LOS ANGELES — The California Department of Business Oversight is pleased with a Dec. 22 California Supreme Court ruling in a nearly decade-long case related to payday lenders’ ties to the Miami Tribe of Oklahoma and the Santee Sioux Nation of Nebraska.
“It’s a win for California consumers,” Tom Dresslar, the department’s deputy commissioner for policy and planning, told the Northern California Record. “It protects against unscrupulous payday lenders.”
According to Dresslar, the payday lenders, which operated under several names such as Ameriloan and One Click Cash, were not licensed, were charging fees in excess of 800 percent of APR and were making loans in excess of the $300 cap set by California law.
In addition, Dresslar said “in (the lenders’) efforts to collect, they used threats.”
The companies claimed immunity in connection with their tribal affiliations, but Dresslar said the evidence presented showed that the tribes were only earning 1 percent in their deal with the payday lenders and that they had no real oversight over the companies.
“It was just a kind of paper exercise,” he said. “The court said it all: They were really form over substance.”
Dresslar said the Supreme Court’s ruling helps to ensure these kinds of situations don’t occur in the future.
“It puts the burden of proof on the payday loan operators,” he said. “Legally, that’s of significant importance.”
However, Dresslar said that does not mean that the oversight board does not believe that companies with actual tribal affiliations should not be protected under the immunity laws, but that immunity should not apply “under these kinds of factual circumstances.”
The Supreme Court remanded the matter to the trial court for further proceedings.
According to the Supreme Court’s opinion, the Business Oversight commissioner ordered numerous online payday lenders to stop “engaging in unlicensed deferred deposit transaction business,” but “the lenders did not heed the desist-and-refrain order.”
The commissioner subsequently filed a lawsuit in June 2007 against the lenders in Los Angeles Superior Court, claiming that they were in violation of the state’s Deferred Deposit Transaction Law. The commissioner asked the court to grant an injunction against the payday lenders’ operations and to award restitution and civil penalties.
The payday lenders countered the complaint by alleging lack of jurisdiction and claiming that the payday lending companies named in the complaint “are merely trade names utilized by tribal entities immune from suit without their consent.”
The trial court sided with the payday lenders, ruling that the lenders were entitled to tribal immunity, and dismissed the commissioner’s complaint.
The Court of Appeal upheld the trial court’s finding that the lenders were protected by tribal immunity. In addition, the appeals court said the small percentage of revenue being recovered by the tribes under their negotiated agreements with the payday lenders “cannot serve as the basis to determine the tribal entities are not functioning as arms of their respective tribes.”
In its opinion, the state’s high court ruled that the payday lenders failed to provide sufficient evidence to justify their entitlement to tribal immunity.