Feds charge Indian tribal lenders for illegal practices

Four online lenders owned by the tiny Northern California Habematolel Pomo Indian tribe charged triple-digit interest rates on small-dollar loans and used aggressive tactics -- including debiting consumer bank accounts -- to collect. However, federal regulators sued Thursday, saying the fees and interest charges were so excessive that they violated lending laws in 17 states.

Golden Valley Lending, Silver Cloud Financial, Mountain Summit Financial and Majestic Lake Financial deceived consumers by collecting debts that weren't legally owed because they violated interest rate or fee caps in Arizona, Arkansas, Colorado, Connecticut, Illinois, Indiana, Kentucky, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio and South Dakota, according to a complaint filed Thursday by the Consumer Financial Protection Bureau.

"We allege that these companies made deceptive demands and illegally took money from people's bank accounts," said CFPB Director Richard Cordray. "We are seeking to stop these violations and get relief for consumers."

All four companies are online lenders based in Northern California and are owned by the Habematolel Pomo of Upper Lake Indian Tribe, a federally recognized tribe that has 263 members. For several years, all four companies have been  offering small-dollar loans, ranging from $300 and $1,200, at annual interest rates ranging between 440 percent to 950 percent, the CFPB says. 

Rates that high violate many state laws, according to the regulator, which also contended that the costs weren't properly disclosed as required under Truth in Lending Laws.

Sherry Treppa, chairperson for the tribe, disputed the allegations.

"We look forward to vigorously defending these baseless claims in court," she said. She declined to comment further, referring additional questions to the tribe's lawyers, who weren't available for comment.

However, these tribal lenders have also raised the ire of consumers, who have complained about the companies to the Better Business Bureau, Yelp and Ripoffreport.com.

"While this company made it very easy to obtain a loan … paying it off is not so easy," wrote one disgruntled customer of Golden Valley on the BBB website. "I had made two $350.00 payments and then a $975.00 payment for a total of $1,675.00 in payments for a $1000.00 loan. I had only borrowed this money for a month. This is at best a total rip-off."

A complaint about Silver Cloud Financial on RipoffReport said: "I was fooled into this loan and had no idea that my payback amount was more than 3-times my loan amount!"

According to the CFPB complaint, the lenders charged a $30 fee for each $100 loan balance every two weeks, which pushed the annual percentage rate into the stratosphere. For an $800 loan, a typical loan contract requires the consumer to repay a total of approximately $3,320 over the course of 10 months, the CFPB said in its suit. 

Under the Dodd-Frank Act, the CFPB is authorized to take action against institutions engaged in unfair, deceptive or abusive acts or practices, or that otherwise violate federal consumer financial laws like the Truth in Lending Act. In this case, the agency is seeking unspecified monetary relief for consumers, civil penalties and an injunction to stop the companies from collecting on what it alleges are illegal loans.