Connecticut’s Governor Tried To Crack Down On Predatory Lending And Got Accused Of Being Racist

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CT Gov. Dannel Malloy (D)
CREDIT: AP

By Alan Pyke, Think Progress

As federal officials attempt to thread the needle between restricting predatory lending and ensuring that emergency loans remain available to America’s poorest, they’re trying to create a new and adaptable system of rules. But in one state, the traditional approach to payday lending is producing a strange public relations fight between lawmakers, a governor, Native American tribes, and a mysterious D.C.-based conservative PAC.

Months after Connecticut regulators imposed a large fine on an unlicensed internet lender, a series of billboards showed up near the state’s highways accusing Gov. Dannel Malloy (D) of attacking the economic future of American Indians. The campaign made a big splash in a state that has two Indian-run casinos, and reportedly even featured a billboard in New York City’s Times Square. But nobody’s sure who is really paying for the billboards, and both Connecticut’s own tribes and the Otoe-Missouria insist they are not involved.

Connecticut is one of 15 states that uses a low interest rate cap to effectively ban payday lending. But an online lender affiliated with the Oklahoma-based tribe found a way into the Nutmeg State anyway.

 The state responded with a $1.5 million fine, $700,000 of it charged personally to Otoe-Missouria tribe chairman John Shotton. A judge rejected the Otoe-Missouria’s argument that its tribal sovereignty prevented Connecticut regulations from applying to its corporate partners. It is the second time in the past couple of years that a court has found that borrowing a tribal group’s name and legal authorities does not give a payday lending company immunity from regulation. Such partnerships remain rare – just 63 out of more than 560 federally recognized tribes have opened payday lending partnerships – but they return a tiny proportion of lending revenues to actual Native Americans in exchange for the theoretically legal indemnity the partnerships afford to the businesses that make the real money.

The fines were announced in January, but the billboards have put them in the news again. The signs are just one piece of an inflammatory campaign against Malloy backed by a D.C.-area conservative nonprofit with anonymous donors. Billboards, direct mail ads, and online communications paid for by the Institute for Liberty (IFL) accuse Malloy of destroying the economic future of native peoples. The group publicly accused Malloy of “bigotry against Native Americans” and operates a website replete with vaguely-captioned stock photos of people in stereotypically tribal garb. A journalist named Johnnie Jae who managed to contact the individuals in the stock photos told ThinkProgress that “the regalia is authentic, [but] the main issue is that these families had no idea these images were being used for this campaign and were appalled.”

IFL President Andrew Langer told ThinkProgress the group has been following payday lending regulations “for a good 18 months now” and said their focus is on the sovereignty of the tribes involved in cases like the Connecticut one. “We think this tribe has a right to engage in this business, and we think the state of Connecticut has no legal authority to go after them,” Langer said.

When the legal theory around tribally-affiliated lending evaporated in a Connecticut courtroom earlier this year, it set off a strange firestorm in the state that might end up further tightening Connecticut’s laws on the loans.

State Rep. Matt Lesser (D) is sponsoring a bill he hopes will sharpen the state regulations that made the $1.5 million fine possible. Current law limits the penalties for violating Connecticut’s interest rate laws to the amount by which the customer was overcharged. “We’re taking it a step further and saying that any loan that exceeds the cap, the Department of Banking can declare it unenforceable, null-and-void,” Lesser told ThinkProgress. “We’re hoping it creates that extra incentive for these payday loansharks to respect our laws and stay out of our state.”

Because IFL is a 501(c)4 nonprofit, it does not have to disclose who is financing its attacks on Malloy. “I will neither confirm nor deny that we’ve received money from tribal industries or payday lending companies,” he said, “but I will say that if they are supporting us I wish they’d support us more.”

“They deny that it’s the Koch brothers, for whatever that’s worth,” Lesser said. “You can sort of look at who benefits and draw your own conclusion.” The two national trade associations who have the most direct interest – the Native American Financial Services Association (NAFSA) and the Online Lending Assocation (OLA) – each emphatically denied involvement to ThinkProgress, with NAFSA’s spokesperson adding that the IFL campaign has “done more harm than good” to the Otoe-Missouria’s cause.

Enforcing rate caps like Connecticut’s can be important to protecting consumers, Pew Charitable Trusts small-dollar lending expert Alex Horowitz told ThinkProgress, but they’re not the only option. “Rate caps are important and states should continue to set them. If they don’t want payday lenders to operate in the state, they should set them at 36 percent or less,” he said. But a more flexible sliding rate cap system like the one in Colorado has kept credit available in emergencies and pushed average interest rates on the loans down to 115 percent – extremely expensive, but about a third of what unregulated states routinely see.

