The following article was written and reported by Jane Daugherty, a doctoral candidate at the University of Miami, School of Communication.

The office of American Web Loans in Red Rock, Oklahoma, owned by the Otoe-Missouria Tribe. Photo by Jane Daugherty.

RED ROCK, Okla. – On a recent research trip to the online lending companies run by the Otoe-Missouria tribe, it became clear that a large part of the story of this legal battle against tribal lending has been ignored by the mainstream news media.

Two very different groups, both struggling with little power or money, stand to be seriously harmed if New York’s banking Czar, Benjamin Lawsky, succeeds in putting tribal online lending companies out of business by forcing federally-regulated banks to stop processing their payments.

Working people, with no savings or vanished equity in their homes, who face emergency medical bills or other financial crises, will be scrambling to secure legitimate short-term loans if the government crackdown on online lending succeeds. And members of the tribes, who lend small amounts of money, usually $500-$1,000 to people without collateral, will also suffer. Their tribes would lose millions a month in revenue used for health care, education and low-income housing.

Elder Lorena DeRoin depends on programs that are funded by the tribe's online lending business. Photo by Jane Daugherty.

Otoe-Missouria tribe member Lorena DeRoin, 98, already lost the part-time job she loved at the tribe’s Elder Center in Red Rock, Okla. when federal budget cuts took effect. A licensed practical nurse, she said sadly, “I worked there for 32 years. I loved working there and seeing my friends every day and helping them with meals.”

But she had fallen twice at work. With the federal budget cuts and threats to online lending, the tribe could not afford a helper to assist DeRoin or bear the risk that she might be seriously injured. She was forced to move 120 miles away to Broken Arrow, Okla., where she lives with her son, in comfort but depressed. She is a two-hour drive from her own small brick house and the 40 acres in Red Rock she inherited from her father, an Otoe chief.

Students at the Otoe-Missouria Head Start. The program relies on funds from the tribe's online lending business. Photo by Jane Daugherty.

Closer to Red Rock, in Enid, Okla., another Otoe-Missouria tribe member, Mamie Younge, 11, also stands to lose if the government shuts down tribal online lending, which generates about $1 million a month in income for her rural tribe. Mamie wants to go to college and already has won awards for her writing skills. She maintains an A average at school. But cutbacks in funding for the Otoe-Missouria tribe’s public health services, have already forced her mother, nurse Marcella Harper, to work weekends at a local nursing home to make ends meet.

“I want to stay near Red Rock where the tribe is headquartered and where I grew up so Mamie knows what it is to be an Otoe,” said Harper in an interview at an Enid restaurant. “Sure, I would love to spend more time with her on weekends, but I need two jobs to make ends meet in this economy.”

Mamie smiled broadly when asked what it means to her to be a member of the small northern Oklahoma tribe. In her first-place essay this summer, she said, “Maybe it’s not the blood or the people, but it’s my life that makes me Otoe. My family means everything to me. They’re what brought me my Otoe life. You get the pride and joy of being Otoe with your family. Otoe is a culture. So to me it’s many adventures not discovered.”

Mamie’s most memorable Indian experience so far is powwow, the annual July encampment the Otoes hold on land they hold sacred next to the 7 Clans Casino in Red Rock..

“We have dances, dinners and turtle races. I got my (eagle) plume in the year of 2012. My sister and I had to wait a long time because my mom kept the traditions and waited a year after a death in our family. She has always done that, I respect her for teaching us that,” Younge said.

Despite the financial hardships caused by sequestration cuts to the Indian Health Service which affects the entire tribe, Harper hopes to remain near Red Rock to give Mamie solid grounding in their culture.

Almost 500 miles south, in Copperas Cove, Texas, near the sprawling Fort Hood Army base, a decorated Vietnam Army veteran, retired Lt. Col. Bill Thomas, also faced an unexpected financial crisis. A devoted grandfather, conservative political activist and fiercely independent, Thomas was short on cash when his wife Georgia suffered a stroke. Most of her medical care was covered, but there was no emergency fund left to pay the soaring summer air-conditioning bill on the couple’s ranch home. His beloved Georgia, still called “my bride” by Thomas, had therapy to do and desperately needed relief from the Texas summer’s 95-degree-heat and 90 percent humidity.

