Connecticut regulators have fined the head of a Native American tribe and the two payday loan companies it owns a total of $1.5 million for allegedly violating a state cap on interest rates.

Otoe-Missouria tribe's Great Plains Lending LLC and Clear Creek Lending must pay a combined $800,000 for making illegal loans to residents of Connecticut, according to an administrative order Tuesday from Connecticut's Department of Banking. John Shotton, chairman of the Oklahoma-based tribe, was fined $700,000.

Connecticut officials believe it may be the first action against a leader of a Native American group involved in payday lending.

More than a dozen tribes, including the Otoe-Missouria, have gotten into online payday lending in recent years and federal and state regulators have begun cracking down on many players in the payday loan ecosystem. The tribes say rights granted to them by the U.S. mean they can lend money at rates topping 700% a year, even in states that ban the short-term loans.

Shotton says his business follows federal and tribal laws and that regulators, such as those in Connecticut, are ignoring legal protections regarding Native Americans' sovereign rights. He said his impoverished tribe needs the profits to fund affordable housing and after-school programs. 

Connecticut’s action follows an October court victory against the tribe for New York’s banking regulator when a U.S. appeals court ruled against the Otoe-Missouria and another tribe that sued to establish their right to make high-interest online loans.

Benjamin M. Lawsky, superintendent of the state’s Department of Financial Services, had ordered 35 online lenders, including at least four companies owned by tribes, to stop offering loans in New York that exceed the state's interest rate cap of 25%. ??Lawsky's office also had sent letters to Citigroup Inc., Bank of America Corp., JPMorgan Chase & Co and 114 others banks asking them to cut off the payday lenders critical access to borrowers' checking accounts.

The tribes sued, arguing Lawsky overstepped his jurisdictional bounds in trying to regulate business activity that takes place place on Native American reservations in Oklahoma and Michigan.
 
Other regulators have raised questions about whether some payday websites are really owned by tribes. Pennsylvania’s attorney general sued Think Finance Inc. in November for using tribes, including the Otoe-Missouria, as a cover for an “illegal payday-loan scheme.”

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