Connecticut’s Department of Banking has concluded that two payday lending companies owned by the Otoe-Missouria Tribal Nation are not protected by sovereign immunity and can be pursued by the department for violating Connecticut’s lending laws.
Banking Commissioner Jorge Perez concluded on May 6 that the two companies, Great Plains and Clear Creek, are not arms of the tribe and that its Chief John Shotton “does not have tribal sovereign immunity from either the financial penalties or prospective injunctive relief.”
The underlying allegation is that the companies violated the state’s small loan law by charging Connecticut borrowers annual interest rates ranging from 199.44 percent to 448.76 percent on short-term loans of less than $15,000. Loans for less than $15,000 are capped at 12 percent in Connecticut.
The Oklahoma tribe filed a motion earlier this month in New Britain Superior Court appealing the Banking Department’s ruling.
Last year, the court sent the case back to the Banking Department to make a finding of fact.
Perez’s May 6 ruling does just that, finding that the lending companies and Chief John Shotton do not have sovereign immunity.
Under the operating agreement, Great Plains Lending’s board of directors is appointed and can be removed by the Tribal Council and all profits and losses are allocated to the tribe, Perez said in his ruling.
Perez also points out that Shotton was featured prominently in a film An Unlikely Solution, released in June 2015, where he discusses the benefits of online lending companies.
“We provide a forum in which people can electronically come into our reservation via the Internet. It is the electronic equivalent of walking into our reservation and taking out a loan at a tribal bank or a financial institution,” Shotton says in the movie.
In his ruling, Perez also cites a news article from Bloomberg Technology, Behind 700% Loans, Profits Flow Through Red Rock to Wall Street, which details how non-tribal interests seeking an opportunity to evade state law approached the tribe.
“The Tribe, Shotton and American Web Loan have been identified in at least one reputable business news report suggesting that the Tribe established the Respondent entities after they were approached by non-tribal interests seeking the opportunity to evade state law,” Perez wrote.
The article details how private investors came to the small town of Red Rock, Oklahoma and gave a presentation to the tribe. It says the 3,100 member tribe needed the money and after the presentation granted a license to American Web Loan in February 2010. That company and another owned by Otoe-Missouria, generates more than $100 million a year in revenue and the tribe keeps about 1 percent, according to the article.
The lending companies and their attorneys from Robinson & Cole filed a motion in New Britain Superior Court claiming that in order to reach its conclusion that sovereign immunity doesn’t apply to the tribe and its lending companies, the Banking Department relied upon new evidence, including the movie and news article, rather than simply reviewing the administrative record.
“The Commissioner has acted unlawfully in unilaterally opening the record, considering new evidence and proposing an additional hearing,” the attorneys wrote in their May 23 motion.
They said the movie was released in June 2015, six months after the cease and desist order now on appeal.
“Plainly, the commissioner could not have relied on this movie as the basis for his decision when the movie had not even been released yet,” attorneys said in their motion.
Also even though the November 2014 Bloomberg article was available, it was “never referenced at any point previously in these proceedings.”
The lending company’s attorneys asked the court to rule on the matter before a hearing with Perez is held in an effort to make sure the court’s directions were followed when it remanded the case back to the Banking Department.
Asked for comment, a Banking Department spokesman, Matthew Smith, said “It is the policy of the agency not to comment on pending litigation, however, the agency stands by its mission to protect Connecticut consumers of financial services.”