Hartford Business Journal

16 Hartford Business Journal • January 26, 2015 www.HartfordBusiness.com percent to 450 percent, even though such lines of credit violate state law. And even if their payday operations aren't legal in Connecticut, the tribe's "sovereign immunity,'' they allege, shields them from $1.5 million in civil penalties and a pair of cease- and-desist orders the state levied against it and their leader. The tribe claims Connecticut's and other states' consumer-protection laws cannot bar it from pursuing enterprises that generate income and jobs for tribal members. It is, according to one Connecticut bank- ing department official, the first tribal chal- lenge of the state's consumer-lending stat- utes. One advocate for affordable financial services to the needy says the state is doing the right thing denying tribal payday lenders access to Connecticut borrowers. But one UConn legal scholar says Con- necticut may have over-reached with its ruling, perhaps setting the stage for further sparring via the courts. The Oklahoma tribe has yet to declare its next step. Pitkin's opinion stems from the Otoe-Mis- souria's appeal of his agency's issuance last October of temporary cease-and-desist orders and a notice of intent to levy penalties against two tribal-owned online lenders — Great Plains Lending LLC and Clear Creek Lending. The state also took the rare step of assessing a steep penalty against a tribal official, Otoe- Missouria tribal chairman John R. Shotton. connecticut's law "Payday lending'' refers to a segment of the U.S. consumer-finance industry that provides short-term, unsecured loans to employed borrowers who typically repay their debts out of their regular paychecks. Connecticut's usury law prohibits anyone from making loans at more than 12 percent inter- est without a license, effectively banning payday lenders from operating in this state, said Bank- ing Department General Counsel Bruce Adams. The nonprofit Center for Responsible Lending (CRL) in Durham, N.C., advocates on behalf of America's most financially vul- nerable to limit their exposure to and abuse by payday lenders. The center estimates more than 22,000 U.S. payday-loan offices have sprung up since the 1990s and originate more than $27 billion in loans annually. Payday borrowers, the center says, are more likely to have credit problems, including past-due credit cards, unpaid medical bills, even bankruptcy, for which their efforts to repay high interest on top of principal typi- cally sinks them deeper into debt. Connecticut banking regulators are "doing exactly what they need to do and should do'' to protect its residents, said Ellen Harnick, a CRL senior policy counselor. As consumers conduct more of their banking and finan- cial transactions online via portable computers and smartphones, pay- day lenders like Great Plains and Clear Creek have followed, taking advantage of the lower overhead from not having to set up and staff brick-and- mortar loan offices. In doing so, they have run up against laws that Connecti- cut and other states have had on their books since the turn of the 20th century to shield consumers from shady lenders and usurious interest rates, said Adams. Indian tribes, too, have benefited for generations from the notion — codified in federal statutes and reinforced by the courts — that recog- nizes their sovereign authority to regulate its members and activities on tribal lands. It is that sov- ereign recognition that led tribes such as Connecticut's Mashantucket Pequot and Mohegan tribes to open casinos on tribal lands despite most states' general bans on gambling. tribal sovereignty In his ruling, Pit- kin rejected the tribe's claims that his depart- ment's actions were "an attempt to circumvent the protections of tribal sovereign immunity" and "an affront to tribal sovereignty.'' Not only did bank regulators adequately show the tribal lenders' actions violated Con- necticut banking statutes, but Pitkin wrote, "in my view of the law regarding tribal sovereignty and tribal immunity from suit, the department has also made sufficient allegations to estab- lish its jurisdiction over respondents.'' In an emailed statement, Shotton, the tribal chief, said the parties "are evaluating the legal options available to us as we move forward with this matter and look forward to continu- ing to fight for our sovereign rights." Shotton said Connecticut's ruling "ignores or misinterprets hundreds of years of legal precedent regarding Native Americans' sover- eign rights. Our businesses are wholly-owned by the tribe and are legal, licensed and regu- lated entities that follow all applicable federal laws and operate under sovereign tribal law." "E-commerce is essential to our tribal economic development,'' the chief said, "cre- ating jobs for our tribal members and funding critical social programs provided by our trib- al government including health care, educa- tion, housing, elder care and more." Pitkin officially retired as banking commis- sioner on Jan. 