In an enforcement action alleging violations of the Federal Trade Commission Act (FTC Act) and other federal laws by tribally affiliated entities that operated an Internet payday lending operation, a Nevada federal court found that the FTC had authority to regulate Indian tribes, as well as arms of Indian tribes, their employees, and their contractors.

In Federal Trade Commission v. AMG Services, Inc., et al., the district court accepted and adopted the magistrate judge’s finding that the FTC Act was a federal statute of general applicability. Accordingly, the court found that the defendants were not exempt based on their tribal affiliation. The district court agreed with the magistrate judge’s analysis that neither the FTC Act’s silence on its application to Indian tribes nor its limited exemptions precluded the statute from being characterized as one of general applicability.

The district court recommended that summary judgment be entered in favor of the FTC on the defendants’ tribal affiliation affirmative defense. This decision is limited to an action by the FTC under the FTC Act. It does not extend to an action initiated by a state authority or a private plaintiff.

This proceeding involved alleged violations of the FTC Act, the Truth in Lending Act, and the Electronic Fund Transfer Act. The corporate defendants also asserted as an affirmative defense that they were not subject to the FTC’s enforcement authority because they were not “corporations” within the meaning of the FTC Act. (The FTC Act applies to “persons, partnerships and corporations” and defines a “corporation” as a company “which is organized to carry on business for its own profit or that of its members.”)

The district court agreed with the magistrate judge’s recommendation that summary judgment should not be entered in favor of the FTC regarding its authority to enforce the FTC Act against the corporate defendants. According to the magistrate judge, the corporate defendants’ statements that they existed to generate revenue for distribution to the affiliated tribal government created a “genuine issue of material fact” as to whether they were “corporations” under the FTC Act.

The magistrate judge agreed, however, that the FTC had authority to enforce the TILA and EFTA without regard to any jurisdictional limits in the FTC Act to proceedings against "persons, partnerships and corporations.” Accordingly, he recommended that the FTC be granted summary judgment regarding its authority to enforce the TILA and EFTA against the corporate defendants. That recommendation appears to have been implicitly adopted by the district court.

Tribal payday lending has also been a target of the Consumer Financial Protection Bureau, which has rejected requests of tribal lenders to set aside civil investigative demands they received from the Bureau based on the argument that, as “arms of the tribes,” they were entitled to sovereign immunity against federal government suits.

The availability of tribal sovereign immunity to block state action has been the subject of recent conflicting decisions. For example, in a state enforcement action alleging violations of California’s lending law and seeking to enjoin continued lending to state residents, a California Court of Appeal ruled that tribal sovereign immunity shielded the two tribally affiliated entities that operated the Internet payday lending businesses at issue. In contrast, a New York federal court rejected claims that tribal sovereign immunity could be asserted affirmatively to enjoin a New York regulator from taking direct and indirect actions that would impair the operations of online tribal lenders.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

For more information, please contact CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, or CFS Practice Leader Jeremy T. Rosenblum at 215.864.8505 or rosenblum@ballardspahr.com.


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