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    Written Statement of

    JERILYN DECOTEAU

    FIRST NATIONS DEVELOPMENT INSTITUTE

    PREDATORY LENDING AND ITS IMPACT ON NATIVE AMERICAN

    COMMUNITIES

    Senate Committee on Indian Affairs

    Dirksen Office Building

    June 5, 2008

Chairman Dorgan, thank you for inviting First Nations Development Institute to testify here

    today on a matter of great importance for Indian Country and for the nation as a whole -- that of

    lenders who prey on vulnerable borrowers, resulting in loss of individual assets and economic

    security. For Indians, predatory lending results in the bleeding away of crucial assets from

    Native American communities. These communities already lack the basic economic structures

    that other communities take for granted and are struggling to meet the federal and tribal goal of

    economic stability and self-sufficiency.

First Nations Development Institute (FNDI) is a 27-year-old nonprofit headquartered in

    Longmont, Colorado with offices in Fredericksburg, Virginia, whose work is with tribes and

    Native communities across Indian Country.

FNDI’s mission is to restore Native American control and culturally-compatible stewardship of

    the assets they own - be they land, human potential, cultural heritage, or natural resources - and

    to establish new assets to ensure the long-term vitality of Native communities. FNDI does its

    work using a three-pronged strategy of educating grassroots practitioners, advocating systematic

    change, and capitalizing Indian communities.

    FNDI’s core belief is that ―when armed with appropriate resources, Native Americans have the capacity and ingenuity to ensure the sustainable economic, spiritual, and cultural well being of

    their communities.‖

    Main Office: Field Office: 703 Third Avenue, Suite B ? Longmont, Colorado 80501 10707 Spotsylvania Avenue, Suite 201 ? Fredericksburg, Virginia 22408 Tel 303.774.7836 ? Fax 303.774.7841 Tel. 540.371.5615 ? Fax 540.371.3505

Directly relevant to the topic of this hearing is FNDI’s recent report, Borrowing Trouble:

    Predatory Lending in Native American Communities. The report is the outcome of a research

    study conducted by FNDI under a grant from the Annie E. Casey Foundation. Our report

    provides an analysis of survey data collected from attendees at the National American Indian

    Housing Council meeting in May 2007; survey data collected from Native users of selected

    Voluntary Income Tax Assistance sites; geo-coded data of payday lenders, bank branches, and

    Native community development finance institutions; and a national data set of home mortgage

    loans. The report also presents five case studies of promising practices and concludes by offering concrete suggestions about the steps Native nations can take to curb the impact of predatory

    lending on their citizens.

The purpose of the study was to produce original research on the extent of the problem of

    predatory lending in Native American communities and to document local solutions currently

    being practiced by tribal housing authorities and tribal governments. A predatory loan is

    commonly understood to be an unsuitable loan designed to exploit vulnerable and

    unsophisticated borrowers. Predatory loans may have inappropriately high interest rates or fees or terms and conditions that trap borrowers; often, these conditions are not well explained to borrowers. When borrowers fall prey to these practices, they often cannot afford to repay the loans, and end up in foreclosure, bankruptcy, or other financial hardships. We wanted to

    understand the effects of predatory lending on Native communities and collect data on payday

    loans, pawnshop transactions, car title loans, Refund Anticipation Loans, and mortgage loans

    with high interest rates and hidden fees.

    Predatory lending is a nationwide problem, but for Indian tribes the bleeding of assets away from Native communities has consequences of a greater dimension. The very survival of tribes is

    linked to securing comprehensive strategies for economic improvement. Many Indian people are poor, and when even paychecks are taken from them, the dream of homeownership and building

    stronger communities is beyond hope.

    We are pleased to share with you some of what we have learned about lending industry practices and the special problems it presents to members of Native communities. We are also pleased to share our policy recommendations, based largely on best practices in the case studies conducted on five Native programs. These best practices provide alternatives to predatory loans, help build individual assets, and in turn help tribal communities develop stronger, more secure economies.

