ProPublica, a nonprofit newsroom that exposes abuses of power, recently highlighted a settlement involving a Native American tribe’s controversial loan practices in Minnesota. The Lac du Flambeau Band of Lake Superior Chippewa Indians (LDF) has been under scrutiny for charging extremely high interest rates on loans, often between 200% and 800%.
The Minnesota Settlement
Minnesota Attorney General Keith Ellison accused LDF of breaking state laws by charging unfair interest rates, misleading consumers, and engaging in deceptive practices. In response, the tribe agreed to a settlement. While LDF denied the allegations, it promised to stop offering loans in Minnesota unless it complies with state laws, including a cap on interest rates.
Additionally, the tribe agreed to forgive over $1 million in outstanding loans owed by Minnesotans. The agreement must still be approved by a judge.
Ellison stated: “I will not allow Minnesotans to be exploited by predatory lenders.”
How the Loans Worked
LDF operates through companies that offer high-interest, short-term installment loans. These loans are repaid over time but often trap borrowers in cycles of debt. For example, a Burnsville resident borrowed $1,398 in 2023, but due to a 795% interest rate, the debt ballooned to $8,593.
The tribe claimed its practices were legal under federal and tribal laws, which they argued override state regulations. However, Minnesota’s new settlement shows states can push back against such claims.
Broader Impact
LDF’s lending business has grown significantly since 2012, partnering with outside firms to run dozens of online loan companies. While some tribes use lending to generate revenue for essential community services, critics argue these practices exploit borrowers. For instance, LDF’s loans have appeared as creditors in many bankruptcy cases across the U.S.
Minnesota is not the only state challenging tribal lending. Earlier this year, the Fort Belknap Indian Community in Montana also settled with Minnesota, agreeing to stop making loans in the state.
Changing the Rules
Minnesota recently updated its laws to cap annual interest rates at 36% to 50%, depending on the loan type. This stricter regulation aims to protect consumers from predatory lending practices. LDF claims it stopped making new loans to Minnesotans by the end of 2023, just before these laws took effect.
Looking Ahead
Despite the settlements, LDF hasn’t indicated it will exit the lending business altogether. Tribal leaders argue their loans are legal and essential for their community’s economic growth. However, consumer advocates and state regulators remain focused on protecting borrowers from unfair practices.