The fallout from Connecticut’s decision is coming just as federal regulators are in the process of writing the first-ever national code for payday lending, auto-title lending, and other forms of expensive small-dollar credit.

The fines are “kind of a traditional tactic,” Horowitz said, “but they’re doing it very aggressively.” Applying that classical enforcement approach gets a bit slippery when the lender is attached to a tribe. The Connecticut dispute, Horowitz said, “underscores why the CFPB’s rules are so important. While there’s been some uncertainty in the courts about how to handle state-tribe disputes, it’s clear that a federal rule from the Consumer Financial Protection Bureau trumps the other ones and would set a floor on rules for all of these.”

With its new regulations, the agency seeks to balance genuine consumer demand for emergency loans with the public interest in preventing the most predatory and abusive features of the traditional business model. While many states have taken Connecticut’s approach of preventing payday lenders from operating in any form, a handful of others have attempted the kind of hybrid system that CFPB is now aiming to build into federal law. The final rules are years away, but they will likely be modeled on the approach that states like Colorado take: limit the cost of these loans, prohibit the most egregious fine-print tricks lenders use, but make sure this lending remains economically viable so that desperate low-income people have somewhere to turn.

The idea that tightly-regulated payday loan shops can be a genuinely valuable service for the poor may need a lot more time to sink in in places like Connecticut that have decided a ban would be better.

“When you talk to folks [about] how they wound up paying these back,” Lesser said, “it’s often by doing the things they probably should’ve done in the first place. Turn to family and friends and existing resources to make up that difference.”

“Poverty stinks. It’s tough. But eventually people are going to have to reckon with the cycle of poverty and debt these guys are foisting on them.”

Connecticut Tribes Band Together In New Push For Expanded Gambling

By Kevin Horridge, www.casino.org

Mohegan Sun and Foxwoods are teaming up in an effort to convince Connecticut to allow for expanded gambling. (Image: MoheganSun.com)

Mohegan Sun and Foxwoods are teaming up in an effort to convince Connecticut to allow for expanded gambling. (Image: MoheganSun.com)

Expanded gambling in Connecticut was supposed to be dead a month ago. But the proposal seems more alive than ever, as both Mohegan Sun and Foxwoods have been lobbying hard to get the state legislature to at least consider the measure as a way to combat the new casinos that are being built in neighboring Massachusetts.

It’s unclear what the Mohegans and Mashantucket Pequots, the two tribes that operate the Native American casinos in Connecticut, would ask for or be able to get from state lawmakers.

It could be something as extensive as a brand new casino in northern part of the state that would attempt to convince state residents not to travel to Massachusetts once casinos are built there, or it could be a more modest proposal to add slot machines to off-track betting locations.

Officials, Lawmakers Speak Vaguely of Gambling Expansion

“We’re talking about ways to preserve jobs,” said Mashantucket Pequot chairman Rodney Butler, though he did not specify exactly what he or the tribe were planning. Butler and Mohegan Tribal Gaming Authority chairman Kevin Brown traveled together last Wednesday to meet with Democratic leaders in Connecticut’s Senate.

“I view them as a major employer in our state,” said Senate Majority Leader Bob Duff (D-Norwalk), who a month ago declared their efforts dead but admitted to meeting with the tribal leaders last week. Like others, Duff provided few details on exactly what anyone was proposing.

Despite the lack of concrete proposals being floated publically, there are signs that at least some officials plan to help the tribes battle against increasing competition in the region.

“The gaming industry never goes away,” said State Representative Stephen Dargan (D-West Haven), who says the Public Safety and Security Committee that he chairs is likely to approve some kind of gambling expansion bill by a March 19 deadline. “It’s always an interesting topic.”

The sudden increase in chatter around the casino industry comes after last Wednesday’s release of the Northeastern Casino Gaming Research Project’s latest update. According to the group’s most recent report, Foxwoods and Mohegan Sun has seen both their revenues and their employment rolls shrink by more than 35 percent since 2006, when the casinos were at their peaks. The combined revenue for the two casinos was just $1.9 billion last year, down from $3.2 billion in 2006.

Governor Acknowledges Issue, But Isn’t Taking Sides

Even Governor Dannel Malloy was willing to talk about the possibility of expanded gambling in his state, though he was careful not to take a position on the issue.

“This is not my proposal,” Malloy said to reporters while at the Mohegan Sun casino. “Other people are making it. I’m not saying no, I’m not saying yet.”

Malloy also acknowledged that the tribes are likely to need to do something once the MGM Springfield casino opens, which is expected to happen in 2017.

“Whether it’s nuclear or not, obviously gaming is becoming ubiquitous,” Malloy said. “And so when you have a state on your northern border that is going to have at least six establishments, that’s an issue. When Rhode Island improves their facilities, that’s an issue. I think the tribal nations have said, ‘Hey, we think this is a way to handle that.’”

