Harlea Perdue

The changing landscape of payday lending litigation may spell trouble for tribal lending enterprises. If current circuit trends continue, tribal lenders may be unable to collect on loans that would be otherwise unlawful under state law, even if the tribes themselves are not bound to follow those laws. Over the last decade and a half, the payday lending industry has shifted from an almost-exclusively brick-and-mortar model to one that sees around half of all lending activities occurring online.[1] Tribal lending enterprises, in particular, represent a large sector of the online lending market due to their unique advantages over other lenders. Since payday lending has historically been regulated almost exclusively at the state level, tribal exemption from state law under Worcester and tribal sovereign immunity have enabled tribal lenders to gain dominance in the online sphere.[2] Tribes have historically relied on that sovereign immunity to protect their lending enterprises against litigious plaintiffs, but recent decisions in the Second Circuit as well as pending litigation in several trial courts put the future of immunity for tribal payday and installment lending in serious question.

Tribal sovereign immunity, like most federal Indian law, is a matter of common law—there is no statute passed by Congress that explicitly says that a tribe cannot be sued without the tribe’s consent, but the Supreme Court has consistently held that to be the case.[3] In finding that tribes are by default immune from suit, the Court has further stated that “[i]t is settled that a waiver of sovereign immunity 'cannot be implied but must be unequivocally expressed'" by Congress through its plenary power or by the tribe in consenting to the suit. [4] Even when tribal actions or businesses take place outside of federal Indian lands, tribal sovereign immunity is maintained.[5] 

The other principle underlying outside lenders’ reliance on tribes to continue the business model is the idea that tribes are not subject to state law. This principle was first articulated in Worcester v. Georgia, and it is best put by Chief Justice Marshall himself: “The Cherokee nation, then, is a distinct community occupying its own territory, with boundaries accurately described, in which the laws of Georgia can have no force . . . . The whole intercourse between the United States and this nation, is, by our constitution and laws, vested in the government of the United States.”[6] Without the consent of the tribe or a relevant act of Congress expressly allowing state law to apply to tribes, those laws do not have force in Indian country or against tribal businesses.   

A recent Second Circuit decision to allow a suit to proceed against tribal officials being sued in their official capacity under Ex parte Young may spell the beginning of the end for the use of tribal sovereign immunity to shield payday lenders.[7] Ex parte Young established that despite state and federal sovereign immunity, plaintiffs could sue government officials in their official capacity for claims resulting from official actions to gain injunctive relief. Last April, in Gingras v. Think Finance, Inc., the Second Circuit presumptively assumed that tribal lender Plain Green, Inc. satisfied arm-of-the-tribe analysis to be considered a legitimate extension of tribal government and held that regardless, plaintiffs were not barred from suit against tribal officials under a theory “analogous to Ex parte Young.”[8] Citing Michigan v. Bay Mills Indian Community, the Gingras court noted that the Supreme Court had said that the state of Michigan was not left without any legal remedies in that case: "Michigan could bring suit against tribal officials or employees (rather than the Tribe itself) seeking an injunction."[9] Under this logic, the Court held that there must be a route to injunctive relief against a tribal government even absent consent of the tribe to be sued. If this holds true for tribal officials, and at least one circuit has said that it does,[10] then tribal lending enterprises may be enjoined for possible violations of federal law including the Racketeer Influenced and Corrupt Organizations Act (RICO) and the Consumer Financial Protection Act (CFPA). Gingras is currently being appealed on other grounds.

In the months since Gingras, lawsuits against tribal officers have proliferated. A class action suit has been filed in Pennsylvania against Wisconsin-based tribal officers alleging RICO violations and requesting an injunction to prevent the lenders from collecting on loans.[11] In the Fourth Circuit, plaintiffs who had been unable to bring suit against Big Picture Loans, LLC[12] (where the tribal lending enterprise was held to be an arm of the tribe and thus in possession of sovereign immunity) subsequently chose to file a complaint naming the specific tribal officials.[13] Both cases are now pending settlement, leaving the future of tribal lending in a precarious position.[14]

Online payday lending, and specifically tribal online payday lending, has grown to represent a huge share of the short-term loan market over the last decade. If this litigatory shift continues to be successful for plaintiffs in other circuits, tribal lenders may lose the serious competitive advantage that sovereign immunity gave them in the market. Despite this potential blow, they will still enjoy Worcester exemption from state law, and the nature of payday lending regulation in the United States means that they will still not face any practical interest rate cap or registration requirement. With respect to potential RICO or CFPA violations, tribal lenders would be well served to analyze their current business practices with an eye to the Native American Financial Services Association Best Practices guidelines[15] in order to reduce their potential exposure to litigation.



[1] Payday, Vehicle Title, and Certain High-Cost Installment Loans, 84 Fed. Reg. 4252 (proposed Feb. 6, 2019) (to be codified at 12 C.F.R. pt. 1041).
[2] Worcester v. Georgia, 31 U.S. 515 (1832).
[3] See, e.g., Upper Skagit Indian Tribe v. Lundgren, 138 S. Ct. 1649 (2018); Michigan v. Bay Mills Indian Cmty., 572 U.S. 782 (2014); Santa Clara Pueblo v. Martinez, 436 U.S. 49 (1978); Puyallup Tribe v. Dep’t of Game, 433 U.S. 165 (1977).
[4] Santa Clara Pueblo, 436 U.S. at 58 (quoting United States v. Testan, 424 U.S. 392, 399 (1976)).
[5] See Bay Mills Indian Cmty., 572 U.S. at 790 (“[W]e opted to defer to Congress about whether to abrogate tribal immunity for off-reservation commercial conduct.”).
[6] Worcester, 31 U.S. at 528.
[7] Ex parte Young, 209 U.S. 123 (1908).
[8] Gingras v. Think Fin., Inc., 922 F.3d 112, 120–21 (2d Cir. 2019).
[9] Michigan v. Bay Mills Indian Cmty., 572 U.S. 782 (2014).
[10] See Gingras, 932 F.3d 112.
[11] Complaint, Jones v. Wildcat, No. 2:19-cv-02493 (E.D. Pa. June 7, 2019).
[12] See Williams v. Big Picture Loans, LLC, 929 F.3d 170 (4th Cir. 2019).
[13] Complaint, Galloway v. Williams, No. 3:19-cv-00470 (E.D. Va. June 26, 2019).
[14] Order of Dismissal, Jones v. Wildcat, No. 2:19-cv-02493 (E.D. Pa. Jan. 6, 2020); Galloway v. Williams No. 3:19-cv-00470 (E.D. Va. Oct. 31, 2019) (order to finalize settlement agreement for class).
[15] Best Practices, Native Am. Fin. Servs. Ass’n (2019), https://nativefinance.org/best-practices/ (last visited Jan. 30, 2020).