The Truth About Tribal Lending

NAFSA members provide small-dollar, short-term access to credit. Are these loans the same as “payday loans”?

The short-term installment loan products offered by NAFSA members’ TLEs are not payday loans; they are installment loans. NAFSA members never engage in abusive collection practices or in any way disrespect or disregard the rights of our customers.

Unlike payday loans, installment loans are amortized, have a definite loan term and require payments that go toward not just interest, but pay down of loan principal. Unlike traditional payday products, installment loans do not “roll over” (where fees are assessed to maintain, but not pay down the loan), and by requiring payments be made toward the principal of the loan with defined payments, installment loans help deter the cycle of debt perpetuated by multiple, unchecked rollovers.

Why are short-term, installment loans necessary in the first place?

Many Americans do not have ready access to traditional forms of credit like banks or credit cards. NAFSA provides short-term financial services for these underserved communities. Without traditional avenues for short-term credit solutions, these populations—the unbanked and underbanked—often turn to short-term solutions when unforeseen expenses, like emergency car repairs arise. Poor credit, lack of collateral and geographic isolation makes access to finance a major obstacle for these Americans. As a tribal-run organization, NAFSA understand this struggle better than anyone and exist to offer financial support to entrepreneurs and struggling families alike. The products offered by NAFSA members’ TLEs fill a critical consumer need; providing small-dollar access to credit for more than 54 million Americans, who, without such access, would be almost entirely excluded from the consumer finance market to help cover necessary expenses. TLEs’ products help meet a large demand for unsecured, short-term, small-dollar credit.

What sorts of consumer protections are in place for these loans?

Every NAFSA member tribe has strong consumer protections in place as a matter of both controlling tribal law and internal business policy and procedure. Consumers receive all necessary disclosures about every aspect of their loan. In general, these loans range in size from $100 to $1,000—with the average loan term running about two weeks. The cost of the loan varies from $10 to $25 per $100 borrowed.

Before receiving a loan, consumers are informed of the exact repayment schedule, the amount of every payment, the options available for making payments, the corresponding APR, their options for meaningful dispute resolution if necessary, and much more. Borrowers must be employed and must provide personal identification. The TLEs are also committed to meaningful customer service and support for their existing consumers, realizing that providing a positive customer experience is vital to the ongoing vitality and success of the TLEs’ businesses.

How are these TLEs furthering tribal sovereignty?

NAFSA advocates for the sovereign rights of tribes—especially economic self-reliance. Sovereignty means the right to regulate and license activities within our borders and the power to engage in commerce, levy taxes, and regulate membership.

For hundreds of years, our people have fought for our right to self-determination and the power to enact our own laws and be governed by them. Tribes continue to fight to protect their rights today, particularly in this new, uncharted e-commerce frontier.

Contrary to popular belief, only a few of the 560+ federally-recognized tribes benefit from gaming. Tribal e-commerce businesses like the TLEs NAFSA member tribes own and operate have become an essential economic development tool, allowing our people to diversify their tribal economies and become economically independent.

E-commerce allows tribes to alleviate the economic burden of geographic isolation. The tribal profits derived from the TLEs go to fund essential governmental services and programs that tribes provide for their memberships and augment ever-dwindling federal grant program funding. These TLE revenues, which account for a significant portion of a tribal government’s operating budget, go towards providing vital social programs like health care services, housing assistance, home utilities subsidies, education for children, elder care and more. The businesses also create jobs within Indian country, reducing the unemployment rate and providing meaningful opportunity to tribal members within their own communities.

A final note about tribal lending: Many who are critical of tribes’ involvement in the consumer finance industry, or e-commerce generally, claim that tribes have fallen victim to nothing more than a “rent a tribe” scheme wherein non-tribal lenders partner with a tribe and continue their normal business operations with the tribe’s name on their product. For NAFSA member tribes, this is inaccurate and offensive. As tribes do not historically have access to their own capital, they negotiate for necessary capital to enter the industry, similar to other commercial industries and actions taken by non-tribal entities seeking to enter into a new business venture. These investments can come in many forms, including the acceptance of loans, issuance of bonds, securitization of debt, and more—all of which are common, available to every other business in the country. NAFSA member tribes retain complete control over the decision making necessary for their TLEs.

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