On August 4, the U.S. Court of Appeals for the Third Circuit affirmed that an online consumer lending company owned by an federally recognized Indian tribe was not an extension of the tribe’s government and therefore did not qualify for sovereign immunity.

The tribally owned lender, which offered small loans nationwide with annual interest rates as high as 700 percent, was initially sued for alleged violations of state consumer-protection laws. The lender moved to dismiss the case, claiming sovereign immunity, and the district court rejected that argument. The lender appealed.

The appellate case focused on whether the lender could claim sovereign immunity to shield itself from lawsuits. The court applied a five-factor test, emphasizing substance over form and focusing on the lender’s ownership, management, and financial relationship with the tribe. Although the lender was primarily controlled by the tribe, the court found that judgment against the lender would not affect the tribe’s finances because the financial structure protected the tribe from liability, and therefore the lender could not be considered an arm of the tribe — a factor the court deemed decisive. The case was remanded for further proceedings.