Tribes’ Co-Regulator Status Not Sufficient to Negate Ninth Circuit’s General Applicability Standard

By: Sandra L. Shippey | Partner | sandra.shippey@procopio.com
Theodore J. Griswold | Partner | ted.griswold@procopio.com

The United States District Court for the Central District of California recently issued an Order a granting a petition by the federal Consumer Financial Protection Bureau (“CFPB”) to enforce its civil investigative demands (“CID’s”) against three tribally owned online lending companies operating on tribal reservations and in doing so followed the Ninth Circuit rule set forth in Federal Power Commission v. Tuscarora Indian Nation (1960) and Donovan v. Coeur d’Alene Tribal Farm (1985) holding that Federal statutes of general applicability, that do not specifically exclude tribes, will apply to Indian tribes, (with certain exceptions noted below).

Each tribal lender provides small dollar loan products, including payday loans, installment loans and lines of credit to nationwide customers who are not tribal members. The District Court granted this Order, but it also granted the lender’s request for a stay pending the lenders’ appeal of the order to the Ninth Circuit.

The CFPB was created by the Consumer Financial Protection Act (the “CFPA”). The CFPB issued the CID’s to obtain information and documents as part of its inquiry into whether these tribal lenders have engaged in unlawful practices. The tribal lenders refused to comply with the CID’s issued by the CFPB because they argued that: (i) the CFPA was not applicable to them because Coeur d’Alene and it progeny were wrongly decided based upon an incorrect interpretation of Tuscarora (to which the District Court said it was not in a position to reconsider the Ninth Circuit’s interpretation of law), (ii) a more recent case, Vermont Agency of Natural Resources v. United States ex rel. Stevens (2000) overrides the Coeur d’Alene rule (with which the District Court disagreed), (iii) only “persons” are subject to investigation and Indian Tribes and arms of Indian tribes are not “persons” within the meaning of the CFPB’s investigative authority to whom the CFPB can issue CID’s (which the District Court rejected), (iv) Indian tribes are explicitly included in the definition of “State” in the CFPA as co-regulators which should be understood as a decision on behalf of Congress to refrain from regulating the tribes because they cannot be both a regulator and regulated (with which the District Court disagreed and stated that Congress does not express an intent to exclude tribes by merely mentioning them as sovereign regulators while remaining silent on whether the unrelated provision at issue is also intended to regulate Indian tribes), and (v) the tribal lenders were not subject to the CID’s because as arms of Indian Tribes, the tribal lenders enjoyed sovereign immunity (which the District Court rejected stating that “(u)nder settled Ninth Circuit Law, tribal sovereign immunity does not bar a suit by a federal agency, even when Congress has not specifically abrogated tribal immunity.”)

The District Court noted that in the Tuscarora case, the Ninth Circuit Court stated that “it is now well settled by many decisions of this Court that a general statute in terms applying to all persons includes Indians and their property interests.” This rule was followed in the Coeur d’Alene case, when the Ninth Circuit Court stated that the Occupational Safety and Health Act was generally applicable, and it therefore applied with equal force to Indian tribes, unless the tribes were specifically excluded. The Coeur d’Alene court did acknowledge three exceptions to its general principle:

A federal statute of general applicability that is silent on the issue of applicability to Indian tribes will not apply to them if: (1) the law touches “exclusive rights of self-governance in purely intramural matters”; (2) the application of the law to the tribe would “abrogate rights guaranteed by Indian treaties”; or (3) there is proof “by legislative history or some other means that Congress intended [the law] not to apply to Indians on their reservations . . . .” In any of these three situations, Congress must expressly apply a statute to Indians before we will hold that it reaches them.

The tribal lenders argued that the third exception applies to them because Indian tribes are mentioned in the CFPA as co-regulators which should be understood as a decision on behalf of Congress to exclude tribes from the CFPA’s applicability because tribes cannot be both a regulator and regulated. However, the District Court disagreed and held that the tribal lenders did not show any proof that Congress intended the CFPA not apply to Indian tribes. Based on this Order issued by the District Court, the Ninth Circuit’s general applicability standard is alive and well.

Sandra L. Shippey is experienced in representing lenders making loans to Native American tribal governments as well as experienced in representing tribes in connection with large commercial loans. Ms. Shippey has more than 25 years of experience representing finance companies, banks and other asset-based lenders and borrowers in connection with all types of traditional credit activities, asset-based financing, mezzanine financing, and other commercial financing. She has significant expertise and experience in the structure, documentation and negotiation of borrowing base working capital facilities, syndicated loans, secured and unsecured credit facilities for acquisitions, as well as traditional loans secured by all types of personal property.

Ted is head of the Native American Law practice group and primary editor for the Blogging Circle. Connect with Ted at ted.griswold@procopio.com and 619.515.3277.