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The sprawling business empire created by tribal leaders in northern Wisconsin was born of desperate times, as the Lac du Flambeau Band of Lake Superior Chippewa Indians faced financial ruin. Its subsequent success would be built on the desperate needs of others far from the reservation.

The tribe had made some poor choices as it sought to expand its fortunes beyond a modest casino in its home state of Wisconsin two decades ago. Grand plans for a floating casino off Cancun, Mexico, collapsed, and a riverboat gambling venture in Mississippi required more cash than the tribe had on hand.

The resulting loans — $50 million in bonds issued in 2008 at 12% — proved crushing. Struggling to make debt payments, tribal officials soon were forced to slash spending for essential programs on the reservation and lay off dozens of employees.

Protests erupted, with demonstrators barricading themselves inside a government building and demanding audits and investigations. When angry tribal members elected a new governing council, it refused to pay anymore. The tribe defaulted on a loan it had come to regret.

The LDF tribe turned to the one asset that could distinguish it in the marketplace: sovereign immunity.

This special status allowed it as a Native American tribe to enter the world of internet lending without interest rate caps, an option not open to other lenders in most states. The annual rates it charged for small-sum, installment loans frequently exceeded 600%.

Business partners, seeing the favorable math, were easy to find. So, too, were consumers who had run out of options to pay their bills. Their decisions to sign up for LDF loans often made things worse.

ProPublica traced the key decisions that put LDF on the path to becoming a prominent player in a sector of the payday lending industry that has long skirted regulation and drawn controversy.

LDF did not just dabble in this type of lending; it fully embraced it. Like other tribes that have taken this route, LDF built its success on a series of complex business arrangements, with roles and motives difficult to unravel.

Over time, ProPublica found, LDF signed off on deals involving outsiders with histories of predatory practices — associations that carried profound implications for the tribe. Not only did they put the tribe’s reputation at risk, they generated a barrage of costly lawsuits and questions of whether LDF was allowing partners to take advantage of tribal rights to skirt state usury laws.

In Boston, Brian Coughlin initially had no idea that a Native American tribe was involved in the small loan he took out with a high interest rate. He only learned about LDF after he filed for bankruptcy to seek protection from his creditors.

“I was definitely surprised,” he said. “I didn’t think they operated things like that.”

During the bankruptcy process, an LDF partner still hounded him to pay, which Coughlin said pushed him to a breaking point and a suicide attempt. Federal law prohibits chasing debtors who have filed for bankruptcy, and Coughlin sued the tribe in a dispute that went all the way to the U.S. Supreme Court. Last year, the court — in a decision with far-reaching implications for tribes — ruled that LDF could be held liable under the Bankruptcy Code.

His and other consumer lawsuits paint LDF as a front for outsiders who take an oversized cut of the proceeds, leaving LDF with only dollars per loan. Interviews and ProPublica’s review of records also show how heavily LDF relies on its partners for most of the essential operations. These descriptions are disputed by LDF, which has told ProPublica that it merely is outsourcing for much-needed expertise while still maintaining control.

In a statement to ProPublica this year, John Johnson Sr., LDF’s president, described the tribe’s lending business as “a narrative of empowerment, ethical business practice, and commitment to community enrichment.” He has declined to be interviewed and did not respond to written questions for this story.

Over time, LDF has set up at least two dozen internet lending companies and websites, ProPublica determined. Its loans are so pervasive the LDF tribe showed up as a creditor in roughly 1 out of every 100 bankruptcy cases sampled nationwide, as ProPublica reported in August.

This year, LDF and some of its business affiliates agreed to a federal class-action settlement in Virginia that, if finalized, will erase $1.4 billion in consumer debt and provide $37 million in restitution. Tribal defendants are responsible for $2 million of that; the tribe in a statement has indicated that its business arm would pay.

Tribal officials have consistently denied wrongdoing. A newsletter to tribal members as LDF was starting up its venture said the tribe “is not practicing any type of predatory lending.” In his statements to ProPublica for the August story, Johnson stressed that the tribe complies with tribal and federal law, that its lending practices are transparent, that its collections are done ethically and that the loans help distressed borrowers who have little access to credit.

LDF leaders have not publicly stated any desire to alter their business practices, even as some community members express concern.

“Feeding greed with unscrupulous business practices is crushing us,” one LDF member recently wrote on a community Facebook page.

