First Loan Operates Illegal ‘Rent-a-Tribe’ Scheme, Class Action Claims

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A proposed class action claims the operators of payday lender First Loan have attempted to evade Indiana usury laws by way of an illegal “rent-a-tribe” scheme.

The 17-page lawsuit alleges owner Stanley Chao, NP Finance and an unknown automated clearing house (ACH) processor have fraudulently claimed that First Loan is a Native American-owned business operated by the Elem Indian Colony of Pomo Indians and thus entitled to tribal sovereign immunity. In truth, First Loan is owned and operated by non-tribal individuals and entities who use the tribal lending entity as a “front” to make to Indiana residents loans with interest rates exceeding 700 percent, the case contends.

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According to the suit, First Loan’s IP address is located in Oregon, over 1,000 miles from the Elem Tribe’s reservation in Clearlake, California. The complaint further charges that this IP address was previously used for other high-interest online loan websites operated by Chao, including CometLoans.com, RightNowLoans.com and InboxLoan.com. These websites all claim to have been owned by “tiny, remote, economically impoverished Native American tribes,” the filing states.

In reality, “Chao takes advantage of the Elem Tribe’s desperation by offering to pay them modest amounts in exchange for their claiming ownership of his illegal payday lending operations, enabling Chao to assert that the loans are being made by the Elm [sic] Tribe itself,” the case reads, adding that the Elem Tribe receives less than two percent of the company’s loan revenues.

Per the suit, the defendants issue loans in the name of the Elem Tribe to claim sovereign immunity from state and federal laws that cap interest rates on loans. However, the case argues, First Loan is not entitled to such legal protection because it is neither an “arm” nor an economic entity of the Elem Tribe.

Additionally, as an unlicensed, non-bank lender, First Loan is prohibited under the Indiana Uniform Consumer Credit Code from issuing unsupervised loans with loan finance charges in excess of 36 percent per year, the complaint states. Nevertheless, First Loan’s website says that the total interest charged for a $500 loan, if paid bi-weekly for a year, equates to an annual percentage rate of 777.83 percent, the filing relays.

“Further, sovereign immunity, even if legitimately invoked, does not turn an otherwise illegal loan into a legal one,” the case adds.

The lawsuit accuses the defendants of violating the federal Racketeer Influenced and Corrupt Organizations (RICO) Act for attempting to circumvent state interest rate caps via the alleged “rent-a-tribe” scheme operation.

The lawsuit seeks to represent Indiana residents to whom a loan was made in the name of First Loan at more than 36 percent interest within the past two years, or Indiana residents to whom a loan was made in the name of First Loan at more than 72 percent interest within the past four years.

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