Tribal loans, also known as tribal payday loans, entered the market when many states decided to outlaw payday loans or wrote laws that restricted payday lenders.
But what exactly are tribal loans?
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What is a Tribal Loan?
Tribal loans are payday loans from lenders based on tribal land. And according to the US Consumer Financial Protection Bureau (CFPB), paydays loans are usually short-term loans taken out for an amount of money that is less than $1000. However, these loans tend to have very high-interest rates which makes the repayment process complicated for the borrowers. Payday loans are also popular for their unsavory lending practices that are often against state and federal laws.
Tribal payday loans do not have a specific definition as per the CFPB nor does the term have any specific legal meaning. However, according to sources, tribal payday loans are a kind of payday loans offered by companies that are located on tribal land rather than on any specific state.
How do Tribal Loans Work?
Since the companies offering this kind of loan are not on state-owned land, they only follow tribal loan regulations and federal loan regulations instead of state regulations and federal regulations.
Tribal payday loans can be typically more dangerous, especially for borrowers, since the tribal regulations and federal regulations on these loans are typically weaker than those of specific states. Especially if the state has robust consumer protections.
Even normal payday loans can be dangerous for the borrower, then the tribal loan can prove to be substantially riskier. These tribal loans can also have higher interest rates than normal payday loans would have as they are not subject to any limits that have been set by state legislatures.
If you borrow tribal payday loans, chances are that you may have a harder time discharging the loan in case of bankruptcy, refinancing the loan and when lenders request payment, asserting their rights.
Potential Benefits of Tribal Loans
The potential benefits of tribal loans are the same as the potential benefits of normal payday loans. The main benefit of a tribal loan is that they allow the borrower to borrow a small amount of money for only a small amount of time regardless of the fact that they have good credit or reliable income. Whereas, borrowing a small amount of loan is not possible for people who go to traditional lenders that only offer personal loans. These personal loans are for a large sum of money and can last a few years.
Tribal loans can be a good idea for people who are in between paychecks and they can use the borrowed amount from the tribal loan to take care of their expenses. Then once the borrower receives their paycheck, they can start repaying the tribal payday loan. It would not be a burden on them as the borrowed amount is small and they can easily manage it out of their salary.
Most loans, regardless of whether they are short term or long term, require the borrower to have the ability to pay back the loan. Even short term loan options including credit lines like credit cards require the borrower to have the means to repay the loan. However, tribal payday loans issue the loan to people who may not have the means to pay back the loan. So borrowers who are unemployed, already stuck in debt or otherwise struggling financially are able to access tribal payday loans easily. These individuals are the ones who do not qualify for other loans and tribal payday loans are the only option for them.
Moreover, the quantity that is disbursed by a tribal payday loan might be bigger than the amount you would get from a normal payday loan. This enables the borrowers to address more of their financial concerns with just one loan. This is why a tribal payday loan can be an appealing option to many people.
Drawbacks and Dangers of Tribal Loans
Are tribal loans safe? No.
Even though the benefits of a tribal payday loan may differ from a typical payday loan, the dangers and pitfalls are the same between the two.
Like most payday loans, tribal loans are also offered by disreputable lenders using false advertising, fraudulent billing practices amongst other shady techniques in order to take advantage of innocent and desperate borrowers.
Many payday loan operators tend to lie to borrowers about the terms of repayment, the interest rate being offered and other critical details about the loan. However, others are truthful about the characteristics of the loan but deceive the borrowers by representing the information in such a way that it is implied to the borrowers that the loan is easier to repay than it actually is.
Since payday loans are targeted at people struggling financially, not many potential borrowers have the resources that are needed to go over the terms of service in a payday loan so any illegal or unethical clauses can be identified. This works in the lenders’ favours who want their borrowers to be so desperate, they do not care to read much into it.
Asides from the dangers of breaches of trade regulations, even if the loan agreement is executed in accordance with the loan, payday loans tend to put the borrower at risk for the following things, such as:
- Incurring late payment penalty fees.
- Losing the loan collateral because of inability to repay.
- Damage to credit scores.
- APRs in excess of 100% of the loan’s value.
- Having a bank account locked because of any suspicious activity by the lender.
- Being trapped in a cycle of poverty.
What this means is that getting a tribal payday loan in order to cover your short term expenses may not be a good financial decision for many people.
Because tribal loans do not have to abide by the lending rules proposed by state legislatures because of their Tribal Immunity, there is not much you can do if a lender wronged you. However, non-tribal payday loans must abide by the rules stated by state legislatures.
In other words, if the state has put a limitation clause on the interest rate on a payday loan stating that it should not be more than 25% annually, a tribal payday loan could easily ignore this and offer their borrowers rates up to 500% or more.
Then the borrower could be forced to pay additional fees while being hounded by debt collectors amongst other difficult consequences. If borrowers try to disengage from the loans, they might end up finding out how limited and difficult to access their resources are than what they expected them to be.
If there is a confusion over the specifics, it is possible to reach a lack of recourse as well. For example, many lawyers that have debt expertise may only be well-versed in the borrowing rules of their own state. Which is why they might not be too familiar with the tribal payday loan laws. Additionally, it might not be possible for consumer finance advocates, financial consultants and other financial advisors to understand why and how the terms of a tribal payday loan can differ to a normal payday loan.
Avoiding Tribal Payday Loans
In some cases, taking out a traditional payday loan is better than taking out a tribal payday loan as it offers borrowers fewer protections.
This reduced level of oversight for tribal payday loans is what allows lenders to have more aggressive loan disbursements. However, these costs are hidden in the terms for the borrowers who are stuck with paying them then.
If you are in doubt, you should always avoid taking out a tribal payday loan or a payday loan of any type whatsoever if you can avoid it. If you cannot seem to avoid it, you should read the terms of the loan carefully once you decide to take out a payday loan. You should make sure you understand what the protections are under the state laws.
If you have to take out a payday loan, aim to take the smallest possible payday loan. Once you have done that, you should also make sure that you have a repayment strategy in place beforehand.
Alternatives to a Payday Loan
It is not uncommon for borrowers to find themselves taking out a second or a third loan just because they were unable to pay the first one back on time with the high interest rate and fees that ended up trapping you in a cycle of debt rather than freeing you from financial stress.
In situations where you feel like you need a tribal payday loan, you should consider alternatives before you make your final decision:
- Local resources. Try to contact non-profit organizations, local charities and government agencies that offer free financial services along with helping out with food, utilities and rent for those who need it.
- Payment extensions. You should talk with your bill providers to figure out if a longer payment plan or an extension on your due date is possible if you are lagging behind on your payments.
- Side jobs. In today’s digital era, you have a marketplace right in your hand where you can easily sell unwanted items, sign up for food delivery or drive for rideshare services, earning a little cash before deciding completely on a short term loan.
When it comes to emergency cash loans, you have to be careful about what you are getting yourself into. It is very easy to fall in a debt trap with a predatory lender which you have to make sure you avoid at all costs.
But if you have decided to take out a short term tribal payday loan, you can check a list of tribal loan lenders to figure out which one is better for you. Make sure that the lender you are going to is safe and legit.
Moreover, you should have a solid plan to pay back your debt. This is especially important because of the high interest rates you would have to pay along with the possibility of extra fees. If you end up defaulting on your loan, you could be under more financial stress than you were when you initially applied for the loan. If you do decide to borrow money, it is essential that you read all the fine print so you are well aware of the interest, fees and loan terms.