‘The money is dirty’

After the bond debacle in the 2000s, LDF leaders felt stung by their outside financial advisers, believing they were deceived about the terms of the transaction and risks involved.

Moving forward, they wanted someone they could trust. They found that in Brent McFarland.

McFarland was not a tribal member, but he grew up near the reservation and had friends on the Tribal Council. McFarland, an investment adviser who’d run a restaurant and worked in real estate, offered some helpful advice to the tribe, and the council eventually hired him for a wider role. He helped it establish the Lac du Flambeau Business Development Corporation in 2012, governed by a board answerable to the Tribal Council. And he looked for ways LDF could make money, apart from gaming.

“I ended up meeting some people that were doing online lending,” he said in an interview.

Tribes could get into the industry — attracting willing partners with expertise in lending — without putting up any capital because sovereign immunity was its own bounty.

But as certain as LDF was that state laws wouldn’t apply to its operations, the tribe took a careful approach. LDF decided it would not lend to people in Wisconsin, including its own members. “It keeps our relationship with the state of Wisconsin healthy,” McFarland told the Milwaukee Journal Sentinel.

Peter Bildsten, who ran the state Department of Financial Institutions then, remembers visiting the reservation as it was embarking on the new venture. He recalled that he met some of LDF’s business partners, who recognized that the lending operation would be extremely lucrative but also potentially controversial.

“They talked about yeah, we are doing it, and we know there’s virtually nothing you can do about it and especially if we don’t lend to any people in Wisconsin. You can’t do anything,” Bildsten said. “It was almost kind of a dare.”

Many tribes, still suffering from a legacy of racism and inadequate federal resources, struggle to find economic solutions for their people. McFarland, who no longer works for LDF but does consulting for tribes, defended LDF’s decision to move into high-interest loans as a legitimate option.

“The business is offering a service where the interest rates and cost of borrowing are well disclosed to consumers,” he told ProPublica in an email. “It’s expensive, but if used responsibly can be more affordable than many other options. The costs and risks are not hidden from consumers.”

Johnson, LDF’s president, has said there was a rational reason for the tribe’s business partnerships: It needed outside expertise as it entered a new industry.

“But let me be more specific: Zero I.T. enterprise architects, data analysts, or marketing strategists lived on the Lac Du Flambeau reservation when the Tribal Council decided to enter this industry,” he wrote in an email to ProPublica in August.

LDF’s partners run their operations far from tribal land. ProPublica identified several Florida lawsuits that allege a straight-forward process: “The LDF Tribe mints a new ‘tribal’ limited liability company, supposedly organized under Tribal law, for each new investor. Each new investor then runs his or her own ‘tribally owned’ website, offering consumers loans at interest rates between 450% and 1100% annually.”

Those cases were settled or dismissed without LDF addressing the allegations.

LDF does not publicly disclose its partners. ProPublica identified one of them as RIVO Holdings, a fintech firm based in a high-rise in downtown San Diego that has serviced two LDF websites.

RIVO is an acronym for respect, integrity, value and opportunity. The company’s founder and CEO is Daniel Koetting. His personal website touts his employment of “over 200 local employees at RIVO.” His brother Mark, of Kansas, managed a separate lending portfolio for the tribe.

The brothers entered the tribal lending industry after facing regulatory scrutiny for previous lending operations. In 2006, Califonia issued a cease-and-desist order to both men for unlicensed lending; Daniel Koetting received a similar demand from New Hampshire in 2011.

Initially, the Koettings partnered with the Big Lagoon Rancheria tribe in California to offer high-interest loans beginning in 2013. But that relationship began to fall apart several years later.

The tribe alleged that the Koettings surreptitiously pushed customers to new lending companies set up with LDF, and an arbitrator awarded Big Lagoon Rancheria $14 million in 2018. Years of litigation followed as the Koettings fought the decision. The case is still pending.

“I actually called Lac du Flambeau and warned them and informed them that they were getting into business with Big Lagoon’s client list,” Virgil Moorehead, Big Lagoon Rancheria’s chairperson, told ProPublica.

Joseph Schulte Jr., who once worked at RIVO, likened one area of the company’s San Diego office to a Wall Street trading floor, with exuberant staff celebrating short-term wins, such as meeting daily sales goals. To keep the staff pumped up, he said, management brought in pallets of free Celsius energy drinks.

“People were making a lot of money working there,” Schulte said of RIVO Holdings.

