By Cary Spivak of the Journal Sentinel
Updated Dec. 29, 2013
Need cash fast? The Lac du Flambeau Chippewa's online payday loan centers are there for you. Want to place an online bet? The tribe soon hopes to handle that for you as well.
Three years after the Lac du Flambeau defaulted on a $50 million bond — a move that remains the subject of a court fight — and five years after it considered mortgaging portions of its reservation. the Vilas County tribe is aggressively looking at the Internet for ways to increase its revenue.
Tom Maulson, the tribe's blunt-talking president, dismisses critics who see gambling and high-interest, short-term lending as businesses that prey on the poor. "It's legal to do, and we're doing it legally," Maulson said.
Tribal governments across the nation are looking at online businesses because they offer tribes the opportunity to tap revenue from consumers who might not travel to reservations, which are often in remote areas.
"The Internet is a robust environment to grow our economy, and we're looking for ways to leverage (the tribe's) sovereignty in a responsible manner," said Brent McFarland, the Lac du Flambeau's director of business development. "We see the Internet as a tremendous opportunity to do that."
Since May the tribe has launched three online payday lending companies, two of which came online this month, and set up the infrastructure for an Internet casino. If online gambling were legalized throughout the country or in Wisconsin, "we could just flip a switch" and turn the online casino. which currently uses play money, into one that takes bets using real money, Maulson said.
The tribe may not wait for a law change before taking online bets on a limited basis — only via Internet connections available within the boundaries of the tribe's reservation — as it is a driving force in the Tribal Internet Gaming Alliance, a group hoping to launch a multi-tribe online casino.
Because that dreamed-of casino would offer only poker, bingo and high-speed video slots linked to bingo — games known in federal law as Class II gaming — it could be offered on the grounds of reservations without a change in the law, said Jeffrey Nelson, the Washington-based attorney for the alliance.
The Chippewa tribe is not alone in looking at cyberspace for revenue. About two dozen tribes across the country have launched short-term lending operations online, and the potential of online gaming is being talked about by tribes, states and Congress.
Barry Brandon, executive director of the Native American Financial Services Association, the trade group for the fledgling online tribal short-term lending industry, sees similarities between Indian gaming and tribal lending.
The same type of legal and political battles that tribes fought some 25 or 30 years ago when Indian casinos were first popping up are being fought today, said Brandon, who noted that most of the tribal lenders went online in the past three years.
In both cases, the tribes sought to exert their sovereign powers to enter an industry.
"Tribes that are looking for economic development opportunities frequently find that businesses that. are heavily regulated by a state are often a great fit for Indian country," said Brandon, a member of the Muscogee (Creek) Nation.
As sovereign governments, tribes seek to operate the businesses in accordance with tribal law and federal law, he said.
Both of the Lac du Flambeau's online ventures involve controversial, emerging online industries, where laws are murky and are just beginning to be interpreted by courts and regulators.
Legal battle over lending
The New York Department of Financial Services and the Center for Responsible Lending, a nonprofit watchdog group, see the tribal online payday lenders as a blatant attempt to dodge state regulators.
In October, a federal judge in New York ruled that regulators in that state could oversee online tribal lenders making loans to state residents, a ruling that would effectively put the lenders out of business in the state, which has caps on interest that lenders may charge. The ruling came in a lawsuit filed by two tribes that argued their online lending operations were immune from state regulation. The tribes have appealed.
"Payday lenders have pursued various schemes for evading state law, of which partnering with tribes is the latest iteration," the Center for Responsible Lending wrote last month in a friend of the court brief filed in New York lawsuit. "New York rightly seeks to stop this abuse."
The Lac du Flambeau's three lenders — one of which offers loans that carry an annual interest rate of more than 400% — will not make loans in Wisconsin or several other states. Tribal lenders frequently avoid making loans in
their home states or states that have particularly aggressive regulators.
"It keeps our relationship with the state of Wisconsin healthy," said the Lac du Flambeau's McFarland, who objects to calling the lending operation "payday lending," preferring the term "short-term lending."
Wisconsin regulators are trying to determine what jurisdiction they may have over the tribe's three lenders — Bright Star Cash. RadiantCredit and Blue Frog Cash — said George Althoff, spokesman for the Department of Financial Institutions.
Peter Bildsten, secretary of the department, met with tribal representatives in August, but no decisions were made at the meeting, Althoff said. The secretary did not sign off on the tribe's website claims that it was subject to tribal and federal law only.
"The Secretary certainly did not and would not offer any determination of DFI's regulatory authority over tribal lending in such an informal setting," Althoff said in a follow-up email. "With the recent growth in tribal, online and offshore lending, state and federal regulators are reviewing the extent of their regulatory jurisdiction in this area."
Despite that, McFarland said the tribe plans to continue launching new loan operations, each of which is backed by individual pools of private equity investors.
The lending operations create jobs on the reservation for tribal members and nonmembers, McFarland said. The tribe's three lenders employ about eight people, a figure McFarland hopes grows to 120 in a year as the call center expands.
McFarland added that the "number one reason" for launching the pay centers is simple: "There is a market for it. people need it," he said. "If you don't have a credit card and you need $400 or you're going to be evicted, where else are you going to go?"
'Flip the switch'?
While the online lending operations are up and running, creating a casino that could take bets online is much more of a long shot.
The tribe could launch an online casino if the federal government or Wisconsin legalized the games — a proposition that is not even being talked about in Madison. There has been some debate over online gambling in Congress, but so far only Nevada, New Jersey and Delaware have approved it for their states. No tribes are offering online gambling, said Christinia Thomas, deputy chief of staff at the National Indian Gaming Commission.
The more likely scenario is to offer online Class II games on reservation grounds similar to the fast-moving slot machines offered at the Ho-Chunk tribe's casino near Madison. which offers more than 1,100 slot machines.
The Lac du Flambeau "can flip the switch (to launch a Class II online casino) without any change in state or federal law," said Nelson, the attorney for the tribal alliance.
A Class II online casino would be limited to reservation land, Nelson said. Gamblers would be able to travel around a reservation and continue playing casino games on laptops, smartphones or other mobile devices.
It could particularly appeal to "the growing demographic of younger generation gamblers who are more interested in online play," Nelson said. "They won't have to even walk into the brick-and-mortar casino."
In order for a Class II casino to rake in large profits, numerous other tribes would have to join the Tribal Internet Gaming Alliance, Nelson said, explaining that more members would improve the games for the bettors. He predicted the alliance would not offer online casino gambling of any sort until at least 2015.
One possible complication to the Lac du Flambeau's casino effort is the role that Maulson's son, Kevin Maulson, is playing as a consultant to the association, trying to persuade other tribes to join the group and define its duties. Kevin Maulson pleaded guilty to three felonies in 2010 after being charged in a securities scheme that prosecutors said cost investors more than $1 million. He declined to comment for this article. Nelson noted the younger Maulson does not need a gaming license to work for the association.
Although the lending and casino efforts are separate, there is some synergy between the two.
Common sense says that borrowing money to play the slots is a losing proposition. In fact, the websites for the tribal lending business each warn borrowers that the loans are expensive and should be use be used only for emergencies.
Still, Maulson, the tribal president, said he would have no problem if some of the tribe's lending customers used the fast cash to feed tribal slot machines.
"I can't play the morality police," said Brandon, the head of the Indian payday lending trade group.
The tribes, he said, can't say to customers, "Are you going to use this for gambling, and if so I'm not going to lend you the money."
Category: Payday loans