Tuesday, February 15, 2011

Are Payday Loan Companies the Answer to Poverty for Indigenous People?

I came across an article about payday loans In The Voice of Tucson. The following is a short passage from it.
In the battle to shield themselves from lawsuits and government oversight, some high-interest payday lenders have found unlikely allies: Native American tribes.

In legal fights in California, New Mexico, West Virginia and Colorado, a group of Internet-based payday lenders have argued they are immune from lawsuits and regulation because they are “tribal enterprises.” They claim they enjoy tribal-nation sovereignty, which allows them to operate outside state oversight — even when they’re making loans to non-Native Americans living far from Indian lands.

State regulators and consumer lawyers say that the lender-tribe marriages are ruses designed to allow non-Native American companies to skirt consumer-lending laws. The tribes, they claim, are being used as fronts for the lenders.
Pay day loan schemes are absolutely exploitative.  The annual interest rate is so high, that it amounts to usury.   These companies absolutely prey upon the poor.  A person falls short one month and then gets a payday loan, but quickly finds that they don't have any extra money the next month, and are forced to get another loan.  In many cases, people end up with multiple payday loans -- taking out one -- to pay off another, in large part because of the roll over of fees.  It quickly becomes a horrific cycle, that can be nearly impossible to escape.  These companies are also not adverse to making false threats to its customers, to ensure their continual debt.

To find that they have now ensconced themselves on tribal land to ply their trade, absolutely disgusts me.  It is yet a new level of exploitation.  Simply renting a post office box, should not be able to qualify for a tribal business.  This is a thorny situation, because First Nations people should have authority to say what businesses take up residence on their tribal lands, but at the same time, it is a well known fact that payday lenders attack the most vulnerable members of society. 

In the case of California, when law enforcement attempted to shut down these businesses, lawyers for the Miami Nation of Oklahoma and the Santee Sioux Nation of Nebraska intervened.  It seems that these companies are owned by the tribes themselves.

According to the NPR:

"Attorneys for the tribe say that the lenders are legitimate arms of the tribes and that the loans are approved on Native American land," Hudson says.

Tribes also say that generations ago, they were forced to relocate to wastelands and that they need an industry that can provide them with income to pay for police protection, housing and other services.

"If the tribes are legitimately running the show and actually owning and operating these lenders, then it might be difficult for many states to regulate them," Hudson says.
The tribes make an excellent argument, when they point out the need for industry and the historical impoverishment they have endured, as part of the imperialist project.  If the government intervenes in this area, they will once again be in violation of treaties.  This is not an easy situation to be in, because these companies fees amount to 400% in interest per year, and left without some form of strict regulation, they will continue to exploit those who have the least resources, due to our imbalanced capitalist system. Is it really a good idea for the government to take the approach of acting to protect the best interests of the poor, to close down these lenders?

Without creating some form of employment, education or business opportunities for these tribes, closing down the pay day loan companies, will once again leave them without resources. Without a specific plan to provide some sort of economic relief for these tribes, the government will once again be acting to purposefully impoverish Indigenous People. It is ironic, that the same capitalist system that has impoverished these tribes, is working to impoverish other poor people -- proving that the goal of this system, is simply to exploit the most vulnerable at all times.

Honestly, I don't have any answers to this one.  I firmly believe that these companies need to be regulated at a very minimum or shut down completely, but at the same time, Indigenous People need a source of income, and sovereignty must be respected.  Historically, it has been far to easy for the government to re-write laws, specifically to impose their will on Indigenous People. So, as much as I detest the idea of these companies continued existence, unless the government is prepared to either replace the income, or help in establishing legitimate business opportunities, they need to allow Indigenous People to raise capital through whatever legal means are within their ability.

I do however have a fear that these businesses will in the end hurt Indigenous People living on tribal land.  Their very existence, will make it far to easy to acquire a loan, and enter the vicious cycle of getting loans and being unable to repay them. While the money will remain on tribal land, that does not mean individuals will not experience personal poverty through this system.  Financial issues within a family often lead to the abuse of drugs or alcohol and violence against women.  These companies in the end, may cause far more damage and expense than they provide in profit. 

What are your thoughts on this situation?