A Tale of Two Bureaus: How the CFPB Broadcasts Mixed Signals on Tribal Sovereignty

The Consumer Financial Protection Bureau (CFPB) issued its final rule regarding arbitration agreements on July 10th, a few days after the Bureau’s director, Richard Cordray, was threatened with Contempt of Congress. The arbitration rule includes an exemption for tribal governments and their economic arms and amounts to the first time the consumer agency has recognized tribal sovereignty in its rulemaking responsibilities. The tribal exemption stands in stark contrast to a lawsuit filed by the CFPB in April against the tribal lending entities (TLEs) of the Habematolel Pomo of Upper Lake. In that lawsuit, the Bureau is attempting to smash tribal sovereignty by using its UDAAP authority to impose state law on the TLEs. The lack of coordination between the rulemaking and enforcement divisions of the CFPB is a significant problem that must be addressed to promote regulatory consistency and the transparency of an agency under considerable pressure from Congress and the President for overreach.

For centuries, federal courts have recognized the application of sovereign immunity to tribal governments, with recent U.S. Supreme Court decisions admitting that immunity extends to on and off reservation commercial activities conducted by the tribe and its political and economic subdivisions. Sovereign immunity generally protects governments from liability for actions taken by that government. For tribes, their inherent sovereign status, one that predates the founding of the United States, precludes the application of state law and private lawsuits. Only through an express waiver by the tribe or authorization by Congress can a tribe’s immunity be waived. As Chief Justice John Marshall wrote in his 1832 opinion restricting Georgia law in Cherokee territory, “It is difficult to comprehend the proposition, that the inhabitants of either quarter of the globe could have rightful original claims of dominion over the inhabitants of the other, or over the lands they occupied; or that the discovery of either by the other should give the discoverer rights in the country discovered, which annulled the pre-existing rights of its ancient possessors.”

With its recent rule on arbitration agreements, the CFPB accounted for tribal sovereign rights by exempting tribes and their economic arms from the rule. The rule limits the use of arbitration in disputes over financial products and subsequently opens banks, lenders, and other financial institutions to the threat of class action lawsuits. Since tribes have not waived their immunity in this area, the rulemaking division of the CFPB recognized that forcing tribes to comply with a rule that imposed private lawsuits would be an unlawful abrogation of tribal sovereign rights.

In April, the CFPB brought suit against a group of tribal lenders alleging violations for unfair, deceptive, and abusive acts or practices (UDAAP) stemming from the TLEs’ failure to comply with state usury and licensing laws. Dating back two centuries, the U.S. Supreme Court has consistently held that state law has no force over tribal affairs. There is no doubt that if the many different states referenced in the lawsuit had brought suit against the TLEs that it would be quickly dismissed by the courts. The CFPB is attempting to diminish tribal sovereignty by imposing inapplicable state laws on a tribe through an amorphous federal statute. To further highlight the Bureau’s overreach in this case, the Dodd-Frank Act, the same legislation that created the CFPB, expressly prohibits the agency from setting a federal usury cap. In one lawsuit, the CFPB is trying to use a backdoor to both harm tribal sovereignty and ignore a direct prohibition set by Congress on the Bureau’s ability to regulate interest rates.

What do these two examples of agency action teach Indian Country? A lack of strong and consistent leadership at the CFPB is creating an atmosphere where various divisions are not coordinating knowledge and mission. For tribes, this means regulatory uncertainty and a potential chilling effect on business development and unnecessary anxiety over compliance. Supreme Court precedent and the will of Congress demand certainty from federal regulators if tribes are ever expected to become truly self-sufficient and utilize inherent sovereign powers.