An avid reader and researcher with a degree in political science facing an urgent need for quick cash, Thomas went online to find a discreet and manageable way to borrow the money to keep the air conditioning running during his wife’s months-long recovery.

Once an LBJ Democrat, now a self-described John McCain Republican, after Vietnam, he had been stationed at Fort Sill, Okla. where he heard good things about a tiny Indian tribe in northern Oklahoma. Years later, looking for a reputable online loan company, he found one owned and run by the same tribe, the Otoe-Missouria.

Thomas got a loan for the money for his huge electric bills online and paid it back on time. Despite a high interest rate, he was pleased and wrote the tribe an enthusiastic thank you note.

But soon consumers with emergencies like Thomas would find it almost impossible to borrow quick cash online if the state of New York and the U.S. Department of Justice, working with the Federal Deposit Insurance (FDIC), succeed in recent efforts to shut them down. Lawsky, New York’s new financial services regulator, has been the most aggressive. On Aug. 6, Lawsky issued a cease and desist order to 35 online lending companies, including 15 tribe-owned and operated businesses (including the Otoes’) to stop offering what he called “illegal payday loans in New York.”

Lawsky has cited cases of New York consumers who take out online or so-called payday loans then fail to repay the loan as agreed to in their contract. He publicized reports of abusive practices by some online lenders whose penalties and late fees he claimed can amount to 500-1,000 percent interest on the amount borrowed.

Two tribes who operate online lending, including the Otoe-Missouria, filed suit, asking for a temporary injunction to halt Lawsky’s crackdown, but last week, U.S. District Judge Richard Sullivan refused to grant the tribes’ request. Unfortunately and inaccurately, the ruling was reported widely in the news media as though the native tribes that brought the suit asserting their sovereignty had lost the war, not just the first skirmish.

The fight over the tribes’ rights to operate online lending businesses under the long history of legal precedents upholding sovereign immunity appears far from over. As the case goes forward, and if history bears any indication of how this will end, New York's Lawsky, could be headed for a long, slow, expensive defeat.

Abuses in online lending do occur and the individual businesses, as New York has done in one case, should be investigated, said Otoe-Missouria Chairman John Shotton told me in a recent interview in Red Rock. Shotton also serves as director of a consortium of tribal online lenders, the Native American Financial Services Association (NAFSA). That group has set up its own ethical standards, best practices and procedures which members are required to follow, including tape recording all online lending agreements with borrowers.

Shotton said the tribally-owned lending companies in NAFSA do not engage in the abusive practices Lawsky cited in New York and, indeed, none of the 15 tribal companies Lawsky moved to stop from lending in New York have been alleged to have charged illegal fees or engaged in illegal practices.

But Lawsky also ordered Automated Clearing Houses to stop processing all online lenders’ payments. No online transactions can occur without the services of an Automated Clearing House, making Lawsky’s tactical maneuver effective. One Tennessee-based online lender, not Indian-owned, has already laid off 400 workers as a result.

Soft-spoken but adamant, Shotton does not mince words when objecting to the recent moves by former federal prosecutor Lawsky, the Department of Justice and the Federal Deposit Insurance Corporation. His tribal members are already feeling the impact of cuts in their federally-funded programs resulting from budget sequestration, and he fears the result of revenue loss from this new threat.

“We feel like we are being attacked by the banking industry with the governmental agencies acting at their behest,” Shotton said. “There is no doubt that the Indian governments are historically underfunded. The projection is that sequestration cuts next year will be another ten percent.” The tribe has already cut an entire classroom serving at-risk toddlers from Head Start due to the sudden loss of millions in promised federal funding because Congress approved the sequestration of the budget – across the board cuts in government funding. And its eight-officer police department will probably be cut in half.

“Everybody thinks Indians just print money because we are allowed to operate casinos,” said Shotton in an interview at tribal headquarters near the border with Kansas, “But casinos, especially far from urban areas, are just one source of income … and that income can fluctuate. We operate convenience stores and a cattle company and a few years ago we saw an opportunity to start online lending businesses that are perfectly legal, profitable and help people who can’t get emergency loans anywhere else.”