Our written statement expands on our oral testimony addressing the issues of concern to the

    Committee:

I. Identifying the problem: We will discuss the findings of our study and provide examples of

    predatory lending through personal stories told to us.

    II. Addressing the problem: We will describe tribal practices and programs that are having good

    results in combating the effects of predatory lending.

    III. Policy recommendations: We will recommend policies and programs that will promote asset

    building and curb predatory lending practices that affect Native American communities.

FNDI testimony Predatory Lending and its Impact on Native American Communities 2

    I. Identifying the Problem: Predatory Lenders Make it Difficult for Individuals to Build

    Assets, to Become Mortgage Ready, and to Move Out of the Cycle of Debt.

History is replete with examples of predatory practices involving Indian assets, from theft of land

    to gross underpayment for the lease or sale of natural resources. Now predators are reaching

    directly into Indians’ pockets for their paychecks and tax refunds. This is in large part because vulnerable Indians have no other assets to steal.

Payday Lenders

Many Indians who use payday lenders lack access to mainstream banking services, either

    because there are no such institutions nearby, or because borrowers lack collateral (for example,

    no home equity), have poor credit, or no credit history. To get over a financial crisis, such as a

    car repair, medical bills, a missed mortgage payment, or a heating bill in winter, many people

    have no alternative but to turn to lenders who can dictate the terms. This fairly describes the

    situation for too many in Indian communities, where wages are typically low. For example, the

    median household income for American Indians and Alaskan Natives is $33,132; the poverty

    rate is 23 percent. By comparison, the median income for whites is $46,971 and the overall

    poverty rate is 12.7 percent. Recent research by the Harvard Project on American Indian

    Economic Development suggests that this contrast is even more stark for reservation residents -

    in 2000, the per capita income for residents of Indian reservations was $7,942 as compared to

    $21,587 for the total United States.

The number of payday lenders has exploded in the last 20 years. In the early 1990s there were

    around 300 payday lending outlets in the United States; recently the count was higher than

    22,000. For comparison purposes, there are 13,300 McDonald’s restaurants and 7,087 company-

    operated Starbucks according to those chains' web sites. In New Mexico, a state that has

    relatively lax regulation of payday lenders, there are 4 payday lenders for every McDonald’s.

The increase has been due to a number of factors, including deregulation of the lending industry

    in the 1980s and 1990s. Protective measures such as ―truth in lending‖ have not been effective in curbing abusive lending practices. Data from the industry itself suggests that the average

    payday loan borrower is low-income and minority: a borrower is more likely to be Latino or

    African American, a renter, and have a median income lower than the U.S. average.

The Center for Responsible Lending reported in 2006 that most payday loans cost $15-$30 per

    $100 for a two week term, resulting in effective annual rates of 390 to 780 percent interest. The

    typical payday borrower rolls his loan over several times and eventually pays back $793 for an

    initial $325 loan. Ninety percent of the revenue generated in the payday-lending industry

    comes from borrowers who are trapped in a cycle of payday loan debt, or those who take

    five or more loans a year. Fees play a key role the Center for Responsible Lending estimated that the industry brings in $4.6 billion in fees per year. The total impact on the poor and effect on

    the economy has been quantified at more than $8 billion a year.

    In their editorial ―Beyond Payday Loans‖ in the Wall Street Journal (Jan. 24, 2008), President

    Clinton and California Governor Arnold Schwarzenegger said, ―Imagine the economic and social

    benefits of putting more than $8 billion in the hands of low-and middle-income Americans. That

    FNDI testimony Predatory Lending and its Impact on Native American Communities 3

is the amount millions of people now spend each year at check-cashing outlets, payday lenders

    and pawnshops on basic financial services that most Americans receive for free or very little

    cost at their local bank or credit union.‖ According to the Report of the Native American

    Lending Study, most Native communities do not have access to local banks and very few have

    access to credit unions. This makes them easy prey.

