Indian tribes tied to payday lender escape state probe

Introduction

Two Indian tribes making payday loans over the Internet, even in states that ban or restrict payday lending, won a court victory Tuesday when a Denver judge blocked the Colorado Attorney General from investigating them further.

The ruling is among a series of recent court decisions posing legal obstacles for states trying to enforce payday-lending laws. Courts have ruled that state regulations don’t apply to businesses owned by tribes. In recent years, a number of tribes have flouted state laws by making loans over the Internet with interest rates as high as 800 percent.

For eight years the Colorado Attorney General has been in court trying to stop businesses affiliated with the Miami tribe of Oklahoma and the Santee Sioux tribe of Nebraska from making loans online. Attorney General John Suthers argued that their claims of tribal ownership are a sham cooked up by Kansas City businessman Scott Tucker, who is better known as an endurance race-car driver.

Tucker started the business in 1998 and approached the tribes only after it came under investigation in Kansas and New York, the court found.

However, the tribes say that their ownership is legitimate. And despite the businesses’ beginnings, District Court Judge Morris Hoffman said not only did the state fail to prove tribal ownership was a sham but added that to him it is clear that the business arrangements today seem not to be shams.

“We’re very disappointed with the court’s order,” said Mike Saccone, a spokesman for the Colorado Attorney General. Attorneys for Tucker and the tribes did not comment on the ruling.

The ruling doesn’t necessarily end the investigation. While the state cannot subpoena the tribes or tribal entities, Judge Hoffman said authorities can still subpoena Tucker and his non-Indian business associates to determine if they still own and control the payday-lending business.

“If Tucker’s grand scheme was to insulate himself from state scrutiny by associating with these tribes, it was not a very good scheme because he and all his non-tribal officer associates remain subject to investigation,” Hoffman wrote.

In fact, the Colorado Attorney General has subpoenaed Tucker and even had a judge issue a warrant for his arrest for contempt when he failed to respond. But Tucker has so far successfully fought off that subpoena in a county court in Kansas.

Tucker’s subpoena is now before a Kansas appeals court, and a spokesman for the Colorado Attorney General said that case shouldn’t be impacted by today’s ruling. Attorneys general from 22 states have filed a brief in the Kansas case arguing that if the subpoena against Tucker is not enforced, it will make it possible for anyone to circumvent state laws merely by operating over the Internet.

The Colorado investigation dragged on for years before authorities were aware that Tucker had any involvement in the business. As detailed in a joint investigation by iWatch News and CBS News, Tucker initially set up shell corporations and a mail drop in Carson City, Nev., to disguise the ownership of the business.

The Colorado ruling did reveal new facts about the case, though much of the evidence remains under seal. According to the ruling, Tucker started the business in 1998 but didn’t approach the Miami tribe until October 2003, not long after two states brought enforcement actions against the payday lending businesses.

Tucker agreed to give the tribe $5 million in working capital and other services to operate the business, with the tribes agreeing to pay Tucker 1 percent of revenues. A similar deal was cut in February 2005 with the Santee Sioux tribe.

Yet state authorities gave a dramatically different account of the business deal. The state reported at a hearing last November that it was Tucker who agreed to pay the tribes 1 percent of revenue. So while Judge Hoffman says the business had total revenues of $180,000 a month in 2008, state authorities say the amount was 100 times greater: $18 million a month. The actual agreement remains under seal.

A spokesman for the Attorney General today stood by its account at the hearing.

The state also said at the hearing that Tucker used money from the payday lending business to pay expenses on his private Lear jet as well as to pay $2 million a month to his racing team.

The businesses make loans under trade names, including AmeriIoan, UnitedCashLoans, US FastCash, 500Fastcash and OneClickCash.

The Federal Trade Commission appears to be investigating these businesses, according to court records. Federal agencies are not prevented from taking action against Indian tribes.