Although figures for LDF’s loan portfolios are private, Daniel Koetting’s previous venture with the Big Lagoon Rancheria amassed approximately $83 million in revenue over five years, according to a legal filing.

Court papers, including divorce filings, show Daniel Koetting enjoying a lavish lifestyle in recent years, living in a five-bedroom, five-bath house in La Jolla, an affluent seaside enclave of San Diego. He owned thoroughbred horses, drove a Porsche and dabbled in motion pictures. He and his wife had three children. In the divorce, he reported household expenses in 2021 that included an average of $7,000 a month on groceries and eating out, plus an additional $5,000 a month for “entertainment, gifts and vacation.”

Daniel and Mark Koetting did not reply to emails, calls or letters from ProPublica seeking comment.

Meanwhile, the two companies that RIVO and LDF run — Evergreen Services and Bridge Lending Solutions — are associated with more than 200 complaints from customers since 2019, frequently about onerous interest rates and payment terms. “I just don’t understand how people can do this,” a California resident protested to the Consumer Financial Protection Bureau. “This is a predatory lender and I am a victim.”

Bildsten, the former Wisconsin department head, believes that LDF tribal leaders are trying to help the reservation improve services, such as dental care, for its members and that the lending business is part of that laudable goal.

“They’re able to do some good stuff,” Bildsten said, “but the money is dirty.”

An ill-fated loan with profound ramifications

Brian Coughlin lit a cigar. Sitting in his Chevy Malibu with the sunroof open to let out the smoke and a bottle of pills next to him, he wondered: When will this end?

He’d faced many hurdles in life, from serious physical and mental health issues to the loss of his father. He’d also used bad judgment, overspending and loading up on multiple credit cards as he blew through a decent paycheck as head of trash collection for the city of Boston.

Like many other Americans with little to no savings and poor credit scores, he was enticed by online pitches for quick cash — offers that came with exorbitantly high interest rates.

Months earlier, in December 2019, he’d filed for bankruptcy, expecting relief. There would be payment plans and a court injunction halting contact from creditors — a key protection laid out in U.S. bankruptcy law. But one creditor would not give up.

Lendgreen, one of LDF’s initial companies, had loaned Coughlin $900 at an annual percentage rate of 741%. At the time of the bankruptcy, he owed $1,595. The company continued to call, email and text him, fueling his anxiety. A phone log shows Lendgreen called Coughlin 50 times during one four-month period.

“This is all for nothing,” Coughlin recalls thinking of the bankruptcy process.

That night in his Chevy, Coughlin took a fistful of pills and ended up in the hospital. Lendgreen still was calling him while he recovered. But now he was ready to fight.

Coughlin’s attorney filed a motion with the bankruptcy court in March 2020 asking a judge to order Lendgreen, the LDF tribe and LDF Business Development Corporation to stop harassing him.

The case was about more than just harassment, however. Coughlin wanted compensation for all that had happened. He asked the court to award him attorneys fees, medical costs, expenses for lost time from work while hospitalized and punitive damages.

To Coughlin’s surprise, LDF told the court that sovereign immunity protected it even in a federal bankruptcy case, and the bankruptcy judge in Massachusetts agreed. When Coughlin took the case to the 1st U.S. Circuit Court of Appeals and won, the tribe appealed to the U.S. Supreme Court.

As they dug into who actually violated the collections ban, Coughlin’s attorneys needed to unravel the business relationships surrounding Lendgreen, which no longer has an active website. That led them on an international paper chase from Wisconsin to Ontario, Latvia and Malta, an island in the Mediterranean, where an entity that provided capital for Lendgreen appeared to be based.

In gathering evidence, Coughlin’s lawyers obtained an agreement between Lendgreen and another company — Vivus Servicing Ltd. of Canada — showing Vivus was to handle most all operations of issuing and collecting the loans made in Lendgreen’s name. It also would retain most of the profits.

For each new or renewed loan, the contract called for Vivus to share $3.25 with LDF as well as $3.25 per loan payment, or not less than $10,000 a month.

Vivus Servicing had subcontracted certain administrative functions of the Lendgreen loans to 4finance Canada, an affiliate company of a European lending conglomerate based in Latvia, court records show. An attorney who represents Vivus and 4finance declined to comment.

“There’s money flowing to all sorts of places,” Coughlin’s attorney Richard Gottlieb said.

As he began to better understand the web of connections, Gottlieb concluded that LDF’s role in its lending operations was minimal. The partners, he said, performed all the key functions — “from the creation of the loans themselves to the maintenance of the computer software and internet sites to the collections personnel to the customer service reps to the management.”

