Judge approves historic $1.5 billion payday loan settlement involving LdF tribe

A judge has given preliminary approval to a proposed settlement of a gigantic payday loan lawsuit that, if approved permanently, would forgive $1.4 billion in outstanding loans to nearly a million payday loan borrowers who took loans from the Lac du Flambeau Band of Lake Superior Chippewa Indians (LDF) tribal corporation and its subsidiaries.

According to court documents, the case arises from the making and collection of high-interest loans from online lending companies owned by the LDF Business Development Corporation and its subsidiary, LDF Holdings, LLC. The basic allegation is that non-tribal payday lenders used Native American tribes to originate illegal loans that they claim are subject to tribal law because of sovereign immunity and thus not subject to state usury laws.

The proposed settlement is the largest ever obtained against participants in the tribal lending industry, and it surpasses multiple settlements approved by courts in similar tribal lending cases, the memorandum in support of the settlement states.

In approving the settlement for now, the court deemed the settlement terms reasonable and fair. According to federal court documents, federal judge Norman Moon approved the settlement between the parties on August 1. In addition to having $1.4 billion in loans forgiven, the settlement would establish a $37.35 million common fund for consumers “who repaid unlawful amounts” on their high-interest loans. 

More specifically, the settlement provides significant relief primarily in the form of debt cancellation and cash payments. According to court documents, tribal officials have agreed to eliminate the balance due on all outstanding debt originated by LDF tribal lending entities during the class period, namely, for consumers residing within the United States who executed loan agreements with any LDF tribal corporation between July 24, 2016 and October 1, 2023.

The proposed settlement would also result in the creation of a settlement fund in the amount of $37.35 million, which would be distributed to borrowers who repaid more than the principal balance of their loans. It is estimated that there are approximately 980,000 settlement class members, including the plaintiffs.

The settlement points to other benefits as well.

“Put differently, the proposed settlement provides almost $1.5 billion in benefits to class members before even accounting for other valuable forms of consideration, like deletion of any negative credit reporting associated with the loans,” the memorandum in support of preliminary approval states.

In the lawsuit, the plaintiffs alleged that they and other class members were the subject of a practice in which the lending enterprise, with defendants’ direct participation and support, charged usurious interest rates on consumer loans in violation of federal and state law. 

In agreeing to the settlement, the defendants made no admission of guilt but said the settlement was in the best interests of all parties. The defendants denied all material allegations in the lawsuit; denied any jurisdiction of the court save for purposes of enforcing the agreement, including, for the tribal officials, on grounds of sovereign immunity; denied that the case should be litigated rather than arbitrated; and denied any fault, wrongdoing, or liability whatsoever arising out of or related to their business practices.

The defendants acknowledged that defending the action would require them to expend significant time and money, and therefore decided it was in their best interest to resolve the lawsuit solely for the purposes of avoiding the burden, expense, and uncertainty of continuing litigation, and to obtain the conclusive and complete dismissal of the action and release of all released claims.

How the case evolved

In an amended complaint filed in 2023, the plaintiffs stated that the case was about unlawful loans made and collected by lending entities that claimed to be owned and operated by the Lac du Flambeau Band of Lake Superior Chippewa Indians. 

“The lending entities imposed triple-digit interest rates — often in excess of 700 percent — that are illegal in many states, including those where plaintiffs reside: Virginia, Georgia, Maryland, and Florida,” the complaint stated.

What’s more, the complaint alleged, for the purpose of exploiting the protections of sovereign immunity, the “scheme” made the loans through the tribal lending business model — “the most recent incarnation of payday lending companies regulation-avoidance.” 

“Under this model, non-tribal payday lenders and their business partners use Native American tribes to originate illegal loans in order to facilitate a dubious and legally incorrect claim that the loans are subject to tribal law and, thus, tribal sovereign immunity,” the complaint stated. “The payday lenders’ belief is that this arrangement circumvents otherwise applicable protections deriving from state usury and licensing laws.”

Beginning in 2012 or 2013, the complaint alleged, the tribe started participating in multiple partnerships with non-tribal payday lenders that wished to skirt state and federal lending laws.

“Around that time, Brent McFarland, the Tribe’s then-director of business development, explained to the Milwaukee Journal Sentinel that ‘we’re looking for ways to leverage (the tribe’s) sovereignty’ for profit,” the complaint stated. “Non-tribal payday lenders were motivated to provide the tribe with a nominal percentage of their revenue in exchange for shrouding their illegal loans.”

Among the named defendants was the Band’s tribal council, the complaint observed. 

“As stated in the Band’s bylaws, the tribal council is the tribe’s ‘governing body,’” the complaint stated. “Relevant here, the power and duties of the tribal council include: (1) regulation of the use and disposition of tribal property, such as any of its interests in the laws; (2) management of ‘all economic affairs and enterprises of the tribe,’ including its lending activities; (3) promulgation of all ‘legislation, statutes, codes and ordinances,’ including those related to lending activities. Pursuant to these bylaws, the tribal council directs, controls, and oversees ‘all economic affairs and enterprises of the Tribe,’ including its lending subsidiaries.”

The complaint alleged that the tribal council reviews the activities of each of the LDF Lending Entities, such as their marketing, origination, collections, and complaints from borrowers.

“To assist them with their management of the LDF Lending Entities, the tribal council also created LDF Holdings, which holds itself out as a wholly-owned subsidiary of the Lac du Flambeau Business Development Corporation, a wholly owned and operated economic arm and instrumentality of the Band,” the complaint stated. “LDF Holdings is managed by LDF Business Development Corp.”