    According to 101 survey respondents at the April 2008 National Indian Gaming Association

    Trade Show and Convention, predatory lending is a significant concern across Indian Country:

    73 percent indicated that they ―Strongly Agree‖ or ―Agree‖ with the statement that predatory

    lending is a problem in their community (38% of respondents were elected tribal officials). This

    corroborates the results from 140 respondents to a survey at the annual National American Indian

    Housing Council (NAIHC) meeting held in May 2007. Seventy-three percent of the respondents

    to that survey also reported that predatory lending was either ―a big problem‖ or ―somewhat of a problem‖ in their communities.

Respondents to the NAIHC survey represented over 67 tribes in 28 states. Their insights are

    valuable because tribal housing professionals are uniquely placed to observe and understand the

    impact of predatory lending practices in their communities. They assess clients’ eligibility for

    housing assistance, provide advice about mortgage access, and often offer financial education

    and credit repair services; their perceptions of predation are based on these interactions.

When asked about specific predatory practices, 67 percent of respondents to the NAIHC survey

    identified payday loans as either ―somewhat of a problem‖ or ―a big problem.‖ Thirty-three

    percent of respondents stated these loans are a problem because a lot of people have them, and

    63 percent stated that the interest rates on these loans are too high. Sixty-two percent responded

    that they feel that payday loans prey on vulnerable people. Significantlyand perhaps to be

    expectedthe most common reasons respondents cited for clients falling prey to predatory

    lenders and products included a generic need to get access to cash and the more specific need for

    money to pay bills.

Drawing upon geo-coded data of payday lenders (provided by Dr. Stephen Graves at the

    California State University-Northridge who has identified a pattern of predatory lending in

    relation to military bases) we produced several maps of the location of payday lenders in relation

    to several Indian reservations (see maps of South Dakota and Gallup, New Mexico at the end of

    this testimony). The maps drive home the point that American Indians living on or near tribal

    lands have nearly as many payday lending choices (red dots) as bank branch choices (green dots).

    Our map of the Gallup, New Mexico area demonstrates that citizens in that community, 75

    percent of whom are Native American, have nearly twice as many payday lenders than banks to

    do business with.

South Dakota provides an interesting example. On November 26, 2007, The Rapid City Journal

    observed, ―Rapid City, with its proximity to Ellsworth AFB [Air Force Base] and its growing

    Native American population, is particularly vulnerable to the payday industry. Pennington

    County has just 12 percent of the state’s population, but it contains almost one quarter of its payday lending operations.‖ As many as one in five members of the armed forces took out a

    payday loan in 2005, a Pentagon report said last year, contributing to rising debt levels that

    interfere with troop deployment and service members' security clearances. South Dakota

    FNDI testimony Predatory Lending and its Impact on Native American Communities 4

    eliminated usury laws in 1980 as a means of attracting financial services businesses. As compared to other states, it now has the highest number of banks per capita and the second highest number of payday lenders.

    Given the strong service orientation of payday lenders and their allied businesses as compared to that of banks, and given many reservation residents’ limited experience with banks, ready access to payday lenders has translated to predation and escalating debt for numerous Native consumers. One participant in a breakout session on asset building at the National Congress of American Indians 2007 midyear conference in Anchorage, Alaska put this access and experience linkage succinctly: ―When people like me go and look for a loan, our only friends are the predatory

    lenders.‖

Refund Anticipation Loans (RALs)

    Loans against tax refunds are another common form of lending that is receiving increasing scrutiny. These loans are appropriately termed refund anticipation loans, or RALs, but they are perhaps best (but inaccurately) known as ―rapid refunds.‖ Those taking out RALs pay large fees to receive an immediate payment by taking a loan against their tax refund in many cases

    receiving their money only a few weeks earlier than they would have otherwise. This can result in an effective annualized interest rate of anywhere from 70-700 percent, depending on the size of the tax refund. Research has shown that RALs are heavily marketed among low-income populations, especially those that qualify for the Earned Income Tax Credit (EITC). Our research suggests that many people in Native communities are not aware that they could have their taxes prepared free of charge, or that they could access the EITC without paying for tax preparation.

