Tribal online lenders came away with a significant win in the California Court of Appeals this week in The People of the State of California v. Miami Nation Enterprises, et. al., Civ. No. B242644 (Cal. App. 2d Jan. 21, 2014). In Miami Nation, California’s Second Appellate Division affirmed the dismissal of a suit by the California Attorney General’s office challenging the authority of Tribes to lend in California without a California license to do so. California claimed that loans made by the Tribes to California residents were not enforceable under California law because the tribes are not licensed in California and the loan fees exceeded California’s enforceable rates. The Court found that the tribal lending operations “are subject to tribal laws governing interest rates, loans and cash advance services” and that the State Attorney General cannot enforce state lending laws against the Tribal lenders. The Court concluded that “there can be little question” that the tribal lenders “function as arms of their respective tribes” and are therefore not subject to the state lending laws.
The California court’s ruling in Miami Nation marks the second state appellate court decision that affirms Tribal authority to operate under Tribal laws rather than state laws. Previously, the Court of Appeals of Colorado dismissed the State of Colorado’s appeal of a lower court’s ruling that sovereign tribal lenders were arms of their respective tribes and were not subject to the State’s jurisdiction.
We expect to see other state courts making similar rulings affirming the authority of Tribal online lenders to operate free of state restrictions. In the current climate of state scrutiny of Tribal online lending and licensing requirements for lenders, this emerging trend is a significant development for Tribal lenders.