A group of Native American tribes are suing Ben Lawsky, New York’s chief financial regulator, for violating their sovereignty by ordering them to stop offering payday loans to online customers.
“Indians have very special sovereign rights that are almost unique in the context of our government and our laws,” said David Bernick, one of the lawyers representing the tribes, during a Wednesday press call.
“Only Congress can limit [tribes]. The states have no authority to regulate these tribes in a way that limits their sovereign pride,” he continued. “That is a bedrock principle of law, and it has been recognized repeatedly by the United States Supreme Court.”
Lawsky is the head of the newly-created New York Department of Financial Services and the former chief of staff to New York Democratic Governor Andrew Cuomo.
Two weeks ago, he sent cease-and-desist letters to 35 lenders and 112 banks providing or facilitating short-term, high-interest payday loans.
Lawsky accused the businesses of charging “usurious” interest rates that far exceeded New York’s cap of 25 percent annually. Despite that fact that most lenders were not incorporated in New York, some New York citizens chose to take advantage of the loans.
Many of the targeted lenders are run directly by Native American tribal leaders in the western and midwestern United States, including tribes who filed the injunction on Wednesday in a New York district court.
“These revenues… are used for education, elder programs, health care, housing, very fundamental government services to their members,” said Robert Rosette, co-counsel. “Services that the United States, frankly, have failed to meet pursuant to their trust relationship with both of these tribes.”
“These tribes played by the rules. These are very responsible governments, and what’s really at stake here, in the name of tribal sovereignty, is the loss of essential government services to their tribal members,” Rosette concluded.
Bernick pushed back against Lawsky’s contention that the use of the loans by New Yorkers meant his office had the right to regulate tribal activities.
“The interaction is over the Internet, and over the Internet something very, very critical takes place,” he said. “Customers are told very specifically that they are being loaned money by an Indian tribe and that the loans will be governed by Indian law, they will be subject to the jurisdiction of the tribe and no other jurisdiction.”
“It’s the virtual equivalent of somebody coming onto tribal land and agreeing, for the purposes of the agreement, that they are within the sovereign jurisdiction of the tribe,” he continued.
Bernick compared the situation to the jurisdictional change that occurs when people enter Native American reservations to gamble at Indian casinos.
The only difference, he claims, is that the tribes he represents are too remote to only offer loans to those who physically enter their territory.
Rosette noted that the cease-and-desist letters have seriously impacted the tribes’ financial well-being.
“This campaign has been effective,” he said. “Multiple tribes are experiencing irreparable harm every single day.”
“Every single business tribes do business with, large or small, in some way their relationship has been altered,” he said. “In some cases, banks have wound up businesses with tribes because of defendant Lawsky’s actions.”
Barry Brandon, the head of the Native American Financial Services Association, said his organization had reached out to Lawsky.
“I wrote a letter on behalf of NAFSA to Mr. Lawsky, describing our concerns about his actions and requesting that we sit and meet,” he said. “We have received no response from him. We would be happy to meet with him at any time, but we have yet to hear anything.”
Lawsky, who is widely rumored to aspire to higher political office, has been widely accused of “collecting scalps” from high-profile financial institutions in order to burnish his regulatory record.
His aggression and willingness to buck federal regulators have some calling him a “rogue regulator.”
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