Even though LDF fought in court to be able to pursue collections against people in bankruptcy, internal documents indicate that the head of LDF Holdings, which oversees the tribe’s lending enterprise, was not pleased with how a business partner treated Coughlin.

Jessi Lorenzo, president of LDF Holdings at the time, communicated in May 2020 with 4finance Canada about Coughlin’s loan. Why had they not stopped soliciting repayment once notified that Coughlin had filed for bankruptcy, she asked in an email.

“Everything should have ceased then,” wrote Lorenzo, who was based in Tampa.

In a brief interview on her porch, Lorenzo declined to comment on the Coughlin case and said she did not want to be part of a tribal lending story that might be negative. Later, in an email, she wrote that she was proud to have worked for LDF as it “built a business that benefited their community, providing modern careers with upward mobility and good benefits in a remote part of Wisconsin.”

A future clouded by legal challenges

LDF tribal leaders don’t talk much about their business with outsiders. But there is little doubt that the lending business has altered the shape of the tribe’s finances, allowing LDF to move past its costly mistake of issuing $50 million in bonds for the Mississippi casino boat.

The Tribal Council agreed in 2017 to pay $4 million and finance an additional $23 million to settle claims against it after defaulting.

But the tribe and its partners continue to face new threats from a range of legal actions.

The attorneys in the Virginia case have promised future litigation against more LDF partners. And as LDF keeps lending, it opens its companies up to additional consumer lawsuits. Dozens of such cases have been filed since 2019, most of which end quickly, with undisclosed settlements.

McFarland takes issue with these types of cases against tribes. “The law firms filing class action lawsuits seek to paint tribes as either victims or villains in online lending,” he said in an email. “This approach has been employed against tribes since Europeans came to the Americas, whether Tribes are entering gaming, cannabis, selling tobacco, and a host of business opportunities.”

When Coughlin’s suit reached the Supreme Court, some of the issues involving tribal-lending partnerships were touched on, if only briefly.

During a hearing in April 2023, Justice Samuel Alito interrupted LDF’s lawyer as he was talking about sovereign immunity and the Constitutional Convention. Alito inquired about the tribe’s relationship with Lendgreen.

“Who actually operates this?” he asked.

“The tribe does, Your Honor,” replied attorney Pratik Shah, representing LDF. “This is not a rent-a-tribe situation.”

Shah said the enterprise employed 50 to 60 people working out of a headquarters on the reservation, though “they use third-party vendors, servicers and all, like any other business.”

Shah added: “This is a fully tribal operation.”

But the central issue was whether the tribe could be held liable for violating bankruptcy rules.

“What the tribe is saying is you can’t sue them for hundreds of thousands of dollars of actual damages,” Shah told the court. “That’s at the core of sovereign immunity.”

In June of last year, the high court sided with Coughlin, ruling 8-1 that there’s no sovereign immunity for tribes when it comes to the Bankruptcy Code.

Justice Clarence Thomas concurred in the ruling, not because of his reading of the Bankruptcy Code, but because he held that sovereign immunity does not apply to lawsuits arising from a tribe’s commercial activity conducted off-reservation.

Back in Bankruptcy Court, Coughlin continued to pursue LDF and Lendgreen for damages and legal fees. In mid-August, in the midst of settlement talks, Coughlin asked the court to pause the process required to unmask the outside entities involved with LDF as all sides tried to resolve the dispute. In September, a judge approved a settlement in which the tribe and Lendgreen agreed to pay Coughlin $340,000. LDF denied liability as part of the agreement.

At the same time, pressure is mounting on the tribe’s business partners. As part of the deal, the tribe will give Coughlin documents “with respect to the culpability and responsibility” of the outside partners, according to the settlement. That will enable Coughlin’s lawyers to dig further. LDF also will make a corporate representative available to testify in legal actions against their former business allies, if necessary.

“I want to see all the actors that are actually part of this scheme brought to justice, in a way,” said Coughlin, who now lives in Florida.

“I don’t necessarily believe the tribe is the orchestrator of this whole mess. I think they’re a pawn, unfortunately.”

Mariam Elba contributed research.

