Tribal online lending represents around ten percent of the $20 billion online lending sector. Only a few years ago, tribes began entering this industry with mixed results. Tribes chose to partner with non-tribal businesses that offered a myriad of services in online lending, including lead generation, marketing, customer service, underwriting and operations management.
While these joint enterprise models allowed tribes with minimal industry expertise and infrastructure to break into the business, the model benefited more to the non-tribal partners. At times, it has led to disastrous results for tribes and their citizens that rely on services partially funded by the tribe’s business ventures.
Learning the lessons of those that came before them, tribes over the past few years have set out to create a business model that will ensure the sustainability and credibility of tribal lending enterprises (TLEs) for years to come. The creation of the Native American Financial Services Association (NAFSA) in 2012 signaled a seismic shift in tribal expectations and exercise of self-determination. To avoid the pitfalls of a joint enterprise model that traded sovereign rights for small revenue, NAFSA developed a sophisticated set of consumer protections and minimum operation requirements. Before joining the organization, all NAFSA applicants must first certify compliance with our “Best Practices” in lending, operations, advertising and marketing, payments and portfolio testing.
For our member TLEs, regulation and oversight does not begin and end with NAFSA Best Practices. TLEs are integrating their lending models from top to bottom, cutting out disadvantageous agreements with non-tribal businesses, and returning more revenue to tribal governments and communities. Members are encouraged to establish TLEs through existing tribal commercial enterprise laws. Tribes then typically pass a series of lending laws that closely mirror NAFSA Best Practices and federal regulations. Finally, NAFSA members are instructed to create an independent regulatory commission to oversee consumer complaints and advise the tribe on improvements that can be made to the regulatory structure. To solidify the importance of tribal regulation to TLEs, the Dodd-Frank Act recognizes tribes as co-regulators of TLEs and financial services on tribal lands. A robust and modern regulatory structure is an essential protection against challenges to the sovereign status of TLEs and a credible and responsible way to garner consumer trust.
In conjunction with tribal business and lending laws, the federal government also monitors and regulates TLE operations. TLEs comply with these federal regulations and many others: Truth in Lending Act, Military Lending Act, Equal Credit Opportunity Act, Fair and Accurate Credit Transactions Act of 2003, Fair Debt Collection Practices Act, Electronic Fund Transfer Act, Gramm-Leach Bliley Act, and the Federal Trade Commission Act. Oversight from tribal and federal regulators ensures that online lending services originated on tribal lands are fair, honest, and strictly scrutinized.
To ensure the continued viability of TLEs and capture the highest returns from the business, NAFSA members are buying out non-tribal ancillary services and fusing each component into the structure of the TLE. Through this fusion, NAFSA TLEs gain important control over critical intellectual property (like rate algorithms), customer service response and operations management. This equates to more jobs and a grounded economy on tribal lands. NAFSA members are adopting the types of regulatory structures and business models necessary to innovate the online lending industry and safeguard our position as leaders and trendsetters for generations to come.