Judge Rules FTC Has Authority Over Indian Tribe Lending

Judge Rules FTC Has Authority Over Indian Tribe Lending Photo: Diego M. Radzinschi/NLJ. U.S. Federal Trade Commission.

The Federal Trade Commission has scored a key win before a Nevada federal judge, who said the agency can sue deceptive payday lenders even if they are affiliated with American Indian tribes.

U.S. District Judge Gloria Navarro affirmed a magistrate judge’s decision that lead defendant AMG Services Inc. and associated lenders are within the FTC’s reach. The FTC Act, the judge held, “grants the FTC authority to regulate arms of Indian tribes, their employees, and their contractors.”

In a news release issued today, FTC Bureau of Consumer Protection head Jessica Rich said the March 7 ruling is “a strong signal to deceptive payday lenders that their days of hiding behind a tribal affiliation are over.”

The FTC sued more than a dozen companies and individuals in April 2012, alleging that they violated the FTC Act and the Electronic Fund Transfer Act when they offered short-term loans, piling on undisclosed and inflated fees and illegally threatening borrowers with arrest and lawsuits if they didn’t repay the debts.

The lenders—arms of tribes that include the Miami Tribe of Oklahoma, the Santee Sioux Nation and the Modoc Tribe of Oklahoma—offered small online loans, typically $300. AMG, also part of the Miami Tribe, provided services such as debt collection to the lenders.

Represented by a team of lawyers—including Kirkland & Ellis partners Andrew Kassof, Bradley Weidenhammer, Peter Wozniak and Richard Howell—AMG argued that the FTC has no authority to police the defendants’ conduct. “AMG denies that the FTC is authorized to enforce the FTC Act against arms of Indian tribes and their governmental entities such as AMG,” Weidenhammer wrote.

Navarro didn’t buy it. She ruled that the FTC Act is a statute of general applicability, one that does not include an exception for Indian tribes. On its face, the law “seems to grant the FTC broad authority to bring suit against ‘any person, partnership, or corporation’ for violating ‘any provision of law enforced by the [FTC],’ ” Navarro wrote.

Still, the ruling left the door open that the court at trial could find the defendants are nonprofit entities and beyond the FTC’s jurisdiction.

Co-counsel David Merrill, a Las Vegas solo practitioner, laid out the argument in a motion, explaining that the FTC Act applies to people, partnerships or corporations. The lenders are not people or partnerships, he argued, and they are also not corporations because the proceeds from their operations support the tribes.

“Since these tribal entities are operated for the public benefit and profits are devoted solely to the governmental purposes of their respective Indian tribal governments, they cannot be considered corporations under the FTC Act,” he wrote.

Navarro affirmed the magistrate judge’s decision not to grant summary judgment to the FTC on the issue. “Genuine issues of material fact remain regarding their status” as corporations, she wrote.

To Pepper Hamilton partner Richard Eckman and associate Andrew Mavraganis, it is a significant question. In a “Financial Services Alert” published by the firm, they wrote, “If this matter proceeds to trial, a finding that the tribal defendants are not for-profit corporations would be a strong victory in this case and for other state and federal cases as tribal defendants assert their sovereignty and their right to be free from regulation by state and federal regulatory authorities.”

In July, the FTC settled with some of the defendants in the case, striking a deal that barred the defendants from using threats of arrest and lawsuits as a tactic for collecting debts, and from requiring all borrowers to agree in advance to electronic withdrawals from their bank accounts as a condition of obtaining credit.

Contact Jenna Greene at jgreene@alm.com.

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