To do the best, most comprehensive reporting on this opaque industry, we want to hear from more of the people who know it best. Do you work for a tribal lending operation, either on a reservation or for an outside business partner? Do you belong to a tribe that participates in this lending or one that has rejected the industry? Are you a regulator or lawyer dealing with these issues? Have you borrowed from a tribal lender? All perspectives matter to us. Please get in touch with Megan O’Matz at megan.omatz@propublica.org or 954-873-7576, or Joel Jacobs at joel.jacobs@propublica.org or 917-512-0297. Visit propublica.org/tips for information on secure communication channels.

Desperate times led Wisconsin tribe to high-interest lending, dubious partnerships and legal jeopardy is a post from Wisconsin Watch, a non-profit investigative news site covering Wisconsin since 2009. Please consider making a contribution to support our journalism.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.

In bankruptcy filings and consumer complaints, thousands of people across the country make pleas for relief from high-interest loans with punishing annual rates that often exceed 600%.

Although they borrowed small sums online from a slew of businesses with catchy names — such as Loan at Last or Sky Trail Cash — their loans stemmed from the same massive operation owned by a small Native American tribe in a remote part of Wisconsin.

Over the past decade, the Lac du Flambeau Band of Lake Superior Chippewa Indians has grown to become a prominent player in the tribal lending industry, generating far-reaching impact and leaving a legacy of economic despair. A ProPublica analysis found companies owned by the LDF tribe showed up as a creditor in roughly 1 out of every 100 bankruptcy cases sampled nationwide.

That’s the highest frequency associated with any of the tribes doing business in this sector of the payday loan industry. And it translates to an estimated 4,800 bankruptcy cases, on average, per year.

ProPublica also found that LDF’s various companies have racked up more than 2,200 consumer complaints that were routed to the Federal Trade Commission since 2019 — more than any other tribe in recent years.

“THIS IS THE TEXTBOOK DEFINITION ON LOANSHARKING,” one Californian with an LDF loan complained in all caps in June 2023 to federal regulators. The person, whose name is redacted, argued that “no one should be expected to pay over $11,000 for a $1,200 loan,” calling the 790% rate “beyond predatory.”

In a separate complaint, a Massachusetts customer wrote, “I thought this kind of predatory lending was against the law.”

Such confusion is understandable. Loans like these are illegal under most state statutes. But tribal-related businesses, including LDF, claim that their sovereign rights exempt them from state usury laws and licensing requirements aimed at protecting consumers. And so these businesses operate widely, facing little pushback from regulators and relying on the small print in their loan agreements.

As LDF climbed in the industry, it kept a low profile, garnering little publicity. For years it operated from a call center above a smoke shop in the community’s small downtown, before moving to a sprawling vocational training building, built in part with federal money, off a less visible, two-lane road.

But staying under the radar just got harder. Court filings show that LDF tribal leaders and some of their nontribal business partners have come to an agreement with consumers in a 2020 federal class-action lawsuit filed in Virginia. Nearly 1 million borrowers could finally get relief.

The deal calls for the cancellation of $1.4 billion in outstanding loans. Tribal officials and their associates would also pay $37.4 million to consumers and the lawyers who brought the suit. Although they settled, LDF leaders have denied wrongdoing in the case, and its president told ProPublica it adheres to high industry standards in its lending operations.

A final resolution of the case will take months. If approved, the total settlement would be the largest ever secured against participants in the tribal lending industry, lawyers told the court.

“This is a big one,” said Irv Ackelsberg, a Philadelphia attorney who has faced off in court against other tribal lenders and followed this suit closely. “Is it going to stop tribal lending? Probably not because it’s just a fraction of what’s out there.”

The LDF tribe is central to the suit but is not named. Nor is LDF Holdings, the corporate umbrella over the various lending subsidiaries.

Knowing that both those entities likely would have been entitled to sovereign immunity, lawyers for the borrowers chose a different approach. Instead, they brought the case against members of the tribe’s governing council; high-level employees of LDF’s lending operations; and a nontribal business partner, Skytrail Servicing Group, and its owner, William Cheney Pruett.

Pruett also denied wrongdoing in the case. He did not respond to requests for comment from ProPublica.

The proposed settlement notes that the tribal leaders and their partners understood that continuing to defend the case “would require them to expend significant time and money.” LDF, under the settlement, can continue its loan operations.

In emails to ProPublica, LDF President John Johnson Sr. defended the tribe’s lending business as legal and beneficial to both borrowers and the tribal members. He said the loans help people “without access to traditional financial services,” such as those with bad credit histories and people facing financial crises. Many borrowers, he said, have had positive experiences.

