribe, or to outsiders. They can issue loans anywhere they want, as long as the loan is processed on sovereign land.
The Sovereignty of Tribal Loans
For example: the state of New York has made payday loans illegal. But sovereign tribal land is not considered to be a part of New York. It is recognized as its own authority, so the laws of New York do not apply. So a lender may set up shop and begin to issue loans with not legal repercussions. The lender is only breaking the law if he moves his business off the reservation and into New York state.
This freedom to loan without oversight has naturally progressed to include payday lending, but it does not mean all tribal loans are payday loans. Many tribal lenders engage in the same traditional types of lending as most banks or credit unions, issuing mortgages, car loans, and personal loans. Many tribal lenders are active in supporting their community, and only loan money within the tribe. There are as many different variations as there are tribes!
In short, while payday loans are often issued by Native American companies the term tribal lending has a much broader definition than just cash advances.