7 and was unavailable for com- ment. Adams, the department's general coun- sel, said Pitkin's ruling reinforces the state's stance that shielding its citizens from alleged predatory lending practices is its main priority. "Connecticut has fought for nearly a cen- tury to prevent overbearing lenders from exploiting Connecticut citizens who lack bargaining power," Adams said via email. Connecticut's ruling, too, is a further set- back, Adams said, to attempts by some tribal- owned enterprises to invoke "tribal sovereignty'' to usurp states' laws regulating commerce. "Sovereign immunity only protects valid exercises of sovereign power,'' he said. "Any sovereign may pass whatever laws it desires — including the establishment of a company. But that company is still subject to the laws of the states in which it operates. To accept otherwise defies common sense." more legal challenges ahead Connecticut's nullification of tribal payday lenders operating in this state also appears to plow fresh ground in that, for the first time, an individual tribal leader has been sanctioned for the actions of a tribal entity, Adams said. Along with a cease-and-desist order and a $700,000 fine against Great Plains Lending and a $100,000 fine against Clear Creek Lend- ing, Otoe-Missouria tribal leader Shotton was ordered to pay a $700,000 fine and stop promoting online payday lending in this state. Last year, the tribe sued New York after bank regulators there banned Great Plains and Clear Creek from soliciting borrowers in that state. A federal appellate court refused to side with the tribe, which dropped its suit. Bethany R. Berger, a UConn law professor who is a scholar in both federal Indian laws and tribal laws, says Connecticut's opinion flies in the face of recent decisions by California and Colorado state courts that tribal payday loan companies are entitled to sovereign immunity. Berger points out that while the Califor- nia and Colorado cases did not involve the Otoe-Missouria payday lenders, their rulings could eventually push the sovereign-immuni- ty issue into Connecticut's courts. "The Connecticut ruling,'' Berger said via email, "seemed to hold that because this is an administrative rather than a judicial proceed- ing the tribe lacks sovereign immunity. I don't think that distinction holds up. Any govern- mental proceeding in which a state is telling an arm-of-the-tribe that it has to pay damages for its actions implicates sovereign immunity. The state just doesn't have jurisdiction to do it." n from page 1 Great Plains Lending loan and interest rate options Annual Number of Loan Percentage Bi-Weekly Bi-Weekly Amount Rate (APR) Payments Payment $100 448.76% 8 $23.96 $200 448.76% 8 $47.93 $300 448.76% 8 $71.89 $400 448.76% 8 $95.86 $500 448.78% 12 $101.29 $600 448.77% 12 $121.55 $700 398.91% 18 $116.31 $800 398.91% 18 $132.92 $900 349.04% 24 $127.00 $1,000 349.05% 24 $141.11 $1,100 249.30% 30 $112.70 $1,200 249.30% 30 $122.95 $1,300 249.30% 30 $133.19 $1,400 199.44% 30 $120.51 $1,500 199.44% 30 $129.12 $2,000 199.44% 20 $198.74 s O u R c e : G R e a T P l a i n s l e n d i n G w e b s i T e Scholar: CT ruling may be tested in court Above, Great Plains Lending's online pitch. Below, the high cost of payday credit. Obamacare buoys Hartford health insurers' stocks By Paul R. La Monica CNNMone W ho says Barack Obama is bad for Corporate America? Sure, the president is still not exactly a BFF of the big banks. But there's one big industry group that owes a huge debt of gratitude to President Obama: health insurers, many of which are based in or have significant operations in Hartford. UnitedHealth reported earnings that topped forecasts last week, sending its stock price to a new all-time high. UnitedHealth, with major operations in Hartford, has outperformed the broader stock market by a wide margin since the Affordable Care Act, or Obamacare, was signed into law in March 2010. Simply put, greater access to health insur- ance has led to more customers for the insur- ance giants. The other four members of the so-called Big Five health insurers — Aetna, Cigna, Humana, and Anthem (formerly Well- Point) — have all beaten the S&P 500 over the past five years or so as well. "There is greater demand for health care and that has improved profits for insurers and hospitals," said Phil Orlando, chief equity strategist at Federated Investors. Now it's true that plans offered as a result of the Affordable Care Act are not as profitable in the short-term. UnitedHealth said last week that ACA fees weighed on its earnings last year. But that isn't stopping UnitedHealth and its competitors from trying to get approved to offer plans on even more public exchanges in the coming years. Obamacare isn't the only reason why health insurer stocks have been so hot though. They are part of a broader rally in the health care sector. Many healthcare companies have yields that are significantly higher than the puny yields investors get from buying long-term U.S. Treasury bonds. n

• Cover