    Sixty-eight percent of respondents to the survey administered at the National American Indian Housing Council (NAIHC) meeting identified loans against tax refunds as ―somewhat of a problem‖ or ―a big problem.‖ Forty-three percent of respondents stated that these loans are a

    problem because a lot of people have them, and 53 percent believe that the interest rate is too high. Fifty-five percent of respondents stated that they believe these loans are a problem because they prey on vulnerable people.

    Data is available at the county level regarding the usage of Refund Anticipation Loans. An analysis of the top ten states with the largest American Indian/Alaska Native population indicates that among the counties with 50% or more American Indian/Alaska Native population (usually indicating a reservation), usage of Refund Anticipation Loans was nearly 4 four times more likely than among non-Native majority counties. Over 28,000 people in these Native-majority counties used a RAL in 2005, amounting to a total cost of approximately $6,888,000 paid for the RAL service.

    In early 2007, the Gannett News Service analyzed data from the IRS (originally obtained by the National Consumer Law Center) and ranked the counties in which the take up of these loans was the greatest. The top four counties on the list are ―Native counties‖ in South Dakota and North

    Dakotacounties where land is largely reservation land and at least 80% of the population

    identifies as Native.

    In Shannon County, SD, part of the Pine Ridge Reservation, 62% of taxpayers eligible for federal tax refunds received a refund anticipation loan for the 2004 tax year. In Todd County, SD FNDI testimony Predatory Lending and its Impact on Native American Communities 5

    (where the Rosebud Reservation is located), Buffalo County, SD (where the Crow Creek Indian Reservation is located), and Sioux County, ND (where the Standing Rock Reservation is located), the percentages were 56%, 51%, and 49% respectively.

    The cost of this activity is substantial. Looking at the 2005 tax year (taxes filed in 2006), the National Consumer Law Center estimated the annualized interest rate for a loan covering the average refund (about $2,150) at 178%or a $100 cost in addition to the fee for tax preparation

    (which averaged $146).

    The Kathryn M. Buder Center for American Indian Studies and the Center for Social Development at Washington University in St. Louis calculated comparable costs for the 2005 tax year among Native clients of Volunteer Income Tax Assistance (VITA) sites. Some 600 of the 2,300 Native clients who were surveyed during the 2007 tax season reported using a paid tax preparer in the previous tax year. Over half of those filers accepted a RAL. On average, those accepting a RAL paid $189 for tax preparation services, as compared to $121 for those who did not.

    Volunteer Income Tax Assistance (VITA) sites in Native communities have been effective in reducing the use of paid tax preparers who often charge fees and offer clients Refund Anticipation Loans. The Menominee housing authority initiated a VITA site for the Menominee reservation when they found out that Menominee County, whose boundaries are the same as the reservation, had the highest usage of Refund Anticipation Loans in the state in 2002 (the top four cities were also on Wisconsin Indian reservations). The VITA site on the Menominee reservation processed over $560,000 of federal refunds in 2007, an increase of 23% from the previous year. A total of 439 returns were processed free of charge, potentially saving over $120,725 in preparer fees for the community that year.

