Indian Tribal Loans are a form of pay day loans. While the poor have been using this mechanism for decades, the present economy is drawing more into its web. Personal income constraints have led to the increased prosperity of this over 40 billion dollar business first started in 1993.
Essentially this mechanism is a partnership between tribes and lenders who use sovereignty to avoid the purview of state laws. Recently much criticism has been made of this new relationship as some lenders have offered loans carrying higher than normal interest rates. It is pointed out that Native Americans disproportionately use this kind of debt themselves. For poor tribes the appeal is in income generation for them.
The basic formula is short term cash loans. Average amount loaned is 350 dollars borrowed for a period of two week term. To obtain a loan, the borrower provides a personal check or authorization to make a withdrawal from a personal bank account. In exchange, the borrower receives cash, minus a fee. Typical fees can range from between 15 and 20 dollars for every 100 dollar borrowed.
Normally for terms under a month, interest charged on such loans is amounts to a yearly 300 to 500 percentage rate. To avoid nasty repercussions, quick repayment is key. Any failure to pay off the amount in full leads to additional late fees and the potential for continued renewal. An onerous burden already cash strapped borrows can ill afford.
These high interest rates deliver a business model that encourages repeat borrowings. The result is an expensive form of consumer credit for customers who can ill afford it. This financing technique has a special market niche. It lends to customers banks do not serve. The basic market for this type of credit is the estimated almost 40 million segment of the adult population, representing 25 percent of American households being unbanked or underbanked. This includes over half of the African-American population and over 40 percent of the Hispanic and Native American population.
As the California school district Capital Appreciation Bond scandal reveals high interest financing schemes are a mainstream mechanism. The feature such bonds and payday loans share is a potential for an exorbitant bill. Hence a school district is due to cough up over 55 million on a 4 million borrowing and another almost a billion dollars on an amount of almost a hundred million. Consider over 200 districts have to pay these bills and California is only thirty percent of the market.
Critics claim lenders without scruples are hiding behind tribal sovereignty coverage. Essentially what this constitutes is an off shore residence equivalent on shore. Other businesses have used an off shore base for this purpose as well. The internet has also been used to escape state regulatory control. Tribes can protect the sanctity of their independence and the interest of their people by not permitting unscrupulous businesses to take advantage of them.
There is an expanding need to make ends meet by a growing number of people. This is why the industry has blossomed. Indian tribal loans, subprime credit cards and check cashing operators, are essential services for a rising number of consumers. Consumers are advised to read the terms carefully. They should avoid the offer, if they think the repercussions from such a debt is unaffordable for them.
Essentially this mechanism is a partnership between tribes and lenders who use sovereignty to avoid the purview of state laws. Recently much criticism has been made of this new relationship as some lenders have offered loans carrying higher than normal interest rates. It is pointed out that Native Americans disproportionately use this kind of debt themselves. For poor tribes the appeal is in income generation for them.
The basic formula is short term cash loans. Average amount loaned is 350 dollars borrowed for a period of two week term. To obtain a loan, the borrower provides a personal check or authorization to make a withdrawal from a personal bank account. In exchange, the borrower receives cash, minus a fee. Typical fees can range from between 15 and 20 dollars for every 100 dollar borrowed.
Normally for terms under a month, interest charged on such loans is amounts to a yearly 300 to 500 percentage rate. To avoid nasty repercussions, quick repayment is key. Any failure to pay off the amount in full leads to additional late fees and the potential for continued renewal. An onerous burden already cash strapped borrows can ill afford.
These high interest rates deliver a business model that encourages repeat borrowings. The result is an expensive form of consumer credit for customers who can ill afford it. This financing technique has a special market niche. It lends to customers banks do not serve. The basic market for this type of credit is the estimated almost 40 million segment of the adult population, representing 25 percent of American households being unbanked or underbanked. This includes over half of the African-American population and over 40 percent of the Hispanic and Native American population.
As the California school district Capital Appreciation Bond scandal reveals high interest financing schemes are a mainstream mechanism. The feature such bonds and payday loans share is a potential for an exorbitant bill. Hence a school district is due to cough up over 55 million on a 4 million borrowing and another almost a billion dollars on an amount of almost a hundred million. Consider over 200 districts have to pay these bills and California is only thirty percent of the market.
Critics claim lenders without scruples are hiding behind tribal sovereignty coverage. Essentially what this constitutes is an off shore residence equivalent on shore. Other businesses have used an off shore base for this purpose as well. The internet has also been used to escape state regulatory control. Tribes can protect the sanctity of their independence and the interest of their people by not permitting unscrupulous businesses to take advantage of them.
There is an expanding need to make ends meet by a growing number of people. This is why the industry has blossomed. Indian tribal loans, subprime credit cards and check cashing operators, are essential services for a rising number of consumers. Consumers are advised to read the terms carefully. They should avoid the offer, if they think the repercussions from such a debt is unaffordable for them.
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