He also emphasized the economic benefits to the tribe, including jobs and revenue for vital services. “Please make no mistake: the programs and infrastructure developed through LDF Holdings’ revenue contributions have saved lives in our community and are helping preserve our culture and way of life,” he wrote in an email.

Johnson, who is a named defendant in the suit, and other tribal leaders declined requests to be interviewed.

Partnerships fuel lending

Historically, some financial services firms formed alliances with tribes, gaining an advantage from the tribes’ sovereign immunity. For years, consumer lawyers and even federal prosecutors have raised questions about whether some tribal lending operations were just fronts for outsiders that received most of the profits and conducted all the key operations — from running call centers to underwriting and collecting.

The LDF tribe is one of only a few dozen of the nation’s 574 federally recognized tribes that have turned to the lending business as an economic lifeline. Typically those tribes are in isolated areas far from large population centers needed to support major industries or hugely profitable casinos. Online lending, or e-commerce, opened opportunities.

“If you look at the tribes who do it, they tend to be rural and they tend to be poor,” said Lance Morgan, CEO of a tribal economic development corporation owned by the Winnebago Tribe of Nebraska. “Because they don’t really have any other options to pursue from an economic development standpoint. They just don’t. That’s why this appeals to some tribes.”

He said his tribe considered getting into the lending industry but decided against it.

Tribes in the U.S. still suffer from the legacy of racism and betrayal that saw the U.S. government steal land from Native Americans and destroy cultures. Now, with limited economic resources and taxing options, tribal governments draw upon federal grants and subsidies to help fund essential community services — support promised in long-ago treaties, laws and policies in exchange for land. But these programs have proven to be “chronically underfunded and sometimes inefficiently structured,” according to a 2018 report from the U.S. Commission on Civil Rights.

On the LDF reservation, which is home to about 3,600 people, the median household income is under $52,000, and 20% of the population lives below the federal poverty line, according to the U.S. Census Bureau. On lands that are chock-full of lakes, streams and wetlands, the LDF people operate a fish hatchery, hunt deer and cultivate wild rice. The tribe also has a casino, hotel and convention center.

LDF entered the loan business in 2012 and has set up at least two dozen lending companies and websites on its way to massive expansion, a ProPublica examination found. LDF owns the companies and works with outside firms to operate its businesses, which offer short-term installment loans.

Unlike traditional payday loans, these are not due by the next pay period but have longer terms. Borrowers show proof of income and typically authorize the company to make automatic withdrawals from their bank accounts.

Details of the tribe’s business operations are not public. A July 2014 tribal newsletter reported that LDF had three lending companies employing four tribal members. By 2022, an LDF attorney told the Virginia judge that LDF Holdings, the lending parent company, employed about 50 people on the reservation. Johnson told ProPublica it currently employs 170 people “who live on or near the reservation,” of which 70% are tribally enrolled.

Each year, on reservation land, LDF now hosts the Tribal Lending Summit, a gathering of staff, vendors and prospective partners. Attendee lists posted online show dozens of representatives of software companies, call centers, marketing firms, customer acquisition businesses and debt collection agencies.

After this year’s event, in June, the LDF business hosts posted a congratulation message on social media: ”Here’s to another year of growth, learning, and collaboration! We look forward to continuing this journey together and seeing you all at next year’s summit.”

Business practices under fire

Like many operators in this corner of the lending industry, LDF has been forced to defend its business practices in court. It has been subject to at least 40 civil suits filed by consumers since 2019, ProPublica found.

The suits typically allege violations of state usury laws and federal racketeering or fair credit reporting statutes. Johnson, in his statements to ProPublica, said LDF follows tribal and federal regulations, and he cited LDF’s sovereign status as the primary reason state laws on lending don’t apply to its business practices.

“Expecting a Tribe to opine on and/or submit to State regulatory oversight is akin to expecting Canada to submit to or speak on the laws of France,” he wrote.

Most suits against LDF’s lending companies settle quickly with the terms kept confidential. Consumers can be at a disadvantage because of the arbitration agreements in the fine print of their loan contracts, which attempt to restrict their ability to sue.

Karen Brostek, a registered nurse in Florida, borrowed $550 in 2017 from LDF’s Loan at Last at an annual percentage rate of 682%. The contract required her to pay back $2,783 over nine months.

It wasn’t her first foray into short-term borrowing. She said her salary did not cover her expenses and she had “to borrow from Peter to pay Paul.”

