Colo. judge issues new ruling in payday lending case against Indian tribes

Introduction

A judge in Denver now says he misunderstood key evidence when he ruled that two payday lenders operating on the Internet were beyond the reach of state regulators because they had been sold to Indian tribes.

Denver District Judge Morris Hoffman says it’s now clear from the evidence that the sales were initially shams to cloak the businesses with tribal sovereign immunity. Yet in his new ruling, the judge still blocks the Colorado Attorney General from investigating the tribal entities further for violating state lending laws.

This bizarre twist in the seven-year-old case seems to allow Indian tribes to sell their sovereign immunity to businesses wanting to violate state laws. Critics dubbed this practice as “rent-a-tribe.” And today, at least 30 online payday lenders claim ties to Indian tribes.

The Colorado Attorney General contends that Scott Tucker, a Leawood, Kan., millionaire and professional race-car driver, started the lending businesses but then crafted sham deals with the Miami Tribe of Oklahoma and the Santee Sioux Tribe of Nebraska to keep states from shutting down his lucrative operation.

Earlier this month, Hoffman said that the evidence made it clear that Tucker’s initial deal with the Indian tribes was legitimate. Yet Hoffman got key facts wrong in his first ruling.

Hoffman said in that ruling that the tribes got 99 percent of the revenue from the payday lending business. In fact, the agreements gave Tucker’s business 99 percent of the revenue. Records show the business affiliated with the Miami Tribe grosses as much as $20 million a month.

In a corrected ruling, Hoffman wrote, “Nothing is more telling as far as assessing true owners than to follow the money, and the fact that Tucker put up 100% of the capital and enjoyed 99% of the payday revenues makes it evident that Tucker, and not the tribal entities, continued to own these businesses.”

However, Tucker crafted a new ownership agreement with the tribes in September 2008. Tucker now claims to be an employee of AMG Services, a payday-lending company that the tribes say they own.

The state argues that nothing changed in 2008. It presented bank statements from the payday lending business into evidence that showed that the flow of money remained the same after the new agreements were signed.

Deputy Attorney General Jan Zavislan said at a recent hearing that money from the business accounts was even used to pay Tucker’s personal expenses, including trips on private jets, property taxes on his vacation home, as much as $2 million a month in expenses for his racing team and $22 million to settle a personal lawsuit against Tucker.

Hoffman didn’t acknowledge the bank statements in his ruling. Instead, he concluded that the 2008 sale was legitimate, saying, “over time the tribes were able to take over operations completely.”

Many of the records presented to Hoffman remain under seal. But Hoffman cites two agreements under seal without saying whether those documents changed the split. The Attorney General’s office argued in court there is no evidence that the revenue split changed.

The state of Colorado first ordered two payday lenders called Cash Advance and Preferred Cash Loans to stop making loans in early 2005. Attorneys tracked the businesses to addresses in Carson City, Nev., and asked a court to cite company officers for contempt.

But attorneys for the Miami and Santee Sioux tribes argued in 2005 that they were the true owners of the businesses, which had no connection to the offices in Nevada. They asked the judge to dismiss the subpoenas and the contempt citations because the payday lending businesses were tribal entities.

It was later learned that Tucker started the payday lenders and set up shell companies in Nevada to hide his identity. Hoffman acknowledged that Tucker turned to the tribes only after his business came under investigation.

Hoffman granted the tribes’ motion to dismiss even while acknowledging that the claims of ownership made in it were not true at the time. But the judge said the only thing that matters is whether the claim of ownership is true today.

The state argues that blocking the investigation will lead to companies paying tribes for their sovereign immunity. Hoffman said that is possible but added, “My job is to apply the law, not to write it. If Congress does not want Indian nations hiring non-Indian operators to engage in payday loan businesses, or does not want Indian nations in the payday loan business at all, it could limit or eliminate tribal immunity for such businesses tomorrow.”

The ruling does not prevent the state from continuing to investigate Tucker personally. It’s less clear whether the state can investigate AMG Services, the payday lending business based in Overland Park, Kan. A spokesman for the Attorney General said that their office is still weighing its options.