The state of Kansas recently opened its own giant casino, just north of the Oklahoma-Kansas state line, and now draws many of the gamblers who used to drive from Wichita to the Otoe-Missouri’s First Council Casino and hotel.

Shotton, who has an undergraduate degree in business administration and a Masters in public administration, both from the University of Oklahoma, said online lending, which the Otoes researched for a full year before launching, was an enterprising and legal attempt to make up for a decline in revenues at its First Council Casino, even before sequestration cuts occurred.

This year, sequestration has already cost the Indians more than five percent of their federal support, promised in numerous treaties and agreements in exchange for giving up vast tracts of land and natural resources, including oil.

The 2013 sequestration cuts came despite earlier public assurances from the Bureau of Indian Affairs that losses to the tribes would be limited to two percent, Shotton said. Those cuts, $552.7 million to U.S. tribes so far, have triggered reductions in staff and services in the Otoe tribe’s elderly meals program, education, the Indian Health Service and other programs.

“ ‘Don’t get sick around here after June’ is the refrain now after cuts to the Indian Health Service,” said Shotton.

Next year another ten percent, about $1 billion, is expected to be cut from promised federal funding for tribes.

Shotton wondered aloud about what a typical American household would do to pay their bills and feed their children if faced with a sudden 15 percent cut in income coupled with rising costs.

A study recently released by the FDIC echoes Shotton’s concern: their 2011 national survey showed that 30 percent of American households do not have a savings account and 8.2 percent of households have no bank accounts. Plus one in five households are “underbanked,” that’s FDIC terminology meaning these households have a bank account “but have used alternative financial services, such as nonbank check cashing or payday loans, in the past year.”

Now that those so-called payday or online loans are generating significant revenue for Indian-owned businesses, who can operate and regulate them because of their federally recognized sovereignty, some observers, including satisfied Otoe loan customer Thomas, speculate that the mainstream financial industry is trying to find a way to grab that piece of lucrative business.

Jim Hopper, the manager of online lending for the Otoe-Missouria Tribe. Photo by Jane Daugherty.

The Otoe’s online lending manager Jim Hopper said the tribes generate more than $1 million monthly in essential revenue. Their online lending operation succeeds because it is well managed and because the majority of the loans are quickly repaid on time, he said.

Hopper said interest rates vary depending on the borrower’s credit rating, income and length of the loan, usually less than six months. But Hopper said “100 percent would not be out of line,” for the interest rate on a short-term loan with no collateral.

Interest rates are expressed as annual percentage rates that include penalties and late fees. Borrowers who repay online loans on time, usually over periods much shorter than a year, pay proportionately lower fees for their loans than the amount expressed as annual percentage rates. Hopper also said data collected by the tribe’s online lending companies, all located behind their Seven Clans Casino, indicates the typical online borrower they serve is employed, has an average household income of $52,000, no savings and “not great” credit.

“They’re not bad people,” Hopper said. “Many of them have some college and only 10-15 percent don’t pay back on time… very often our rates are cheaper than what banks charge for bouncing checks multiple times and wrecking your credit score.”

The Otoe tribe’s online lending operation, actually three separately branded companies, occupies leased prefab offices resembling portable classrooms, equipped with fast computers, state-of-the-art phone service and recorders, a kitchen and their own internet server.

All of the 65 online loan agents are tribal members who are trained both as lenders and credit evaluators. “We do a lot of teaching,” Hopper said, showing off a giant plasma TV in a comfortable conference room where employees attend regular, mandatory training.

“You have to find us. We do no cold calls,” Hopper said, “People contact us about loans and we explain, multiple times, the loan products that are available. We verify their identity, their employment, their credit score... We ask why they want to borrow money… We record everything including the terms of the contract, interest rates, due dates and possible penalties… The approval process usually takes three to four days and not everyone gets approved.”

Hopper said depressed housing values triggered in the economic downturn of 2007 eliminated the equity that many homeowners previously used as collateral for loans if they had a financial emergency. So three years ago, the Otoes got into the online lending business.

