Last of four parts
Short on cash, Vermont resident Jessica Gingras was lured to the website of Plain Green LLC, an online lender whose site has cheery cartoons promising access to cash “as easy as 1, 2, 3.” The site suggests that an online loan may improve a customer’s credit score, is a better option than overdrafting a bank account and is less expensive than a payday loan.
“If approved, your loan funds will be deposited as early as the next business day,” the website promises.
So, Ms. Gingras applied for the loan, even though payday lending is illegal in Vermont. She was instantly approved. Over a period of two years, she took out three loans totaling $3,550. She gave Plain Green online access to her bank account and over a period of three years paid more than $6,235 to the company — almost twice her original loan amount.
Last month, Ms. Gingras filed a lawsuit against Plain Green claiming it blocked her access to her own bank account, automatically withdrew funds without her consent, did not examine her ability to repay the loan, and charged excessive interest rates, which are against Vermont law. Plain Green has asked a judge to dismiss the claim.
Although Vermont banned payday storefront shops, online vendors are not constrained by state laws or borders, giving financial regulators across the country enforcement headaches.
SEE ALSO: Financial regulators in Florida want payday lendors left alone
Without a storefront option, Ms. Gingras went online, where it’s the Wild West in terms of consumer protections, consumer advocates say.
“Online payday lenders may not be subject to any regulation under your state law, they can ignore any state-issued consumer protections on the industry, like capped interest rates, rollovers and repayment plans,” said Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group. “Online payday lenders think they’re beyond the reach of state enforcers and often act like it.”
Indian tribal status
Plain Green is wholly owned by Montana’s Chippewa Cree Tribe. The lawsuit filed by Ms. Gingras claims Plain Green is using its tribal sovereignty to evade state law that bans its lending practices.
Two years ago, the New York state’s attorney general filed a similar lawsuit against three online lenders with ties to an Indian tribe, which also claimed their sovereignty shielded them from being sued under state law for illegal lending practices.
“This rent-a-tribe concept is to take tribal immunity to shield certain lending practices from state and federal laws,” said Matthew Byrne, a lawyer at Gravel & Shea who represents Ms. Gingras, “Our case is a direct challenge to this concept — that you can’t rent sovereign immunity to avoid state law.”
SEE ALSO: Payday lender customers want no federal interference
Plain Green’s loans are made in the name of a lender affiliated with the tribe. But another entity, Think Cash, provides the marketing, funding, underwriting and collection of Plain Green’s loans, according to the lawsuit.
Think Cash was named as a litigant in a 2008 Federal Deposit Insurance Corp. payday lender prosecution action that ended with the issuing of $15 million in fines. After the federal action, the company rebranded itself Think Finance.
“Think Finance approached the Chippewa Cree Tribe with a deal,” Ms. Gingras’ lawsuit claims. “Think Finance would provide everything the Tribe needed to run a successful payday loan enterprise if the Tribe would let them use the concept of a tribal immunity to stymie state and federal regulators. In return, the tribe would receive 4.5 percent of the revenues.”
Plain Green officials, in a statement provided to The Washington Times Wednesday, strongly disputed any suggestion that its corporate setup was improper or that its lending practices were unethical.
“Plain Green is a wholly owned entity of the Chippewa Cree Tribe, and any allegations claiming otherwise are both inaccurate and offensive,” said spokeswoman Shelby DeMars.
“Our tribe is a sovereign entity — just like states are — as enshrined in the Constitution, codified by federal law, and supported by long-standing Supreme Court precedents. We are incredibly proud of the installment loan products we offer, which both fill a critical need for underbanked consumers, as well as provide essential funding for social services offered by our tribal government.”
According to a report by The Associated Press, Plain Green approved more than 121,000 loans at interest rates as high as 360 percent in their first year of operation.
Online vendors called worst
Other online lenders operate as far away as Costa Rica, the West Indies and Malta, making it hard for state regulators to track down these operators and enforce state and federal law.
“Last year, we took 18 enforcement actions against unlicensed payday lenders and 15 of those were against unlicensed online vendors,” said Tom Dresslar, a spokesman for California’s Department of Business Oversight. “A lot of them are offshore, so it’s an extremely difficult fight, extremely difficult to get any enforcement. It’s like whack-a-mole: You beat one down and another pops up. We do the best we can, but no one here is pretending it’s an easy problem to solve.”
