The new deal, which would end Minnesota’s payday loan operation, puts additional pressure on the Indian tribe, which has been on the defensive amid high loan rates across the country.
The Lac du Flambeau Band of Lake Superior Chippewa Indians has been telling customers that its practice is permitted, but that position has become harder to maintain. Just before Thanksgiving, a Wisconsin tribe agreed to settle a civil lawsuit filed by Minnesota Attorney General Keith Ellison that alleged LDF violated state law requiring reasonable loan rates by charging Minnesotans between 200% and 800% APR. The state also said LDF violated the Consumer Fraud, Deceptive Trade and False Advertising Act.
In a consent decree, a senior LDF official denied the allegations but formally agreed to stop lending to people in Minnesota unless the tribe adheres to the state’s strict usury laws and other regulations, including licensing requirements.
Tribal Council President John Johnson Sr., the sole defendant in the case, also promised that the tribe’s lender would forgive all unpaid loans to Minnesotans valued at more than $1 million. A judge still has to approve the consent agreement.
“I will not allow Minnesotans to be exploited by predatory lenders,” Ellison said in a press release announcing the settlement.
Johnson did not return calls and emails seeking comment. He is the chairman of the board of LDF Business Development Corp., which manages various tribal companies, including the issuance of loans.
Johnson has previously said that LDF’s lending practices are transparent and collection methods are fair and ethical. “In offering unsecured loans, we consciously take a risk that reflects our commitment to helping those facing urgent financial needs,” Johnson said in an April email to ProPublica.
Minnesota’s move to freeze loans to companies controlled by LDF comes shortly after ProPublica published extensive reports in August and September about Credit operations of FLDfinding that the tribe had grown over the past decade one of the leading players in the tribal lending industry. Its loans are helping to refinance people across the country. A ProPublica analysis found that companies owned by the LDF tribe are creditors in about 1 in 100 bankruptcy cases nationwide.
The Minnesota attorney general’s office said in a filing in federal court that the state has received numerous complaints from consumers about LDF Holdings, the tribe’s lending arm, describing extreme hardship caused by “constant demands to pay exorbitant interest.”
As an example, a Burnsville resident took out a $1,398 loan from LDF Lendumo in December 2023 at an annual interest rate of 795%. The loan grew to $8,593.
After Minnesota authorities contacted LDF on behalf of the borrower, LDF argued the loan was legal and not subject to state law, but Lendumo settled the complaint “as a courtesy” — but not before demanding an additional $389, court records say .
“These are the highest and most heinous APRs we’ve seen,” said Ann Leland Clark, executive director of Exodus Lending, a Minnesota nonprofit that refinances payday loans for borrowers with tax dollars and private donations. About a quarter of the loans they have refinanced since 2015 are tribal loans, she said.
In a Virginia class-action lawsuit this summer, tribal council leaders agreed to a landmark settlement that would cancel $1.4 billion in outstanding loans nationwide and provide $37.4 million in restitution and attorneys’ fees. LDF officials will pay $2 million of that, with the rest to be paid by non-tribal partners involved in the tribe’s five lending firms. A final approval hearing is scheduled for December 13.
Despite the national settlement and action in Minnesota, Johnson has not signaled that the tribe will get out of the lucrative loan business or change its practices. ProPublica previously determined that LDF entered the lending business in 2012 and created at least two dozen lending companies and websites, some of which remain active today.
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LDF works with external firms to manage the business, offering short-term installment loans. Unlike traditional payday loans, they don’t have to be paid off until the next pay period; they are usually paid off over several months in installments via automatic bank deductions.
One defunct LDF-related website, Lendgreen, was the subject of 2023 Decision of the Supreme Court of the United States which ruled that tribes must comply with the US Bankruptcy Code, including provisions that protect debtors from continued collection efforts and harassment during the restructuring process.
Only a few dozen of the nation’s 574 federally recognized tribes offer online lending. Those who do often see it as an economic boon to their community, bringing much-needed revenue to tribal government operations that have limited capacity to expand into their often remote areas of the country.
ProPublica found that LDF has grown its footprint by partnering with numerous outside managers and financiers. Revenue figures aren’t public, but historically, in the tribal payday lending model, these outsiders have taken the lion’s share of the profits, according to lawsuits.
credit:
Angela Major/WPR
In a previous email to ProPublica, Johnson described LDF’s loan operation as an engine for community improvement. “The importance of our business goes far beyond simple economics; it is woven into the very fabric of our community, supporting many vital services,” Johnson wrote.
LDF and other tribal lenders argue that they can offer loans at extremely high rates because of the sovereign rights and immunities of Indian tribes.
LDF’s loan documents included provisions preempting Minnesota law, according to the state’s lawsuit, and improperly limited consumers’ rights to challenge repayment claims by falsely claiming Minnesota law did not apply due to sovereign immunity.
The attorney general’s office also cited a letter from LDF Holdings to the borrower that said, “the loan is not subject to state law, and (LDF Lender) is not required to be licensed in any state. Your credit is legitimate.”
The tribe emphasized that it follows tribal law and federal law that does not limit the interest rate, except for military personnel and their family members.
However, states are not powerless to solve this problem.
Courts have ruled that while states cannot pursue a tribe for monetary damages, they can sue responsible managers and obtain injunctions that stop future damages.
“The truth is that out-of-state businesses and businesses incorporated under the laws of other sovereigns must comply with Minnesota law when conducting operations in Minnesota,” Ellison wrote.
The LDF settlement is Ellison’s second enforcement action against tribal lenders operating in Minnesota.
In February, his office reached a peace agreement with senior leaders of the Fort Belknap Indian Community in Montana. It also bars the tribe — which has denied any wrongdoing — from making future loans in Minnesota. The Fort Belknap company, which calls itself an industry leader, revealed in its annual report that it processed more than 300,000 loans nationwide in 2021. The tribe’s economic development division, which court documents show derives most of its income from lending, reported more than $180 million in revenue that year.
In an interview with ProPublica in March, Ellison said other states with tough usury laws could follow Minnesota’s lead. “I hope other states will look at what we’ve done and take note.” He declined to be interviewed for this story.
Minnesota strengthened its usury laws, taking effect in January 2024, that regulate small-dollar loans. It eliminated the sliding scale of fixed fees and introduced a stricter cap on the annual interest rate: 36% in many cases, but 50% for licensed lenders who conduct an analysis of whether the borrower can repay the loan.
Johnson told the attorney general’s office that the tribe had stopped issuing new loans to Minnesota residents as of Dec. 31, 2023, the day before the law took effect, according to the consent decree.
