Lac du Flambeau Band of Lake Superior Chippewa Indians V. Coughlin
A Native American tribe, through one of their businesses, provided a payday loan to Brian Coughlin. Coughlin filed a Chapter 13 bankruptcy shortly after getting the payday loan which triggered the automatic stay under the Bankruptcy Code which prohibits collection efforts by his creditors. The Tribe allegedly continued to try to collect on Coughlin’s debt. Coughlin took action in the Bankruptcy Court to enforce the automatic stay and recover damages. The Bankruptcy Court dismissed the suit on tribal sovereign immunity grounds, the First Circuit Court of Appeals reversed, and the US Supreme Court upheld the First Circuit finding in their June 15, 2023 decision that the Bankruptcy Code unambiguously abrogates the sovereign immunity of all governments, including federally recognized Indian tribes.
Why does this matter? Payday loan lenders often affiliate with Native American tribes to offer sky-high interest rates on their payday loans. The tribes’ sovereign status means that a business may be able to get around state usury laws and civil suits. The US Supreme Court decision makes it clear that they cannot get around the Bankruptcy Code. This is good for consumers since it keeps the door open for bankruptcy to help with payday loans.