To be sure, there are some responsible online payday lenders, which can be detected by a seal on their Web page certified by the Online Lenders Alliance, an industry trade group.
The group praised enforcement actions by the Federal Trade Commission in July against a group of online lenders accused of funding loans that consumers never approved and then making unauthorized debits from their bank accounts.
“Online lenders that defraud consumers should be prosecuted and put out of business,” Lisa McGreevy, president and CEO of the Online Lenders Alliance, said in a statement at the time. “We applaud the FTC’s action against companies that were clearly involved in an automatic funding scheme where consumers are given loans they never approved then bilked for payments they never authorized. Their treatment of consumers is deplorable.”
State-licensed payday lenders argue that if they are forced out of operation by the federal government, more unregulated, unlicensed online vendors will spring up, causing more harm to the consumer.
The Consumer Financial Protection Bureau is trying to tighten federal regulations, which industry advocates argue will put storefront payday lenders out of business.
“We’re subject to state and federal laws that govern lending and will be subject to any rule-making the CFPB comes up with, but these illegal, offshore lenders operate with impunity,” said Ed D’Alessio, executive director for the Financial Service Centers of America, which represents payday lenders. “You get the dichotomy there — if you’re a good guy, you’re subject to all the rules, but if you’re illegal, the future is bright. They’ll get even more business — they have to be licking their chops.”
Every state has its own policies regarding payday lending. Most states have capped the interest rates and loan amounts, and payday lenders that operate within their territory have to be licensed and are regulated by the state.
Some states, including Vermont and New York, have banned the practice altogether.
Big business in ban states
But banned or not, payday lending continues.
In states with more restrictive payday rules, online lending is dominated by operators not licensed by the state, with a disproportionately high share of online lending in states where payday is banned, according to a May study by Policis, a London-based economic research consultancy.
Almost four in 10 payday loans from operators that are not state-licensed are being made in states where payday lending is effectively banned, the study found. Six in 10 online loans were made by lenders with no license to lend in the state in which the borrower lived.
Online payday loans are typically more expensive than bricks-and-mortar payday loans, with annual percentage rates of 650 percent, according to a 2014 report by Pew Charitable Trusts. Pew also found that online borrowers defaulted more often than storefront borrowers and were twice as likely to have overdrafts on their bank accounts.
“Our state-licensed payday lenders aren’t the problem. It’s these unlicensed online vendors we’re concerned about,” said Drew Breakspear, Florida’s commissioner of the office of Financial Regulation, which oversees the state’s payday industry. “If the CFPB wants to be helpful in regulating the industry, they should go after these guys — this is where we need the help — not after the state-licensed lenders.”
Last year, Florida enacted a law exempting residents from having to pay the debts they may have incurred from unlicensed online vendors, to help deter unlicensed vendors from doing business in the state. In California, state regulators have teamed up with Google and Yahoo to block any unlicensed payday lender from coming up in search requests.
“It’s a tough road to hoe, but blocking the ads certainly helps protect consumers to some extent,” said Mr. Dresslar. “We don’t claim it’s the end all/be all, but it’s a step in the right direction.”
CFPB says all to be covered
The CFPB said its rule-making on the payday lending industry encompasses online lenders and will help put an end to this shadow industry.
“All creditors that make loans covered by the proposals would be required to comply with the CFPB’s regulation,” said Samuel Gilford, a spokesman at the CFPB. “Creditors would be required to comply regardless of whether they operate online or out of storefronts and regardless of the types of state licenses they hold.”
However, in a world where state and federal regulators are already having a hard time pursuing enforcement action against online vendors, the industry has doubts.
“If [the CFPB] can get jurisdiction over them and reach them, fine — but if you’re operating in the Isle of Man, how does CFPB reach you?” Mr. D’Alessio said. “These operators are here today and gone tomorrow. We can’t expect to find these people, and who has the resources? Are the states and the CFPB going to be able to pursue all of these online vendors? It’s just going to lead to an unregulated environment.”
In Ms. Gingras’ case, Plain Green filed a motion to dismiss, which has been opposed by Mr. Byrne. The case been stalled in the legal system awaiting court action, he said. Meanwhile, Plain Green continues to make online payday loans.