ProPublica, a nonprofit newsroom noted for investigating abuses of power, is reporting a detailed account of the Lac du Flambeau Band of Lake Superior Chippewa Indians (LDF) involvement in high-interest lending as a means to escape financial difficulties. The report charts the rise of LDF’s lending enterprise and its impact on both the tribe and the borrowers.
Facing financial collapse after a failed bond deal, LDF turned to high-interest lending by leveraging its sovereign immunity. This allowed LDF to bypass state interest rate caps, and the tribe began offering high-interest loans online, a practice that has faced substantial criticism and legal challenges.
The origins of this venture trace back to financial missteps by LDF in the early 2000s. Failed initiatives such as a floating casino in Cancun and a riverboat gambling venture in Mississippi left the tribe burdened with a $50 million bond at a 12% interest rate. The resulting debt forced drastic cuts in essential services on the reservation and numerous layoffs. Discontented tribal members, demanding audits and increased financial transparency, eventually replaced the governing council, which then defaulted on the debt.
To generate revenue, LDF capitalized on its sovereign status to enter the internet lending market, issuing loans with high interest rates often exceeding 600%. Business partners, recognizing the lucrative potential, were quick to collaborate. However, this brought significant complications.
ProPublica’s investigation uncovered extensive reliance on nontribal business partners to manage daily operations, with roles that were complex and often murky. Some partners had histories of predatory lending practices, leading to lawsuits and raising questions about whether LDF allowed exploitation of tribal sovereignty to bypass state laws.
One notable legal case involved a borrower, Brian Coughlin, who took out a high-interest loan with LDF and later filed for bankruptcy. Despite the bankruptcy filing, which should have halted collection efforts, Coughlin was persistently harassed by a lender associated with LDF. This led to severe personal repercussions for Coughlin, including a suicide attempt.
Coughlin’s subsequent lawsuit culminated in a landmark U.S. Supreme Court decision that ruled in favor of the borrower, establishing that tribes could be held accountable under the Bankruptcy Code. This decision has substantial implications for tribal lending operations nationwide.
The tribal leaders of LDF defend their lending practices, describing them as ethical and necessary for community economic empowerment. They argue that these loans provide crucial financial access for borrowers who have few alternatives. LDF’s lending operation employs a network of companies and websites, with partners often handling substantial parts of the business from offices far away from the reservation.
Several external partners working with LDF include RIVO Holdings, a fintech firm with a history of regulatory issues. RIVO and other associated companies have faced numerous consumer complaints regarding exorbitant interest rates and harsh repayment terms.
Despite the controversy and ongoing legal challenges, including a significant class-action settlement that will erase $1.4 billion in debt and provide restitution, LDF maintains that its operations are above board. The tribe continues to reject accusations of predatory lending, stressing compliance with tribal and federal laws.
Looking forward, LDF remains active in high-interest online lending. While the tribe has benefited financially from these ventures, the practices continue to draw scrutiny and legal actions, compelling the tribe’s leaders to navigate a challenging landscape where their sovereignty intersects with widespread regulatory concerns.
The situation highlights the complexities and risks faced by Native American tribes as they seek economic sustainability in an environment fraught with legal and ethical challenges.