Evidence of Other Predatory Lending Practices

In our research report Borrowing Trouble: Predatory Lending in Native American Communities

    we identified several other predatory lending practices that are affecting Native communities. Fifty percent of respondents to the survey administered at the National American Indian Housing Council (NAIHC) meeting identified car title loans as ―somewhat of a problem‖ or ―a big problem.‖ Fifty-four percent identified mortgage loans as ―somewhat of a problem‖ or ―a big

    problem,‖ and fifty-eight percent identified pawn shop transactions as ―somewhat of a problem‖

    or ―a big problem.‖

    Due to the presence of trust land on Indian reservations and the difficulty in getting private mortgages, abusive mortgage lending may be less of a problem on Indian reservations than in urban areas. However, data in our research report demonstrates that nationwide, between 2002 and 2005, American Indians borrowed from lenders engaged in the subprime mortgage market at a rate disproportionate to that of non-Indians. Comparing the percentages of loans made by high-cost lenders to American Indians and Whites, we found that Natives were engaged with the high-cost market more than twice as often as Whites (disparity ratios in the range 2.06:1 to 2.32:1). This suggests that nationwide, Native borrowers remain more at risk of the negative outcomes associated with subprime lending than non-Natives.

FNDI testimony Predatory Lending and its Impact on Native American Communities 6

The Cost of Predatory Lending in Native Communities

The report Borrowing Trouble: Predatory Lending in Native American Communities provides

    case study data on the impact of abusive lending practices on Native communities (and therefore

    Native economies). Our case study research included interviews with several practitioners who

    work in economic development organizations and coordinate asset-building programs. In all five

    of our case study sites, economic development practitioners identified predatory lending as a

    problem that strips economic resources from economically stressed families. One practitioner put

    it this way:

    First and foremost it affects the financial security of the family. Many of our

    families are just one minor emergency away from extreme financial hardship.

    This in turn affects family relationsstress, divorce, bankruptcy, child welfare.

    The extreme cost of predatory lending dramatically decreases living standards

    (eventually, if not immediately). The aggressive nature of predatory lenders

    encourages poor financial management practices, which make this a perpetuating

    cycle. Many of our clients come to us in extreme emergencies regarding

    foreclosure, utility cutoff, or repossession because nine out of ten times they have

    been making their predatory loan payments and foregoing essential payments

    the predatory lenders are such aggressive collectors (and many times not ethical

    or legal) that families forego making shelter, utility, and transportation payments

    just to satisfy the predatory lender. High fees lower the standard of living and

    drain money from the general economy, particularly with non-local predatory

    lenders. The financial stress involved for families borrowing from predatory

    lenders also negatively affects workplace productivity, which drains resources

    from the local economy.

Many of the economic development practitioners we interviewed work on repairing their clients’

    credit so that they may qualify for asset-building programs such as those focusing on small

    business development or homeownership. Nearly every practitioner we interviewed identified

    the need to repair credit or extract people from predatory loans as one of their highest priorities.

Several examples of the devastating outcome of predatory lending emerged from the study and

    our follow-up research:

    o We interviewed a woman who works at a tribal loan fund for a tribe in the Seattle area.

    She said that 25% the loans they approve are debt consolidation loans, and the vast

    majority of debt consolidation loans include at least one payday loan. She feels that

    payday loans are a big problem in her community there are nearly 25 payday lenders

    within a mile of the reservation (which is in an urban area). They had one tribal member

    (loan client) who had 10 active payday loans at a time, and he was barely keeping up with

    the minimum payment. In Washington state, payday lenders are not required to inform

    each other of the loans they have active so people can take out numerous loans from

    different lenders. He came to the loan fund to get help paying off the loans and receive

    credit counseling, and they helped him avoid bankruptcy. Among his 10 loans was a loan

    for $700 that had a finance charge of $95.00 and a loan for $425 that had a finance

    charge of $63.75. Among those clients who have payday loans, the average number of

    payday loans was seven.

    FNDI testimony Predatory Lending and its Impact on Native American Communities 7

    o A middle aged man took out a payday loan to pay his electric bill. The high interest rate

    and hidden fees, the cost of which became a cyclical drain on his paychecks, eventually

    took his whole regular paycheck plus $200 to pay.

    o A tribal member purchased a home with a loan from his housing authority but then took

    another loan from a predatory lender, with a high interest rate. The family fell behind on

    payments and lost their home.

    o A tribal member who owned his home outright after 30 years of payments got a home

    improvement loan from an unscrupulous lender and eventually lost his home. o A community practitioner on a reservation in Arizona stated that she has seen a lot of

    problems with trailer loans. She provided an example of one case in which an individual

    was given a loan on a trailer but was not informed that a trailer is a depreciating asset.

