The Oklahoma-based Otoe Missouria Tribe and Michigan-based Lac Vieux Desert Band of Lake Superior Chippewa Indians have dropped their federal lawsuit against the state of New York that claimed its' campaign against payday lenders violated their rights as sovereign tribes.
The tribes released a statement abutting drop the case, stating the fight has consumed "considerable resources."
"While we hoped when we first pursued this action that we would be able to quickly undo the damage caused and avoid a prolonged and material interruption to our businesses, the fact of the matter is the states unjust interference in the businesses of the tribes have caused irreparable harm that further legal proceedings would simply be unable to remedy," a spokesperson for the tribes said.
Payday lending businesses that align themselves with Native American tribes have come under fire from federal regulators in recent years.
New York banking regulators last year pushed banks to stop processing payments for lenders that violate the states 25% cap on interest rates. Last November, the state sent cease and desist orders to dozens of online payday lenders to stop their advertisements in the state. The tribes quickly countered with the lawsuit arguing their operations were located on reservations and not subject to state oversight.
The argument suffered a severe setback last month when a federal appeals court denied a temporary injunction that would have barred New York from restricting tribal lending while the case was litigated. The court ruled that New York's top banking regulator has the power to regulate online lenders owned by Native American tribes.
A U.S. district court judge in March ruled that the Federal Trade Commission has authority under the FTC Act to regulate the arms of Native American tribes, their employees and their contractors.
That decision stemmed from a case involving AMG Services Inc., a payday lending operation affiliated with a tribe. The defendants included automobile racer Scott Tucker, his brother Blaine Tucker, four other individuals, AMG Services, three Internet-based lending companies and six related companies.
In August 2013, online lender Western Sky Financial - owned by a Cheyenne River Sioux tribal member and operating on the tribes South Dakota reservation - announced it would stop offering loans after facing lawsuits across the U.S. over three-digit interest rates for its loans. The company previously had claimed they were not bound by state law because of their tribal affiliation.
Western Sky's decision came as state and federal regulators began clamping down on payday lending, an industry that operates under a patchwork of laws. These loans carry high interest rates and balloon payments, critics say.
Industry groups argue that payday lenders are being persecuted and that they serve a need not being met by traditional banks.
Western Sky was the subject of several lawsuits challenging its lending in states with strict usury laws that cap interest rates on loans. Many states accused Western Sky of issuing online loans with interest rates as high as 340%. In 2013, New York, Michigan and Georgia sued the company. The FTC filed a lawsuit against Western Sky in 2011, alleging illegal collection practices.