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Ken Rees had a problem. For years, his company, Think Cash, had made millions of dollars by offering poor Americans quick access to money when they needed to fix their cars, replace broken appliances or pay medical bills. Unlike the brick-and-mortar payday loan companies that dot street corners and strip malls across the country, however, Think Cash was an online venture, built with the convenience of the new economy in mind. A loan was only a few clicks away.
For borrowers, there was a catch. Payday loans typically come with high interest rates that can add hundreds or thousands of dollars to the original loan amount and trap poor borrowers in a cycle of debt. For this reason, many states have cracked down on payday lenders. Fourteen states and the District of Columbia ban payday loans altogether, and all of the remaining states regulate payday lending to some degree.
With Think Cash, Rees had found a clever way around these regulations: The loans were passed through a nationally chartered bank, thereby exempting them from state banking laws. This "rent-a-bank" model had been popular among online payday lenders since at least the late 1990s. But by 2010, various federal regulators had all but shut down the arrangement. Rees needed a new way to keep his business alive.
The solution he found was relatively straightforward: He’d work with Native American tribes, which are exempt from state regulations. Think Cash renamed itself Think Finance, and in early March 2011 sent a letter to the Chippewa Cree Tribe proposing that they create a joint lending venture.
Such arrangements between online payday loan companies and Native American tribes have become increasingly popular. Indeed, as the rent-a-bank model has waned in the face of government regulations, the “rent-a-tribe” model has taken off in recent years. Today, a quarter of the $4.1 billion the online payday loan industry takes in each year goes to 30 or so lenders based on reservations, according to Al Jazeera America.
“Too many hardworking people are trapped by the manipulative tactics of payday lenders, from exorbitant interest rates to deceptive debt collection practices,” New York Attorney General Eric Schneiderman told The Huffington Post. “Law enforcement agencies must stay vigilant in order to protect families from scammers and illegal lenders looking to exploit them.”
The Chippewa Cree, a small tribe with about 6,000 members in a remote part of Montana near the Canadian border, made an ideal partner for Think Finance. Jobs on the reservation are scarce, and unemployment there hovers between 60 and 70 percent. The arrangement with Think Finance offered a way to generate millions of dollars for the tribe and spur wider economic development on the reservation. Think Finance agreed to build a call center to serve the payday lending business, according to the agreement between the company and the tribe, and the Chippewa Cree planned to use revenue from the venture to fund social welfare programs and help build a new tribal health center.
According to one tribal leader with direct knowledge of the deal, Think Finance also made it clear to the Chippewa Cree that if the tribe didn't accept Think Finance's terms, the company would be perfectly happy to find another tribe that would. Within two weeks of receiving Think Finance’s letter, the Chippewa Cree, who had tried for a year to run their own lending business, agreed to the arrangement. The tribe partnered with Think Finance and renamed its lending company Plain Green. The tribe would own 51 percent of the company, and Think Finance would own 49 percent.
The new venture would offer “installment loans,” a term the industry prefers to use instead of payday loans. Like traditional payday loans, installment loans are small loans with high interest rates that often trap borrowers in a morass of debt. Unlike traditional payday loans, they are paid back over time periods longer than a single pay cycle. Plain Green says its minimum repayment cycle is four months.
Ten months after Plain Green started making loans, Think Finance lauded the venture in a blog post as a “big win for both consumers and the Chippewa Cree.”
“Dozens of tribal members are employed by Plain Green and every tribal member has already received a payment based on the success of the product. The tribe has even been able to rebuild a baseball field with revenues generated by Plain Green,” the post said.
Like Think Cash before it, Plain Green makes small, short-term, high-interest loans to people all over the country who have no other source of credit. Although the company is nominally owned by the Chippewa Cree, the tribe has little actual involvement in its operations and receives a tiny fraction of the revenue generated by the business.