CFPB Enforcement Actions Still Sending Mixed Signals on Tribal Sovereignty

Apr 6, 2018 | News

Under its former director, Richard Cordray, the Consumer Financial Protection Bureau (CFPB) pursued an agenda that often ignored centuries of federal recognition of tribal sovereign rights in favor of policy positions that sought to bring the economic arms of tribal governments under state jurisdiction. Cordray’s departure last year opened the door for new leadership to foster a respectful, co-equal government-to-government relationship.


But before he left, Cordray’s Bureau initiated a lawsuit against four tribal lending entities (TLEs) owned and operated by the Habematolel Pomo Tribe of Upper Lake. In its complaint, the CFPB invoked a novel theory- the lack of adherence to various state usury and licensing laws by the TLEs was unfair, deceptive, and abusive (UDAAP) violation of the federal Consumer Financial Protection Act (CFP Act).  


Following Cordray’s resignation last Thanksgiving, Acting CFPB Director Mick Mulvaney moved swiftly to purportedly repair the fractured relations between tribes and the consumer agency. Mulvaney quickly withdrew the case against the Upper Lake (TLEs), although his agency refused to provide a reason for the abrupt reversal. A few days later the Bureau published a revised 5-year strategic plan in which it promised to not interfere with the sovereignty and autonomy of tribes. Despite not providing a reason for withdrawing its case against the TLEs, the dismissal, coupled with the agency’s new policy espoused in the strategic plan, appeared to be a recognition of and shift away from the Bureau’s injurious misinterpretations of tribal sovereignty and UDAAP.


An article this week in the Los Angeles Times updated the proceedings in the CFPB’s case against online loan servicer CashCall. A California federal judge last month levied a fine against CashCall for $10 million.


The case against CashCall originally revolved around determining the “true lender” of loans made by a company owned by a citizen of the Cheyenne River Sioux Tribe and then almost immediately sold to CashCall for collections and servicing. This arrangement drew the ire of the CFPB, who argued that the partners were simply using the Native business as a sovereign shield, charging consumers triple-digit interest rates in violation of state usury laws.


In light of the $10 million judgment, the LA Times article noted that the CFPB was considering appealing the decision. While no explanation was given as to why the CFPB would appeal, an attorney for CashCall speculated that the agency may be seeking a ruling from the circuit court that state law violations cannot be used to demonstrate violations of UDAAP in the CFP Act. Were the CFPB to pursue such an argument on appeal, it would perhaps hint at one reason why it dropped its case against the Upper Lake TLEs a few months ago.


To the contrary, the agency is also moving forward under the same legal theory against a bankrupt company that historically provided services for TLEs. The CFPB is prosecuting a case against Think Finance, a service provider with a long history of contracting with tribes for a number of services related to online lending, including lead generation, underwriting and debt collection. However, unlike the CashCall case in which the Bureau is now contemplating a circuit appeal to relitigate against the “state law violation equals a federal law violation” theory, the CFPB is seemingly moving forward with litigation against Think Finance by arguing in favor of the theory.


The cases with CashCall and Think Finance are not first instances of the CFPB sending mixed signals with its policy agendas. Clarifying the agency’s position regarding state law violations and UDAAP is needed.

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