    The loan had a 29% APR even though the borrower had good credit and a decent income.

    The trailer owner wanted to sell the trailer and buy a home, but was so far in debt (also

    called being ―upside down on a loan‖) that she was not able to sell the trailer. The trailer

    owner owed $60,000 on a trailer that was worth about $15,000.

    o A woman earning minimum wage borrowed $400 and ended up owing $1,400. The

    lender took her to court. She ended up owing $2,200 including court fees. The lender

    would not work with her on a repayment plan that she could afford. o A 21 year old on a North Dakota reservation wrote two letters and went in person four or

    five times to a payday lender to try to work something out. When he was $600 in debt,

    the lender threatened to take him to court. His mother bailed him out. She said payday

    loans are common and she believes youth are targeted. She said she is not surprised that

    individual stories are hard to get because people are ashamed and will not talk about the

    trouble they are in.

    o A couple on a North Dakota Reservation used RALs every year from 2000-2007. They

    paid $150 plus tax preparation fees of $70 on refunds of $1,800-$2,400. The tax preparer

    comes to the reservation 2 days a week during tax season. He offers people a RAL every

    time. The couple said RALs ―are the norm, especially if you get a return of around

    $4,000-$5,000. You don’t see it [the interest] and you don’t feel it. People get RALs as

    soon as they get their W-2s. You can even take your last pay stub of the year and get a

    loan. After Christmas, people need the money - sometimes they skip a bill in December

    and they have a double payment in January.‖

    o This same woman, when asked about payday loans, said yes people use them, but first

    you have to have a job and the unemployment rate here is 73% according to B.I.A.

    statistics. The woman is the employment outreach coordinator at the tribal college. o On the same North Dakota reservation, two women obtained car loans for 14% and 18%,

    respectively. Both have longtime professional jobs. One fell behind in student loan

    payments, but is nearly caught up. She does not keep a checking account or use a credit

    card, so besides the student loan, has no credit. The other fell behind on credit card

    payments and is paying off current debt, but no longer uses credit cards. o A lawyer employed by the United States Department of Justice, with a credit rating of

    780, wanted to help his son buy a car. Two banks just off a North Dakota reservation

    offered him13%-18% rates. One bank explained that rates were higher for reservation

    borrowers because the lender might be subject to tribal laws and tribal court jurisdiction.

    FNDI testimony Predatory Lending and its Impact on Native American Communities 8

    The lawyer went home to Michigan and obtained a loan for 6 ?%. He reported the

    problem to the Civil Rights Division. He noted that a simple investigation using

    undercover borrowers would quickly document this type of discrimination. While these stories are anecdotal, we believe that they illustrate the problems created by

    predatory lending in Native communities. Loans that charge high interest rates or fees are often

    made to people who do not understand the terms of the loans, are not qualified to receive them,

    and are not able to pay them back. The most notable outcome of these predatory loans is asset

    stripping, or the draining of economic resources away from Native families and communities.

    Given that many Native families and communities are already experiencing economic hardship,

    the outcome of predatory lending is especially problematic for them.

    II. Addressing the Problem: Providing Financial Education, Alternatives to Predatory

    Lending Products, and Consumer Protections

The report Borrowing Trouble: Predatory Lending in Native American Communities presents

    case studies of five tribal programs whose innovations with financial education, alternative

    financial services and products, and other asset-building programs and strategies are helping to

    eliminate reliance on predatory lending, repair credit and build economic security.

