Corporate & Securities Law

E Pluribus Duo and payday loans

Payday loans are supposedly a problem. I’m not sure why.  Neither was George McGovern. But twelve states prohibit them.

Now, if payday loans were like corporate stock, the issuers could avoid one state’s corporate rules by incorporating in a different state.  You can’t do that with payday loans.  But, according to the WSJ  you can incorporate in another “country,” set up in, say, Kansas and lend anywhere via the Internet:

Because of the sovereign immunity granted to tribes by the U.S. government, they are shielded from interest-rate caps and other payday-loan regulations. * * *More than 35 of the 300 companies making payday loans through the Internet are owned by American Indian tribes * * * The lender usually incorporates on tribal land, agreeing to pay the chief a salary of a few thousand dollars a month * * *Most payday lenders have no physical presence on tribal land. .* * *

Some payday lenders have tried to avoid interest-rate limits by incorporating in states with no maximum rates, such as Delaware and Utah, and then imposing the higher rates on borrowers throughout the U.S. That practice suffered a defeat when Pennsylvania’s highest court ruled in October that Cash America International Inc., the largest publicly traded payday lender by revenue, had to abide by the state’s interest-rate and licensing rules even though the company is incorporated in Nevada. The possibility of similar defeats elsewhere is another reason for payday lenders to make deals with tribes. * * *

 It’s useful to remember that Native Americans are part of The Law Market.

Full post as published by Truth on the Market on February 10, 2011 (boomark / email).