What Are Tribal Loans and Are They Safe?

ByJulija A.
February 22, 2022

Payday loans have become very popular in recent years. Many people will choose to take out a loan if they are short on money, have cash flow issues, or just want something they cannot afford to pay for in full.

It’s not easy finding a loan with competitive interest rates, especially if you have a low credit score. People will often choose to take out a loan with a high interest rate or a very short repayment term, as better options are simply not available.

Tribal loans are a type of short-term loan, known as an installment loan, provided by tribal lenders. These loans are known for their high interest rates.

What are Tribal Loans?

They are loans provided by lenders based on tribal lands. Lenders are able to offer terms and charge rates under immunity from state regulation because they are associated with Native American tribes.

The US Constitution recognizes tribal lands as sovereign nations, which means that lenders do not necessarily have to comply with regulations set out by state or federal authorities.

Typically, federal rules and tribal regulations are less rigid and comprehensive than consumer protections enforced by state regulators. This means that taking out a tribal loan can potentially be dangerous. 

Tribal lenders do not have to comply with state borrowing rules, and they are governed by tribal law.

In many cases, tribal loans are high-interest, short-term loans, which are approved online and accessible to a wide range of borrowers, including those with poor credit ratings

Tribal Loans vs. Payday Loans: What Are The Differences?

In essence, payday loans and tribal loans share many similarities, but there are important differences to note as well. Both offer rapid access to funds and high-interest borrowing options for people who need to bridge cash flow gaps.

The key difference is regulation. Payday loans are generally considered safer because they are regulated by the state. Lenders that offer payday loans are required to adhere to state rules, which provide greater protection for consumers.

Tribal loans are often easier for consumers to access than conventional payday loans.

How Do You Get a Tribal Payday Loan?

One of the most significant differences between applying for a payday loan and a tribal payday loan is the ease of access. While a customer may need to put up collateral and check state regulations before applying for a traditional payday loan, the same rules do not apply for tribal loans.

It is often possible for anyone with an Internet connection to borrow from tribal lenders. The application process is quick and simple, and in many cases, people receive their money swiftly. 

Is Tribal Lending Illegal?

Tribal lending is not illegal because tribal lands are considered sovereign nations, which means that lenders based on tribal lands do not have to comply with state regulations. Despite their legal status, there have been cases that involved tribal lenders.

In 2016,  the Supreme Court of California ruled that tribal lenders must prove their connection to the sovereign nation to operate based on suspicions that many lenders were exploiting loopholes to issue loans without any significant connection to Native American tribes.

There have also been instances where federal bodies have taken legal action against tribal lenders for collecting payments that contravened state regulations and providing money without approval from a legitimate court. 

Are There Any Benefits of Tribal Loans?

The benefits of tribal loans are similar to those of traditional payday loans: consumers can access cash quickly, even if they don’t have an excellent credit rating or proof of stable income. Both types of loans provide almost instant payments that are easy to get approved for and can help people cover unexpected costs or bridge gaps between paychecks. 

In addition to offering rapid access to cash, tribal loans may also be beneficial for people who have a low credit score and no money to use as collateral. In some cases, they also enable people to borrow more than they would be able to from a conventional lender, and there are fewer checks in place, too. 

What Are The Disadvantages of Tribal Loans?

Tribal loans offer different terms to traditional payday loans, and they are often considered a more dangerous option for consumers, especially those who may struggle to pay the loan back. The most significant drawbacks to consider include:

  • Very high tribal interest rates.
  • Few checks.
  • Potential to target vulnerable, desperate people who need money fast.
  • Lack of transparency in terms of interest rates, repayments, and financing options.
  • Lack of state regulation reduces consumer protection significantly.
  • Risk of falling behind with repayments.
  • Unethical practices linked to lenders who have no genuine or profound connection to Native American tribes or lands.