Loan at Last tried numerous times to collect the debt, even threatening in one phone call to have her jailed, she said. Finally, in August 2019, she satisfied the obligation.

Brostek sued LDF Holdings in small claims court in Pasco County in 2021. The suit cited Florida laws that make it a third-degree felony to issue loans with APRs over 45%.

The parties settled within weeks. Brostek recalls receiving about $750. LDF’s Johnson did not comment on Brostek’s case in his response to ProPublica.

She said she does not begrudge the tribe making money but said, “We need to find another way to help them so they don’t feel they’re backed into a corner and this is their only alternative.”

A groundbreaking settlement

The Virginia class-action suit claimed that LDF’s governing council delegated the daily operations of the lending businesses “to non-tribal members.” Mirroring allegations in other civil actions, the suit claims that LDF’s partnerships were exploiting sovereign immunity to make loans that otherwise would be illegal.

According to the plaintiffs, LDF Holdings entered into agreements that allow nontribal outsiders to handle and control most aspects of the lending businesses. That includes “marketing, underwriting, risk assessment, compliance, accounting, lead generation, collections, and website management for the businesses,” the suit said. For years, the president of LDF Holdings was a woman who lived in Tampa, Florida. She is a named defendant in the suit, which says she is not a member of the tribe.

Johnson told ProPublica that early on the tribe lacked expertise in the industry and that its partnerships were simply an example of outsourcing, “a standard practice in many American business sectors.”

His statement added, “Recruiting outside talent and capital to Indian country is a mission-critical skill in Tribal economic development.”

The amount of revenue that comes to the tribe is undisclosed, but the class-action suit says the contract with one of its partners, Skytrail Servicing, resulted in only “a nominal flat fee” for LDF.

The 2014 servicing agreement between Skytrail Servicing and LDF is sealed in the court record, and details about the arrangement are largely redacted. In one filing, Skytrail Servicing denies an allegation from the plaintiffs that the tribe received only $3.50 per originated loan.

In a separate filing in the suit, Johnson, the tribal president, said LDF’s lending profits are distributed to the tribe’s general fund, which helps pay for the tribal government, including essential services such as police, education and health care.

The legal strategy crafted by the Virginia consumer protection firm Kelly Guzzo PLC relied heavily on a 2021 federal appeals court decision that concluded that tribal lending was off-reservation conduct to which state law applied. The court found that while a tribe itself cannot be sued for its commercial activities, its members and officers can be.

The class-action suit alleges that tribal officials and their associates conspired to violate state lending laws, collecting millions of dollars in unlawful debts. “In sum, we allege that they are the upper level management of a purely unlawful business that makes illegal loans in Virginia, Georgia, and elsewhere throughout the country,” lawyer Andrew Guzzo said in a September 2022 hearing, referring to LDF officials.

“What I’m trying to say, in other words, is this isn’t a case that involves a lawful business, such as a real estate brokerage firm, that happens to have a secret side scheme involving a few rogue employees,” he said. “The people that are overseeing this are overseeing a business that makes unlawful loans and nothing else.”

The most consequential aspect of the settlement plan is the debt relief it would offer an estimated 980,000 people who were LDF customers over seven years — from July 24, 2016, through Oct. 1, 2023. Those who had obtained loans during that period and still owed money would not be subject to any further collection efforts, canceling an estimated $1.4 billion in outstanding debt.

Eligibility for cash awards is dependent on the state where borrowers live and how much they paid in interest. Nevada and Utah have no interest rate restrictions, so borrowers there aren’t entitled to any money back.

The tribal officials who are listed as defendants have agreed to pay $2 million of the $37.4 million cash settlement. The remaining amount would come from nontribal partners involved in five of the tribe’s lending subsidiaries.

That includes $6.5 million from Skytrail Servicing Group and Pruett, a Texas businessman who has been involved in the payday loan industry for more than two decades.

The largest portion of the settlement — $20 million — would come from unnamed “non-tribal individuals and entities” involved with LDF’s Loan at Last, the company that gave Brostek her loan.

The consumer attorneys are not done. They noted in a memorandum in the case that other LDF affiliates who did not settle in this instance “will be sued in a new case.”

Mariam Elba contributed research.

A Wisconsin tribe built a lending empire charging 600% annual rates to borrowers is a post from Wisconsin Watch, a non-profit investigative news site covering Wisconsin since 2009. Please consider making a contribution to support our journalism.