Although the tribal council retains the ultimately authority over management of all economic affairs and enterprises of the tribe, the tribal council has delegated some of this authority to the Lac du Flambeau Business Development Corporation, the plaintiffs argued.

“And in turn, the tribal council and Lac du Flambeau Business Development Corporation (who oversees all of the economic activities of the tribe), have delegated responsibility over the lending activities to LDF Holdings and its president, defendant Jessi Phillips Lorenzo,” the complaint alleged. “As the president of LDF Holdings, defendant Lorenzo manages and oversees the LDF Holdings’ day-to-day activities, including its relationships with more than a dozen subsidiaries that use the tribe’s name to originate their illegal loans.” 

The complaint named the LDF Holdings’ subsidiaries, including: Ningodwaaswi, LLC d/b/a/ Sky Trail Cash; Ishwaaswi, LLC d/b/a Radiant Cash; Makwa, LLC d/b/a Makwa Finance; Niizhwaaswi, LLC d/b/a Loan at Last; Niizh, LLC d/b/a Bright Star Cash; Niiwin, LLC, d/b/a Lendgreen; Anong, LLC d/b/a Availblue.com; Niibin, LLC, d/b/a Cash Aisle; Midaaswi, LLC d/b/a/ National Small Loan; Naanan, LLC d/b/a Bear Claw Finance; Mitig, LLC d/b/a MitigCapital and Cashcity; Zagime, LLC d/b/a Blue River Lending; Bridge Lending Solutions; Opichi, LLC d/b/a Evergreen Services; Giizis LLC d/b/a Lakeshore Loans; Waawaatesi LLC, d/b/a Quickhelp; Loans; Naanan, LLC d/b/a Stone Lake Lending; Nigig, LLC d/b/a Ubicash; Ziibi, LLC d/b/a zFunds; and Zhaangaswi, LLC d/b/a Nine Torches.

According to the complaint, none of those lending entities were actively operated or managed by the Band. 

“Instead, LDF Holdings entered into servicing or similar agreements that allow non-tribal outsiders to handle and control all aspects of the lending businesses, including the marketing, underwriting, risk assessment, compliance, accounting, lead generation, collections, and website management for the businesses,” the complaint alleges.

According to the defendants, Lorenzo was involved with the creation, implementation, and oversight of each of those relationships, including by assisting with: (1) the identification of potential payday lending partners; (2) the negotiation of servicing agreements, as well as other contracts establishing the structure of the payday partnerships; (3) the signing of all necessary documents for the scheme, including the servicing agreements, control deposit agreements, and lockbox agreements; (4) securing key operational components, including the ability for the LDF Lending Entities to use the ACH network; and (5) identification of potential banking partners so that the LDF Lending Entities could debit and credit payments.

“Additionally, to ensure that the Band receives its cut of the revenue, defendant Lorenzo participates in extensive ongoing monitoring and rigorous oversight of the LDF Lending Entities,” the complaint alleged. “This conduct has been ongoing for more than ten years and continues to this day.”

And what was that conduct?

“Defendants, together with others not yet known to plaintiffs, marketed, initiated, and collected usurious loans throughout the country, including in Virginia, Georgia, Maryland, Florida, as well as other states with similar laws,” the complaint alleged. “Defendants knew the loans were illegal under state usury and licensing laws, but they pursued the scheme anyway. They charged astronomical interest rates that far exceeded the rates allowed by applicable state laws.”

Upon information and belief, the complaint alleged, all of defendants’ loans to consumers used excessive interest rates far in excess of applicable state laws.

“Accordingly, the loans were null and void under applicable state law, and it is unlawful for defendants, LDF Holdings, or any of their affiliates to collect or receive any principal, interest or charges whatsoever on said loans, including any amounts paid by plaintiffs,” the complaint asserted.

The complaint included the actual lending experiences of some of the borrowers.

One plaintiff in Virginia, for example, applied for and received five loans from Ishwaaski, LLC, doing business as Radiant Cash, according to the complaint.

“Each of the loans issued to [the plaintiff] imposed an interest rate ranging from 278 percent to 711 percent,” the complaint alleged. “For example, [the plaintiff] entered into a loan agreement dated March 10, 2014, which imposed a 711 percent annual interest rate on a $200 loan. [The plaintiff] paid no less than $740 on this loan — all of which was void and uncollectible under Virginia law.”

Then, in August 2014, [the plaintiff] received another loan for $500, which imposed an annual interest rate of 489 percent.

“[The plaintiff] paid no less than $1,262.32 on this loan — all of which was void and uncollectible under Virginia law,” the complaint alleged. “On or around March 16, 2015, [the plaintiff] received another loan for $500, which imposed an annual interest rate of 441 percent. [The plaintiff] paid no less than $1,151.93 — all of which was void and uncollectible under Virginia law.”

In September 2015, [the plaintiff] received another loan for $500, which imposed an annual interest rate of 319 percent, according to the complaint.

“[The plaintiff] paid no less than $1,061.86 — all of which was void and uncollectible under Virginia law,” the complaint stated. “On or around March 5, 2016, Mr. Fitzgerald received another loan for $600, which imposed an annual interest rate of 278 percent. [The plaintiff] paid no less than $644.77 — all of which was void and uncollectible under Virginia law.”

The court deemed the settlement as being fair, reasonable and adequate, free of collusion or indicia of unfairness, and within the range of possible final judicial approval. 

“In making this determination, the court has considered the current posture of this litigation, the risks and benefits to the parties involved in both settlement of these claims and the continuation of the litigation, and the fact that defendants deny liability and have indicated their intent to defend the litigation vigorously,” the court determined.

Richard Moore is the author of “Dark State” and may be reached at richardd3d.substack.com.