E Pluribus Duo and payday loans

Larry Ribstein —  10 February 2011

Payday loans are supposedly a problem. I’m not sure why.  Neither was George McGovern. But twelve states prohibit them.

Now, if payday loans were like corporate stock, the issuers could avoid one state’s corporate rules by incorporating in a different state.  You can’t do that with payday loans.  But, according to the WSJ  you can incorporate in another “country,” set up in, say, Kansas and lend anywhere via the Internet:

Because of the sovereign immunity granted to tribes by the U.S. government, they are shielded from interest-rate caps and other payday-loan regulations. * * *More than 35 of the 300 companies making payday loans through the Internet are owned by American Indian tribes * * * The lender usually incorporates on tribal land, agreeing to pay the chief a salary of a few thousand dollars a month * * *Most payday lenders have no physical presence on tribal land. .* * *

Some payday lenders have tried to avoid interest-rate limits by incorporating in states with no maximum rates, such as Delaware and Utah, and then imposing the higher rates on borrowers throughout the U.S. That practice suffered a defeat when Pennsylvania’s highest court ruled in October that Cash America International Inc., the largest publicly traded payday lender by revenue, had to abide by the state’s interest-rate and licensing rules even though the company is incorporated in Nevada. The possibility of similar defeats elsewhere is another reason for payday lenders to make deals with tribes. * * *

 It’s useful to remember that Native Americans are part of The Law Market.

Larry Ribstein


Professor of Law, University of Illinois College of Law

3 responses to E Pluribus Duo and payday loans


    AC: Actually, rich people don’t care where poor people are going to get emergency funds when their current lenders go out of business. Given that poor people are politically powerless, where do you think laws against payday lenders are coming from? Perhaps you could show you really care by getting into the business of making low-cost high-risk loans to poor people.


    Payday lenders prey on poor people who tend to make bad choices. These lenders are not clear and upfront with the terms of the loans, which in many cases are impossible to pay back. Borrowing money on Monday at a huge interest rate means that by Friday, you cannot afford to pay the loan off. Whatever amount you can’t pay keeps accumulating interest (at an exorbitant rate). By the next payday, the amount is so large that unless you hit the lotto, you will never be able to pay it back, and the interest keeps running. Doesn’t sound like a problem to you? Because there is no significant poor people lobby, and the lenders spend billions a year to make sure they can continue to abuse the less fortunate, some states have stepped in to stop this. It’s probably not that you’re “not sure why” payday loans are predatory, it’s probably that you are rich enough never to have to worry about it and just don’t care.


    I think, that like casinos, this is a nice way for us to pay reparations to the Indian tribes.