Building Trust: Consumer Protection in Native Communities Levon B. Henry Executive Director DNA People’s Legal Services South Dakota Indian Business Alliance Conference Rapid City, South Dakota May 17, 2011

Predatory Lending Subprime lending, housing market collapse and increased attention on predatory lending. Predatory lending encompasses a number of abusive practices including unreasonably high interest rates, charging hidden or excessive fees, offering loans borrows cannot repay, high pressure tactics or fraud and deception in loan transactions.

Predatory Lending in Indian Country Lack of access to mainstream banking services –28.9% of American Indians and Alaska Natives are under banked –15.6% are unbanked Previous studies by First Nations –2007 survey 71% of tribal leaders indicated that predatory lending was a problem in their communities –Native communities use refund anticipation loans at higher rates than non-Native communities

What Can Native Nations Do? Tribes can and have developed consumer protection laws to protect tribal consumers –7 Native Nations have passed consumer protection laws This kind of legislation is an exercise of sovereignty and an expression that Native nations take the protection of tribal citizens seriously.

Consumer Protection Laws Are… Intended to maintain adequate protection and high ethnical conduct in transactions related to business and financial services Statutes that govern sales and credit practices involving consumer goods and can include prohibition of deception, unconscionable dealings, or usury caps Legal means to correct for market imperfections that may produce inefficient outcomes or distort information in regard to consumer choice

Consumer Protection Codes Are Not… Intended to replace normal market mechanisms of competition. Intended to be blanket responses that protect consumers from all liability in business transactions

Jurisdictional Considerations Native nations can regulate Indian business dealings on reservations-“Indian v. Indian” Indian v. non-Indian? Montana v. United States (1981) Land status –fee simple owned by non-Indian vs trust vs fee simple owned by tribe/member

Navajo Nation Passed consumer protection legislation in –In drafting the legislation, Navajo leaders recognized the absence of consumer protection laws and that Navajo citizens can fall prey to unscrupulous business practices Comprehensive code that includes regulation of pawn transactions, truthful lending and business dealings, vehicle sales, and usury cap (prime rate plus 15%).

Navajo Nation (cont.) Has supportive institutional infrastructure Strong court system for enforcement –Capital Loan Corporation V. Platero, Henry and Largo (2000) Created regulatory offices and licenses for pawn brokers Long Arm Law

Emerging Trends in Predatory Lending and Consumer Protection State coalitions and cap the rate movements “Rent a Tribe” –Tribal partnerships with payday lending business that mostly offer internet loans nationally. –Hiding behind tribal sovereignty

Lessons Learned Native Nations can develop consumer protection laws to protect tribal consumers –Native leaders should consider jurisdictional issues and tribal infrastructure for enforcement Native nations can offer access to alternative loan products –This can include offering loans to tribal employees Native nations can collaborate with broader statewide activities Native nations can provide consumer and financial education

To obtain the full report: Go to (publications tab) Model consumer protection code includes 11 chapters that tribes can consider adopting

Contact Information Levon B. Henry Executive Director DNA People’s Legal Services (Voic ) Sarah Dewees Senior Director of Research, Policy, & Asset Building Programs First Nations Development Institute