In what is being hailed by the Federal Trade Commission as a victory for regulators, a federal court judge in Nevada has ruled that the FTC has the authority to bring suit against payday lenders affiliated with American Indian tribes.
In 2012, the FTC filed a complaint against multiple defendants accusing them of violating the Federal Trade Commission Act, the Truth in Lending Act and the Electronic Fund Transfer Act. Specifically, the agency alleged the defendants engaged in unfair and deceptive practices by offering and extending “high-fee, short-term ‘payday’ loans and the collection of those loans.”
The court bifurcated the case and said it would first determine whether—and to what extent—the FTC has authority over the parties asserting Indian tribe sovereignty. The defendants argued that, because they were arms of an Indian tribe, employees of an arm of an Indian tribe or businesses associated with arms of an Indian tribe, the FTC lacked the authority to regulate them.
But U.S. District Judge Gloria M. Navarro, affirming a report and recommendation of a magistrate judge, disagreed.
“[T]he FTC Act is a federal statute of general applicability that under controlling Ninth Circuit precedent grants the FTC authority to regulate arms of Indian tribes, their employees, and their contractors,” she concluded.
Judge Navarro shot down three lines of argument from the defendants. First, the burden of establishing whether the defendants fell within the FTC’s jurisdiction to enforce the FTC Act fell on the charged parties, she wrote, not the agency, because of their attempt to claim an exemption from the act.
Second, the court determined that the FTC Act is a statute of general applicability. The FTC “has broad powers” under the act, and on its face, grants the agency “broad authority to bring suit against ‘any person, partnership, or corporation’ for violating ‘any provision of law enforced by the [FTC],’” the court said. Significantly, however, a genuine issue of material fact exists, held the court, concerning whether the tribal chartered defendants qualify as “corporations” under the FTC Act.
Although the FTC Act contains exceptions to the agency’s authority, the court said the issue is whether the statute is generally applicable, not universally applicable. “The defendants offer no compelling explanation as to why the FTC Act should be treated differently from these other broad federal statutes of general applicability,” Judge Navarro wrote, referencing the Occupational Health and Safety Act, the Employee Retirement Income Security Act, the National Labor Relations Act, and the Contraband Cigarette Trafficking Act, all of which have been ruled to be statutes of general applicability.
Finally, prior case law and Indian canons did not yield a different result, the court said. The defendants attempted to rely upon disputes over sovereignty between Indian tribes and private or state actors rather than the federal government acting in its law enforcement capacity or cases applying Indian canons of construction when interpreting the abrogation of treaty rights—neither of which applied to the case at hand. The court noted that under U.S. Court of Appeals for the Ninth Circuit precedent, federal statutes of general applicability that are silent on the issue of applicability to Indian tribes do apply to Indian tribes unless “(1) the law touches on ‘exclusive rights of self-governance in purely intramural matters,’ (2) application of the law to the tribe would abrogate treaty rights, or (3) there is some proof that Congress intended the law to be inapplicable to Indian tribes.”
To read the order in FTC v. AMG Services, click here.
Why It Matters: The FTC hailed the decision as a “significant victory” as regulators around the country have turned their attention to payday lenders (click here to read our previous newsletter). “This ruling makes it crystal clear that the FTC’s consumer protection laws apply to businesses that are affiliated with tribes,” the director of the agency’s Bureau of Consumers Protection, Jessica Rich, said in a press release. “It’s a strong signal to deceptive payday lenders that their days of hiding behind a tribal affiliation are over.” Not every court agrees, however, as a California appellate court recently affirmed the dismissal of a complaint filed by a state financial regulator against five Indian tribe-affiliated lenders (click here to read our previous newsletter), finding that the defendants were sufficiently related to their respective tribes to be protected by sovereign immunity. In addition, should the court find at trial that the tribal chartered defendants are not for-profit “corporations” subject to the FTC Act, they are then beyond the jurisdiction of the FTC. Such a ruling would be a “significant victory” for the tribal chartered defendants.