Tribal governments are looking to the lending industry for the kind of economic boost that casino gambling has offered over the past 25 years.
"We are excited. It's really a dynamic time for tribes in terms of a new economic development opportunity for them," said Barry Brandon, executive director for the Native American Financial Services Association in Washington, D.C. The newly formed association strives to get out front with information to help tribes avoid the missteps that some tribes already have made in getting in early.
Brandon said gaming and lending offer similar economic benefits, but Internet commerce gives geographically remote reservations more opportunity for creating jobs than exists with casinos.
The Chippewa Cree Tribe of Rocky Boy Reservation in north-central Montana is NAFSA's example of how properly run enterprises can benefit tribes. According to the tribe's website, its lending company, Plain Green, generated more than $2 million in gross revenue in its first six months, enabling the tribe to offset revenue shortfalls following floods and to consider student scholarships.
Brandon said the association has received considerable interest from tribes that are looking to create lending companies. NAFSA provides a list of best practices that incorporate federal consumer protections such as the Truth in Lending Act, Military Lending Act and Equal Credit Opportunity Act, along with privacy rules. The best practices include promoting financial literacy tools, working with consumer advocates and never garnishing wages or engaging in abusive collection practices.
While the best practices don't discourage high-interest loans, they do encourage transparency so consumers know what they are paying. Brandon said banks collected overdraft fees of $38 billion in 2011, which translates to an annual interest rate of 3,500 percent. Short-term loans give the unbanked or under-banked population an option to overdrafts that is less costly and more transparent, he said.
NAFSA also is developing a program in which tribal lending enterprises can be certified by an independent third party.
"What we are trying to build is a brand and a reputation that, if they (consumers) are going to use this type of product, the best place to go is to work with these tribes because they have established a very, very solid track record of excellent service and great product and consumer friendliness," Brandon said.