Guidance for Tribal Lending

If you are thinking about taking out a loan and are exploring options, including tribal lending, it is essential to weigh up the pros and cons and make sure that you understand the terms of the loan agreement.

When you take out a payday loan from an approved lender, you will be protected by state regulations and measures designed to reduce risks for consumers.

With tribal loans, there is little protection available, and the terms of the loan agreement could change, leaving you out of pocket and facing the impossible task of paying the money back. 

It is wise to explore alternatives before applying for a loan from a tribal lender. In most cases, it is best to avoid taking out tribal loans. 

Alternatives to Tribal Loans

So, let’s say you’ve decided to avoid tribal loans based on our advice above. What else can you do when you need the money fast? Here are some alternatives:

Personal Loans

Personal loans are provided by lenders, including banks. If you apply for a personal loan, you borrow a sum of money and then pay it back in installments over an agreed term. Typically, personal loans offer low interest rates and long-term borrowing options.

A credit check is carried out to assess suitability and customers can borrow large sums of money. Personal loans are available to customers with good credit scores and a stable income. If you have a poor credit rating, or no steady income, you may find it difficult to get approved for a loan.

Payday Loans

Payday loans are designed to provide instant access to funds to help people make it from one payday to the next. These short-term loans usually have high interest rates and short repayment periods. In many cases, credit checks are not carried out. Payday loans are a popular option for those with poor credit scores. 

Borrowing From Family or a Close Friend

Taking out a loan will always involve paying interest. In the case of tribal and payday loans, the interest rates can be very high, which means that you will pay back a lot more than you borrowed. If you only need a small amount of money or are due to receive payment soon (your wages, for example), and you can pay a loan back quickly, it may be best to ask a close friend or a family member for a loan instead.

Secured Credit Cards

Secured credit cards give you access to credit, which you can use to pay bills or cover living costs until your next paycheck arrives. Always make sure that you pay off your credit card, set spending limits, and look for cards with low interest rates. 

Paying Back a Tribal Loan

Taking out tribal loans carries risks. If you apply for a loan with very high interest rates and you have a low income, an unpredictable income stream, or substantial existing debt, there are risks to consider, including:

  • Late payment charges and penalties.
  • Losing your collateral.
  • Damaging your credit rating.
  • Bankruptcy.
  • Anxiety and stress caused by financial pressure.
  • Rising debts due to high interest rates.
  • Risk of going to tribal court.

If you fail to repay a tribal loan, there is a risk that the lender will go to extreme measures to collect their money. Examples include:

  • Cashing post-dated checks.
  • Threatening you with legal action or wage garnishment.
  • Debiting your account.
  • Calling, emailing and messaging you to intimidate you with threats.
  • Threatening to involve others, including your family, friends and employer.

Summary

Tribal loans are short-term cash payments provided by tribal lenders. Native American lands are viewed as sovereign nations, which means that lenders can skirt around state regulations. They tend to have very high interest rates and are easily accessible to people who want to borrow money, even those with a low credit score.

FAQ

How do I get a tribal loan?

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You can apply online for a tribal loan. Most lenders will not undertake credit checks. You will need to provide some personal information, and your application will then be reviewed and approved.

What happens if I don’t pay back a tribal loan?

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Tribal lenders are not governed by state regulators, and there is a risk of lenders adopting unethical tactics if customers don’t pay them back. Lenders may intimidate you and threaten you and your family, and they may also cash post-dated checks, debit your account and harass you via email, messages, and phone calls at all times of the day.

Are tribal loans illegal?

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No. They are operated by tribal lenders based on Native American soil, which makes them work outside of state jurisdictions. However, there have been examples of federal and state bodies pursuing legal action against lenders who were perceived to be breaking the rules and putting consumers at risk.

Are tribal loans guaranteed?

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Technically speaking, no loan is 100% guaranteed, but almost all applications for these loan types are approved. In terms of guarantees linked to security, tribal lenders are unlikely to provide loans secured by a third party if the borrower fails to keep up with the repayments.

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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