“If your house is underwater and you have no savings, a bank is not going to lend you money,” Hopper said. “A lot of people know not to incur hundreds of dollars in bounced check charges or credit card penalties, so they come to us. Also they may not want to try to borrow from family or friends who may be in the same financial boat in today’s economy.”

In addition to his enthusiastic “thank you” letter for their online lending services. Lt. Col. Thomas devotes an entire page on his personal website (redwhite&trueblue.us) to praising the tribe for its entrepreneurship, honesty and integrity. He also said he believes that because tribal members have been repeatedly betrayed by the federal government, they have to fight retain their sovereign immunity.

Tribal sovereignty is the doctrine reserving to Congress the sole authority to regulate tribal affairs, excluding all state involvement in tribal commerce. It was first established in 1804 by President Jefferson and repeated in every treaty and agreement between tribes and the federal government since then.

Shotton said, “Sovereign immunity grants us the right to operate our government and our businesses without regulation from the state and federal governments.”

In August, his tribe and the Lac Vieux Desert Band of Lake Superior Chippewa Indians used similar language in a federal lawsuit they filed against Lawsky and the state of New York.

One of the lawyers for the tribes, David Bernick, said, “This is a straightforward case about the real world importance of Native American sovereign rights.” He said the tribes will suffer “irreparable harm” if Lawsky succeeds in cutting off their access to major banks that act as clearing houses for online lending.

“This is an exercise in arrogance, and people are suffering as a result,” Bernick argued in court.

Lawsky did not return repeated phone calls, or show up for the first hearing in federal court. Two detailed email requests to be interviewed for this article drew no response.

The sovereign status of recognized Indian tribes has repeatedly been upheld in the Supreme Court and in numerous states. The concept is contained in Article I, section 8, of the United States Constitution. Several courts have since found that any erosion of tribal sovereignty would lead to a complete loss of the rights of recognition granted to the tribes by the federal government.

Last year, Colorado courts upheld tribal rights under circumstances very similar to those in New York. The state waged its courtroom battle against two tribes for seven years before sustaining a complete loss in a ruling that upheld tribal sovereignty.

On his website, Thomas recounts proudly that he marched in Selma for civil rights in 1965 and boasts of “a nasty scar on the back of my skull that required 14 stitches courtesy of a brick thrown by a Klansman in Alabama.”

Thomas devotes the same fervor on his website to his dealings with the Otoe-Missouria tribe and their businesses:  “True to their centuries of a heritage proving exceptional character and leadership the Otoe-Missouria today are prospering through hard work and attention to fiscal responsibility.  The ingenuity of a great people has served them well.”

Thomas added that “if our national leaders in Washington would show half the intelligence and responsibility of the folks in Red Rock, Okla., our nation would not be in the financial straits we find ourselves in today.  There is no finer example of responsibility that can be found in the current business world today than the Otoe-Missouria.”

Back in Broken Arrow, Okla., Lorena DeRoin plans her return to Red Rock, where she insists she still lives, despite spending the past four months at her son Longan DeRoin’s home.

“Oh, I’m just visiting here,” she said, flashing a smile that was captured in a recent painting of DeRoin celebrating at a recent annual pow-wow. “You know, I was president of the Otoe War Mothers, went to Washington, visited Hawaii, Florida, I went all over when I was national president,” she said.

The Otoe War Mothers, founded in 1943, send letters and packages to Indian soldiers on active duty. Today, despite the tribe having shrunk to 3,000 members, several young Otoes are serving in the military.

“So you see, even if I don’t have a job anymore at the Elder Center,” she grinned, “I have to get back to Red Rock to make sure the memorial (located in the tribal cemetery) is taken care of and has fresh flowers… Otoes always go home.”

Jane Daugherty, former associate professor of journalism at Florida International University, is a doctoral candidate at the University of Miami School of Communication. An investigative reporter and editor for 25 years, she is a four-time winner of the Robert F. Kennedy Journalism Award for coverage of the disadvantaged and was named a Pulitzer Prize finalist in commentary in 1994.

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