PORTLAND, Ore. - Online loan sharks are exploiting a gaping loophole to get their hands on your money - and local lawmakers are fighting back hard.
What are these loan sharks doing that's so wrong?
They're setting up shop on Native American reservations so they can avoid state and federal laws that protect consumers. It's one of the worst cases of online crime the KATU On Your Side Investigators have ever come across.
Oregon Democratic Senator Jeff Merkley told KATU he has been fighting for years to stop it.
"What they're doing is morally wrong," Merkley said. "It breaks state law. It destroys families and we have to stop it."
We’ve been talking to a Salem woman – hard working but behind on her bills like a lot of us – who is in over her head with a payday loan company – way, way over her head.
Elena Peralta, 20, took out $150 to pay her car insurance – but in a matter of weeks, she was on the hook for $4,500 and teetering on the brink of bankruptcy. The business she got the loan from is called US Fast Cash, which operates on the Ottawa tribe's reservation in Oklahoma.
The loan company, Peralta found out, had the right to raid her bank account at will. And when that money ran out, she started getting phone calls from ‘collection agents’ every day and night, and even at work, threatening her with legal action and harassing her.
And the payments Peralta did manage to make never touched the principal – just the outrageous triple-digit interest rates the loan company was charging her.
"It affected my family," she said. "Not just myself, my whole family."
Everything about this loan sounds illegal under Oregon law. Regulators agree - so much so that the state has already red-flagged these online lenders in this consumer alert.
But here's what we found out when we started looking into this - nothing can be done to stop them, or bring the worst of these cyber loan sharks to justice. Not yet at least.
This woman’s case – and thousands like it – is now at the center of a legal battle at the highest levels of the U.S. Government –a story that’s taken us from Portland, to the halls of Congress, to a dusty town in Oklahoma - and deep into the pages of one of the murkiest chapters in America’s history. Millions of dollars hangs in the balance as the rights of you, the consumer, are pitted against the rights of all Native Americans.
Their treaties with the United States are century-old binding contracts upheld by numerous court decisions. But the issue of tribal sovereignty is taking center stage in the fight to stop online loan sharks.
Merkley saw the writing on the wall in 2007, when as Oregon Speaker of the House, he authored and ushered through a new law putting strict limits on the amount of interest and fees lenders could charge. "We knew that people would try to bi-pass the state laws over the Internet, so we passed a law saying that any loan done over the Internet is un-collectable," he said.
But Oregon lawmakers did not foresee the loan operations moving to tribal lands.
It may now take an act of Congress to stop the online loan sharks and Peralta may become the poster child for that effort.
Merkley is now trying to push a bill that he authored through the U.S. Senate. It would stop the lending from tribal lands in its tracks.
"It simply says that you can't operate out of a tribal reservation or overseas, or anywhere else, and violate the state laws," Merkley said.
If the bill becomes law, the Consumer Fraud Protection Bureau will also have the power to stop the loan sharks at the source, making it impossible for them to dip their electronic fingers into the bank accounts of anyone.
Merkley expects a fight. He says lenders and their lobbyists will line up to stop the bill’s passage.
With her eyes filled with tears Elena told Thom, "That's something that I don't want other people to go through. It's bad."
With that, she said she hopes she does become the poster child for Merkley’s bill, because it will most likely take that type of action to finally close this tribal loophole in lending laws.
What can you do if you're in a sticky situation with one of these lenders?
Stop the drain on your finances by closing the account tied to the loan and opening a new one. That gives you time to contest the loan conditions.
The Oregon Division of Finance tells us that because these extra costs are technically illegal, you may not have to pay them at all. Use the links below to file a complaint.
- To file a complaint: Consumer Financial Protection Bureau | Federal Trade Commission
- How to find bad lenders (partial list compiled by Oregon)
- Oregon law and consumer protection (pdf)
- Washington law and consumer protection
What's the best way to get a short-term loan?
If you really do need a short-term loan to make ends meet, state regulators recommend you go to a brick and mortar business - storefronts approved by the state and bound by Oregon and Washington laws, and bound by limits on interest and fees.