Most consumers are aware of payday loans. These short-term agreements can be the only way that some people can get cash fast. However, not everyone is aware of tribal loans and what is involved in borrowing money from a tribal direct lender. Here are some key things to know about tribal loans.
What are Tribal Loans from Direct Lenders?
Tribal loans are offered by direct lenders who are owned by Native American Tribes and are located on Tribal land. The loans are short-term, with a term of 12-months, and are available to anyone – you don’t need to be a tribe member.
One of the benefits of a tribal loan is that you can pay it back with installments rather than a lump sum on your next payday. For borrowers, this gives them extra time to pay off the debt.
These loans are best suited for people looking for a small amount of money, usually under $1,000. The cash can be used for emergency situations like car repairs, medical care, etc.
Applications for tribal loans are made online, which simplifies the application and approval process.
Is it Legal?
Tribal loans have had their fair share of court battles, largely because lenders claim they are exempt from state lending regulations as they are located on tribal land.
A 2014 court decision from Washington ruled that tribal loan lenders “must comply with state interest rate limits, licensing laws, and other state laws.” What this means for tribal loans is that if the money is given to someone who does not live on tribal land, state laws apply to the loan.
Two years later, the California Supreme Court released a decision that stated tribal loan lenders were not immune to state laws that govern payday lenders. In other words, lenders could not just strike up a deal with tribal members to run a lending business on their land to try and evade state laws and regulations.
The best way to determine if you are working with a legal direct tribal lender is to ask for a license. If the lender claims they don’t need one, you should not borrow money from them.
Why do People Search for Tribal Loans?
Individuals in need of money that do not have access to other financial products like credit cards or lines of credit may find tribal loans the best solution for their dilemma. It can also be a helpful option for those who live in remote areas as the application and transactions can be done online.
Some benefits of tribal loans are that you can get approved with very little financial background information or credit check. This makes it a solution for those with bad credit or poor financial history. However, you’ll need to supply proof of employment and a bank account before you’ll be approved.
However, application processes have been changing and some payday lenders are doing stricter credit checks, called teletrack. Teletrack is a way of credit monitoring and scoring that differs from traditional methods. Direct lenders who use teletrack have access to all your financial information including any short-term loans or credit card applications you’ve made. To protect your privacy and boost your chances of approval, opt for a no teletrack lender.
What is The Problem With Tribal Loans?
The major thing to watch for with tribal loans is that they can come with very high-interest rates, which adds an extra burden to borrowers when they need to pay it back. There also maybe some high fees that borrowers are responsible to pay.
High rates and fees can make paying back the loan challenging. If you’re considering a tribal loan it is essential to create a solid payback plan. Create a realistic payment schedule that will help you pay off the debt as quickly as possible. The faster you can do that, the less you’ll pay in interest rates and extra fees.
People who have tribal loans may also run into problems if they declare bankruptcy. You’ll unlikely be able to dismiss the loan. Refinancing is also a challenge and it is unlikely you’ll be able to change the terms of the loan.
Tribal Loan Statistics
While it is difficult to find out just how many tribal loans are being approved or for how much, as there is no standard regulatory body. However, a few studies have attempted to delve into the industry.
In 2011, the Wall Street Journal took an in-depth look into the industry, which is a snapshot of what was happening at that time. They identified 35 payday lenders that were connected with tribes. All of these were operating online. These arrangements brought in around $420 million for the tribes. The newspaper also stated there were seven federally recognized tribes that owned payday businesses.
Other details about the industry have also been revealed over time, such as:
- A WSJ story from 2014 noted that “The Native American Financial Services Association said it has 19 tribes with lending operations among its ranks.”
- In 2016, researchers at the Pew Research Center estimated there were about 12 million people across the U.S. that take out payday loans each year, which costs $9 billion in fees.
- A report on the industry completed in 2017 found that there were 23 tribe names listed on lending websites in California.
- There are about 11 federally recognized Native American tribes that benefit from payday lending operations, according to one report. They are scattered from California to Wisconsin.
Future of Tribal Loans
As online tribal lending developed after the explosion of the internet, new technologies have the potential to expand the lending instruct into new areas, such as fintech. Some fintech companies have already been testing the waters, such as Square’s Cash App that offers up to $200 in loans for users.
What impact the COVID pandemic has had on the payday industry has yet to be seen. While government payouts have helped curb consumer’s need for short-term loans it’s unlikely going to eliminate the industry.
The push to apply state lending regulations to payday lenders, including tribal ones, has ramped up over the past few years. Protecting consumers and allowing short-term loans for those who cannot get cash any other way has been a balancing act for state and federal authorities.
The lending industry has a long history of adapting to changes in the marketplace. Borrowing money has been an economic concept for hundreds of years. It’s likely that tribal lending will need to adjust to stronger regulation and changing technology but it’s flexible enough to do so.