Megan O'Matz and Joel Jacobs, ProPublica

This story was originally published by ProPublica, a nonprofit newsroom that investigates abuses of power. ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for Dispatches a newsletter that spotlights wrongdoing around the country, to receive our stories in your inbox every week.

Reporting highlights

• 600% online loans: A Wisconsin tribe built a lending empire on high-interest lending, relying on its sovereign rights to avoid state interest rate caps.
• Bankruptcies and complaints: A ProPublica analysis found that the tribe’s companies are mentioned frequently in personal bankruptcies and consumer complaints.
• Groundbreaking settlement: A proposed class-action settlement involving the tribe’s officials promises to deliver extraordinary relief to borrowers, erasing over $1 billion in debt.

These highlights were written by the reporters and editors who worked on this story.

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 the 2024 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.”

How we estimated the size and impact of the tribal lending industry

Because tribal lenders are not licensed by states, there is very little public information about the size of the industry.

Bankruptcies give a rare window into the prevalence of the industry because when people file for bankruptcy, they must list all the creditors they owe money to. Bankruptcies are filed in federal court and are tracked in PACER, the federal courts’ electronic records system. But PACER charges a fee for every document viewed and cannot be comprehensively searched by creditor list, making it impractical to identify every bankruptcy case with a tribal lender.

Instead, we selected a random sample of 10,000 bankruptcy cases using the Federal Judicial Center’s bankruptcy database, which lists every case filed nationwide (but does not include creditor information). We looked at Chapter 7 and Chapter 13 cases — the types used by individuals — filed from October 2020 to September 2023. We then scraped the creditor list for each of these cases from PACER and identified which cases involved tribal lenders.

We ultimately identified 119 cases with LDF companies as creditors — 1.19% of our total sample, the most of any tribe. Extrapolating these figures across all 1.2 million Chapter 7 and Chapter 13 bankruptcy cases during these three years gave an estimated 15,000 cases involving LDF loans during this period (with a 95% confidence interval of +/- 2,600). That comes out to an estimated 4,800 cases per year, on average. Many factors can contribute to bankruptcy, and LDF loans were not the only debts these bankruptcy filers faced. Still, these figures showed that LDF stood out among other tribal lenders and had a substantial presence across bankruptcies nationwide.

We also looked at consumer complaint data that we acquired through public records requests to the Federal Trade Commission, which collects complaints made to various sources including the Better Business Bureau, the Consumer Financial Protection Bureau and the FTC itself. We focused our requests on several categories we found to be related to lending products, such as payday loans and finance company lending. Our tallies are likely an undercount: Complaints against tribal lenders may have fallen under other categories, such as debt collection, though our explorations found this to be less common. We found more than 2,200 complaints about LDF companies since 2019, the most of any tribal lending operation.

We compiled hundreds of tribal lending company and website names that we used to search through the creditor and complaint data. However, due to the ever-shifting industry landscape in which websites often go offline while new ones pop up, it is possible that we did not identify every complaint and bankruptcy involving tribal lenders.

Mariam Elba contributed research.