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In 2019, Brian Coughlin of Massachusetts took out an $1,100 payday loan from a company called Lendgreen. In December of the same year, Coughlin filed for bankruptcy. By that point, debt collection activities against Coughlin should have ended, because bankruptcy law provides an automatic stay against these practices, in advance of him being put on a debt repayment plan. But they didn’t. Instead, Lendgreen continued harassing Coughlin for months; he eventually exhibited suicidal ideation and was hospitalized for two weeks.
Lendgreen is the front-facing name for Niiwin, LLC, a company based in Lac du Flambeau, Wisconsin, home of the Lake Superior Chippewa Indian Tribe. Niiwin argued that, as a tribal business, they are afforded sovereign immunity from the United States bankruptcy code. The question of whether businesses nominally affiliated with Native tribes can escape bankruptcy law went all the way to the Supreme Court; SCOTUS said no in an 8-1 decision, the lone dissenter being Justice Neil Gorsuch, who has developed a reputation as the Court’s most ardent Native rights supporter.
The case cuts both ways. On the one hand, in federal statute, overriding sovereign immunity relies on explicitly mentioning tribes. But in the Court’s lead opinion, Justice Ketanji Brown Jackson explains that the bankruptcy statute explicitly abrogates sovereign immunity of “governmental unit[s],” defined in the U.S. bankruptcy code as “a State, a Commonwealth, a District, a Territory, a municipality, or a foreign state; or other foreign or domestic government.” To Jackson, this includes a tribal government. As she says in her ruling, abrogating sovereign immunity is not a “magic-words requirement.”
In theory, the Court’s opinion opens tribal sovereign immunity in other federal statutes for reinterpretation. But on the other hand, this decision sends a strong message to Native outsiders that they cannot exploit the exceptions of tribal sovereign immunity for their own means of conducting business. This is notable, as payday lenders have notoriously devised ways to escape existing state usury limits and prey on borrowers without the restrictions of regulations.
Using tribal status for payday lending is essentially a loophole. In the Coughlin case, if you look at Lendgreen’s parent company’s website, Niiwin, it’s not obvious where the company is located, nor can one tell that it’s affiliated with a tribe. Public documents do not indicate whether Coughlin knew that Lendgreen was affiliated with the Lac du Flambeau Band of Lake Superior Chippewa Indians, but it’s plausible that a desperate individual taking out a payday loan is not thinking about a loan’s origin and the federal statutes that govern it. Especially because high-interest, short-term loans are marketed as being quick and convenient, with minimal credit checks.
Alternative credit lenders are already opaque actors. As The Intercept reported in 2021, payday lenders spent years shifting their operations onto tribal lands, after regulators have cracked down on so-called rent-a-bank schemes. This enabled payday lenders to avoid state regulations simply by partnering with a small bank that’s exempt from things like interest rate caps.
The rent-a-tribe scheme, if you will, is just an extension of that practice. By setting up shop on tribal lands with a shell company, it looks on paper like a legitimate business that’s immune from any state or federal regulatory strictures.
While the 2021 article focuses on the payday lender American Web Loan, The Intercept’s reporting provides concrete examples of how other lenders arrange their operations to appear legit in Indian Country. Meanwhile, those who benefit the most are outsiders, with tiny kickbacks trickled down to tribal government general funds and other economic development programs, ostensibly satisfying skepticism that the payday lender is a critical business for the tribe. Most of American Web Loan’s employees were not tribal members, and the tribes received only between 1 and 3.6 percent of total revenue from the loans.
This scheme has been around for over a decade. In 2018, race car driver Scott Tucker was sentenced to more than 16 years in prison for racketeering and charging illegal interest rates on payday loans, which he claimed operated under sovereign immunity on tribal lands. That offered some hope that rent-a-tribe tactics would soon end, though clearly with Lendgreen, they have continued.
Coughlin’s situation with Lendgreen is not a perfect comparison to American Web Loan, because it focuses on a single person filing for bankruptcy. Public documents reveal what the corporate structuring of a payday lender operating under sovereign immunity looks like. Lendgreen is a part of Niiwin, which is nestled inside the tribe’s business development corporation, with a whole other suite of LLCs that are lenders themselves.
Nathalie Martin, a law professor at the University of New Mexico, who has written extensively about payday lenders and tribes, told the Prospect she had suspicions about the level of involvement the tribe actually had in the collections process, because they typically do not have any. Pushing for loan repayment in the middle of bankruptcy proceedings carries obvious legal risks, as evidenced by this case making its way to the Supreme Court. To support her suspicion, Martin pointed to how the lender didn’t notify Coughlin of its tribal status until after he filed for bankruptcy.
Martin said that by law, any lender is supposed to lay off once bankruptcy proceedings begin.
Taken together, Martin told the Prospect that it’s unlikely the Coughlin decision discourages all payday lending from exploiting tribal sovereign immunity status. However, this decision adds pressure and potential scrutiny on lenders who want to set up shop under tribal laws. Legal immunity is no longer a given. As she said, “most of these [payday] lenders are not tribes, there are other people behind the curtain running the business.”