In these five communities, economic development practitioners are developing innovative

    strategies to combat predatory lending. These strategies include providing financial counseling,

    credit repair, and financial education to encourage people to avoid using predatory lenders, and

    using community development financial institutions (CDFIs) to provide alternative credit

    products to borrowers. Additional research in the report demonstrates that tribes can also set

    interest rate caps that may reduce the incidence of predatory lending on reservations.

Our recommendations, based on the findings in our study, are that tribes and tribal organizations

    should:

    1. Develop credit programs and borrowing opportunities that reduce the demand for

    predatory loans.

    2. Develop consumer education programs that assist in financial planning, savings and

    credit repair.

    3. Set interest rate caps.

Deserving special emphasis are Community Development Financial Institutions.

    Native CDFIs meet a market demand met by few others in the local community. They can

    provide affordable access to credit for borrowers with poor or no credit while at the same time

    providing financial education and helping the borrowers build assets. David Fleming, former

    director of the Lac Courte Oreilles Federal Credit Union (LCOFCU) provides an example of this

    approach:

    Our goal is not to make a lot of money, but to establish a healthy relationship with that

    borrower. Instead of going to pawn shop or payday lender, they come to us. We want to

    build relationships with borrowers. The goal of the credit union is to provide an

    alternative, getting people to come in the door. We hope they are learning to trust banks.

    Many have never been in a bank before.

    FNDI testimony Predatory Lending and its Impact on Native American Communities 9

Staff at LCOFCU work closely with borrowers when necessary. David Fleming stated,

    When someone lost their job at the tribe, or couldn’t pay their loan, we wanted them to be

    comfortable coming to talk with us. We would work with them to refinance, or lower the

    payments on the loan until they got back on their feet. This made a difference and helped

    people learn to trust us.

Another lesson learned is that the ―low stakes‖ loans are important stepping stones to becoming

    credit worthy. Smaller consumer loans, including one called the ―Easy Money‖ loan, allows

    people to learn to use credit responsibly. Payroll deduction was used to ensure that people had a

    low default rate. David Fleming stated,

    Many people told us that the ―Easy Money‖ loan made them credit worthy – gave them a

    credit history, or helped improve their credit score. We reported payment on those loans

    to the credit agency and it helped people establish or repair credit. People told us that it

    made them eligible for a home loan later on.

FNDI supports the 2008 policy recommendations made by the Native Financial Education

    Coalition, which were based in part on FNDI’s research. We agree that there is a need to expand

    financial education opportunities, combat predatory lending, improve institutional infrastructure,

    increase access to EITC, and promote and expand IDA utilization.

    III. Policy Recommendations

Our report Borrowing Trouble: Predatory Lending in Native American Communities focuses on

    what tribes can do to combat predatory lending, but there is also an important role for the federal

    government, as trustee with responsibility for implementing and overseeing the federal policy of

    tribal self-determination and protection of tribe sovereignty. Our first three recommendations

    focus on actions tribal governments may take, and our final recommendation provides

    suggestions for a federal role.

1. Recommendation One: Tribes Should Develop Credit Programs and Borrowing

    Opportunities That Reduce the Demand for Predatory Lending and Stem the Bleeding of

    Assets from Indian Communities

Tribes have the ability to develop their own financial institutions, and these financial institutions

    can offer alternative credit products to the citizens of Native nations. There are currently over 84

    Native-owned banks, credit unions, and loan funds that are actively providing financial products

    and services to Native people, many of which have received support from the CDFI Fund as part

    of their Native American programming. As detailed in our report Borrowing Trouble: Predatory

    Lending in Native American Communities, several of these financial institutions currently offer

    short term consumer loans, which reduce the demand for high fee payday loans. Many of these

    financial institutions also provide financial education and credit repair in a variety of forms.

2. Recommendation Two: Native Nations Should Develop Consumer Education Programs that

    Assist in Financial Planning and Credit Repair

FNDI testimony Predatory Lending and its Impact on Native American Communities 10

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