ProPublica, a nonprofit newsroom dedicated to investigative journalism, has reported on a complex financial venture by the Lac du Flambeau Band of Lake Superior Chippewa Indians in Wisconsin. The tribe, facing economic hardship after a failed bond deal, turned to high-interest internet lending to stabilize its finances. This pivot leveraged their sovereign immunity, allowing them to bypass state interest rate caps and charge annual rates exceeding 600% on small-sum loans.
The Lac du Flambeau (LDF) tribe’s entrance into high-interest lending was spurred by the failure of other ventures, including a collapsed casino project in Cancun, Mexico, and an over-budget riverboat gambling venture in Mississippi. These ventures left the tribe with $50 million in bonds at a 12% interest rate, leading to severe financial strain and necessitating cutbacks in essential services and layoffs. Amid protests and demands for audits, a newly elected council decided to default on the loan.
Recognizing an opportunity in their sovereign immunity, the LDF tribe launched into internet lending, partnering with non-tribal entities that ran day-to-day operations outside the reservation. This move attracted consumers who were often in desperate financial situations, further exacerbating their financial troubles due to high-interest rates.
ProPublica’s investigation highlighted how LDF’s business operations relied heavily on external partners with a history of predatory practices. Many of these partners benefited significantly, while LDF’s earnings were minimal in comparison. The tribe’s activities resulted in multiple lawsuits, including one from Brian Coughlin, a borrower who took out a high-interest loan from LDF and was harassed for repayment even after filing for bankruptcy. This harassment led him to a suicide attempt and subsequent legal action, culminating in a U.S. Supreme Court ruling that tribes could be held liable under the Bankruptcy Code.
The investigation revealed that LDF’s lending operations often involved complex and opaque arrangements with non-tribal partners. These relationships sometimes included entities with dubious backgrounds, such as RIVO Holdings, a fintech firm involved in servicing LDF’s loans, and its founders, the Koetting brothers, who had faced regulatory actions in the past. The tribe and its partners were also embroiled in various legal issues, ranging from consumer complaints to accusations of misallocating client lists from previous ventures.
Despite the controversy and legal challenges, LDF’s leaders defended their lending business as a necessary and transparent service providing much-needed funds for their community. They stressed compliance with tribal and federal laws and maintained that the high-interest loans offered a credit option for borrowers with limited access.
The Supreme Court case involving Coughlin brought to light the intricate web of business operations underpinning LDF’s lending activities. These operations were managed mostly off-reservation by external partners, with LDF retaining nominal control. Following the court ruling affirming that sovereign immunity didn’t apply in bankruptcy cases, LDF and Lendgreen, a related entity, agreed to a settlement with Coughlin for $340,000, without admitting liability.
Moving forward, the tribe and its allies face continued legal and regulatory scrutiny. As part of the settlement, the tribe agreed to assist Coughlin’s legal team by providing documents and potentially testifying in actions against their former business partners. This agreement underscores the broader implications of the legal battles surrounding tribal lending partnerships, setting a precedent for how these entities operate within the financial landscape.