Connecticut presses BIA to scrap Indian recognition proposal

By Ana Radelat, The Connecticut Mirror

Washington — The administration of Gov. Dannel Malloy has asked the federal Bureau of Indian Affairs to scrap proposed rule changes the state believes could lead to recognition of additional Indian tribes in Connecticut.

The BIA has been considering the rule changes for months. The state says the changes could open the door to large land claims and expanded Indian gaming in Connecticut. Yet Kevin Washburn, Assistant Secretary of Indian Affairs, has said he’s determined to fix what he’s called a “broken” federal recognition process.

The federal tribal recognition rules in place require a tribe to prove its continuous community and political authority since first contact with European settlers. Washburn’s proposal would change that to allow a petitioning tribe to demonstrate it has maintained a state reservation since 1934. Washburn‘s new regulation would also allow tribes that have been denied recognition to apply again.

“The proposed rules represent a dramatic departure from the standards and process governing acknowledgment decisions for nearly 40 years,” Connecticut Attorney General George Jepsen said in comments filed before a midnight deadline Tuesday. “If adopted as proposed, petitioners could gain recognition in circumstances completely at odds with fundamental principles of tribal acknowledgement. These proposals…are unjustified and should be rejected.”

A new, final Indian recognition rule will be posted within 60 days. It could be modified again based on the comments of the Malloy administration and others, including Connecticut’s tribes.

Gov. Malloy, the Connecticut congressional delegation and most of the state’s political establishment, have pushed back harder than anyone on the proposed rules, even after the BIA changed them to include a provision aimed at blocking three tribes that have long sought recognition in Connecticut — the Eastern Pequots, the Schaghticokes and possibly the Golden Hill Paugussetts.

The BIA had given the Eastern Pequot and Schanghticoke tribes acknowledgement, then withdrew it after an appeal by the state.

At the behest of Connecticut officials, the proposed rules were modified so those who opposed the tribes’ recognition previously would have veto power over a new attempt at recognition.

That infuriated Connecticut’s tribes.

“The BIA failed to consider the long, oppressive history of the state of Connecticut,” wrote Kathleen Sebastian Dring, an elder of the Eastern Pequot Tribal Nation, in her comments to the agency.

Dring told the BIA that, “The third-party veto undermines the BIA’s attempt to create an equitable and objective process for the tribes” and was “imposed by the BIA after political pressure from Connecticut.”

“As citizens [Eastern Pequot tribal members] are entitled to the equal protection of laws in accordance to the U.S. Constitution,” Dring said.

Chief Richard Velky of the Schaghticoke Tribal Nation told the BIA that giving third parties the right to object to new petitions for federal acknowledgement “does not, I believe, comport with the due process and equal protection principles of our Constitution.”

“Nor does the U.S. Constitution provide that a state and its political subdivisions may exercise an absolute veto over the exercise of constitutional authority vested exclusively in the United States government,” Velky wrote.

Meanwhile, Jepsen said the veto provision isn’t a comprehensive enough protection to keep the Connecticut’s tribes from suing the state if it doesn’t  consent to recognition, and “the outcome (of the litigation) is uncertain.”

Jepsen also said he is concerned the proposed regulations wouldn’t block “splinter groups” of Indian tribes from seeking recognition.

Under the proposed rules, the Schagticoke Indian Tribe, a group of Indians that rejected the leadership of the Schagticoke Indian Nation, might be able to apply for federal acknowledgement – and since they were never denied recognition, no veto provision would apply.

Jepsen also called the proposed elimination of the Board of Indian Appeals, which allowed Connecticut to challenge the Eastern Pequot and Schaghticoke recognitions “patently unfair.”

The BIA had granted a Malloy administration request for more time to submit its public comments. The deadline was pushed back from Aug. 1 to Sept. 30.

The entire Connecticut congressional delegation signed a letter that supported the administration’s objections to the proposed recognition rules.

“We…agree the process should be improved,” the letter said, but it recommended more transparency and perhaps a bigger budget, instead of “weakening the longstanding standards for federal recognition.”

The letter backed all of the Malloy administration’s objections and asked the BIA to eliminate the proposal that allowed rejected tribes to petition again for recognition, because the consent requirement or third-party veto, would be challenged in court.

“We note that at least one party is objecting to the consent requirement, contending it may be unconstitutional,” the lawmakers’ letter said.

In all, 255 comments were filed. Many came from tribes and most, like the comment from the National Congress of American Indians, supported Washburn’s efforts.

“Connecticut politicians and their special interests seek to derail justice for Native Americans,” said an unsigned comment. “Please don’t allow the process to become politicized by special interests BIA. Stick to what you believe is fair to Native American tribes.”