United States Court of Appeals for the Second Circuit has denied a request by two Native American Tribes to stop New York State’s top financial regulator from cracking down on their online lending businesses. The decision comes more than a year after the Tribes sued Benjamin M. Lawsky, Superintendent of the state’s Department of Financial Services, arguing that he had overstepped his jurisdictional bounds in trying to regulate business activity that takes place on Tribal reservations in Oklahoma and Michigan.
The ruling upholds a decision from Judge Richard Sullivan of Federal District Court in Manhattan, who suggested that once tribal businesses go online to attract consumers - many of whom live far beyond the borders of their reservations - the Tribes effectively lose their rights to operate as sovereign nations.
In their lawsuit, the Otoe Missouria Tribe in Red Rock, Oklahoma and the Lac Vieux Desert Bank of Lake Superior Chippewa Indians in Watersmeet, Michigan argued that their sovereign status shielded them from the reach of New York State. The appeals court disagreed, outlining in a 33-page opinion that the borrowers reside in New York and received the loans “certainly without traveling to the reservation.” The decision is the latest setback for the Tribes. Last year, the Consumer Financial Protection Bureau rejected an argument from three Tribal online lenders that argued their sovereign status protected them from an investigation by the agency.
The lawsuit is continuing in federal district court, and the opinion does note that “a court might ultimately conclude that… the transaction being regulated by New York could be regarded as on‐reservation, based on the extent to which one side of the transaction is firmly rooted on the reservation.”