Issue of the Week LXI: Gov. Shutdown Opens Indian Country to Predatory Lending

The budget impasse and resulting shutdown of the federal government has hit hard to the poorest in US: American Indians who rely on federal trust funds to function. And that means many tribal people may fall victim to more predatory lending, a practice that has already targeted Indian Country during the past few years.

"The immediate shutdown crisis poses very real threats to tribal governments and denies health, nutrition, and other basic services to the most vulnerable tribal citizens," said the National Congress of American Indians (NCAI) in an October 1 written statement. "The trust responsibility to tribal nations is not a line item and tribal programs must be exempt from budget cuts in any budget deal."

Last year's sequester cuts had already affected tribes by cutting over $500 million from federal Indian programs, hurting the most vulnerable in tribal communities, according to NCAI.

The Department of Interior's Bureau of Indian Affairs (BIA), which 566 federally recognized tribes depend on, "will be required to administratively furlough all employees unless they are covered in an Excepted or Exempted positions. The BIA will also discontinue most of its services to tribes which will impact most programs and activities," according to a BIA press release.

Some tribes will cover the federal funds gap with tribal money, but for tribes not flush in casino money, losing federal money for subsidized programs as well as federal payments from resource leases that is being held up at the Department of the Interior, means financial assistance for low-income American Indians will dry up for the time being. That means some individual tribal members will be lured back to "pay-day loan" types of short term money lending just to pay for things like heating – something tribes in the mountain west will need very soon.

According to the report Profiting Off Poverty, payday lending remains a niche "financial product" targeting the working poor. And while "many Americans with access to mainstream banking services and credit cards may never step foot into a payday loan shop," 44 percent of Native Americans are either "unbanked" or "underbanked," meaning they don't have access to mainstream bank accounts or credit cards, according to the report. In fact, banks on reservations are far and few between.

Considering 50 percent or higher unemployment is not uncommon on most reservations, one would think such type of predatory lending wouldn't affect tribal members. Still, there are auto and truck "title loans."

Some tribal governments have actually gotten into the lending business. And those tribal governments that operate their own online lending operations are just as hostile to government regulation as their "payday" counterparts - seeing regulation as a challenge to their tribal sovereignty and stifling tribal economic development.

In fact, a coalition of tribes and wholly-owned tribal financial companies who are members of the Native American Financial Services Association (NAFSA) filed a complaint August 21 against New York Department of Financial Services arguing that "tribes will suffer irreparable injury" if New York State imposes "laws on transactions governed by tribal law," according to Barry Brandon, Executive Director of the NAFSA.

NAFSA, which was formed in 2012 "to advocate for Native American sovereign rights and enable tribes to offer responsible online lending products," says that for many tribes that do not benefit from Indian gaming, there is "a need for tribal e-commerce opportunities to create jobs." Access to traditional financing is also a significant barrier for American Indian entrepreneurs.

NCAI thinks it's a good idea and has been working with some 60 Native Community Development Financial Institutions (CDFIs), which partner with tribal governments to build stronger economic systems and equip tribal members with "financial management skills." According to NCAI, CDFIs are also important partners in "efforts to protect individual tribal members against lending discrimination and predatory lending practices and to encourage banks to take a more active role in Indian Country."

In the meantime, NCAI is calling on Congress to get its act together and reach a long-term budget deal that meets the US' obligations to tribal nations as well as address the ongoing fiscal crisis caused by the sequester.

"The trust responsibility to tribal nations is not a line item and tribal programs must be exempt from budget cuts in any budget deal," says NCAI.

What do you think?