The ANA Messenger: The Economic Development Issue
Federal Agencies Collaborate to Bring Secured Transactions Law Resources to Indian Country
By Susan Woodrow
Community Development Advisor
Federal Reserve Bank of Minneapolis/Helena, Montana Branch
In 2011, the U.S. Department of Health and Human Services/Administration for Native Americans, together with eight other federal agencies, the Federal Reserve Board of Governors, and several Federal Reserve Banks held a series of workshops across the country titled, “Growing Economies in Indian Country: Taking Stock of Progress and Partnerships(GEIC).” This interagency effort had three purposes: to spur conversations for effectively tackling economic development issues in Indian Country; to raise awareness about pertinent federal assistance programs; and to highlight best practices of economic development strategies showing promise in Native communities.
A report summarizing the identified challenges, recommendations, and best practices was developed from the workshop series1 and a national summit was convened in Washington, D.C., in May 2012. The summit provided an opportunity for tribal and federal policymakers, Indian Country leaders, and practitioners working in the field of Indian Country economic development to discuss continuing challenges, as well as opportunities. One significant obstacle frequently voiced in the GEIC workshops and highlighted at the summit was insufficient access to capital, both for the development of tribal business enterprises and the development of independent Native-owned businesses located in tribal communities. While several barriers to improved access to capital in Native communities were identified, one significant factor noted was the lack or insufficiency of tribal laws to support commercial transactions, including lending.
The GEIC Summit report more specifically articulates the following issues regarding underdeveloped tribal legal infrastructure:2
To address these issues, the Federal Reserve Bank of Minneapolis, together with several federal agencies and other Federal Reserve Banks brought resources and training to tribal leaders, economic development specialists, attorneys, judges, credit officers, and others who can assist tribes in enacting and implementing laws that will help create more commercially friendly tribal business environments. In particular, the resources and training are focused on secured transactions laws, which are among those most critical to creating the legal framework that facilitates business and consumer credit.
The term secured transaction refers to a loan or other extension of credit where a borrower gives a security interest in his or her designated personal property (that is, property other than real estate) as collateral to a lender or other creditor. The collateral serves as a secondary source of repayment in the event the borrower defaults. For example, loans to cover purchases of equipment and inventory typically are secured transactions, as are many types of consumer loans, such as purchases of vehicles.
State laws governing secured transactions are modeled on Article 9 of the Uniform Commercial Code (UCC) developed by the Uniform Law Commission (ULC).3 Article 9 and the other articles of the UCC have been adopted by all 50 states, creating a reasonably uniform legal environment for many types of commercial transactions and enabling business to be conducted efficiently among and between state jurisdictions.
In Indian Country, the state of secured transactions laws is very diverse and, in many cases, uncertain. Some tribes have comprehensive secured transactions laws, some tribes just have discrete components of these laws, and many tribes have no such laws. Among those tribes with secured transactions laws, there is significant non-uniformity, and many tribes do not make these laws publicly available or easy to access. This environment creates uncertainty and confusion for lenders. And this uncertainty and confusion translate to heightened risk. Where there is heightened risk, terms of loans and the cost of credit may be more disadvantageous to borrowers; interest rates may be higher, and loan terms may be shorter. It may also discourage lending altogether.
To address the need for comprehensive and reasonably uniform secured transactions laws tailored for tribal jurisdictions, the ULC, together with advisors from many tribes as well as organizations working in Indian Country, drafted the Model Tribal Secured Transactions Act (Model Act) and an accompanying Implementation Guide completed and made available for tribes in 2005. The Model Act offers tribes a comprehensive template law that, if enacted and implemented together with a trusted UCC filing system, addresses one critical legal barrier to credit access in Native communities.
Two related efforts of note are under way to take information about the Model Act to Tribes and Native organizations. The first is a series of one-day general informational workshops on secured transactions laws, and the Model Act specifically. These workshops, which have been held across the country, are co-sponsored by the Federal Reserve Banks of Minneapolis, San Francisco, New York, Kansas City, and Atlanta; the U.S. Small Business Administration; and the U.S. Department of the Interior’s Office of Indian Energy and Economic Development.
As a companion effort to these informational workshops, the Federal Reserve Banks of Minneapolis, San Francisco, and Kansas City, together with the U.S. Department of the Interior’s Bureau of Indian Affairs, Office of Justice Services/Tribal Justice Support, are sponsoring several one-and-a-half day legal trainings on the Model Act that are specifically designed to train tribal judges and attorneys. A ULC member and key drafter of the Model Act, along with a Native law professor and tribal judge who served on the Model Act drafting committee, are the principal lecturers.
Other partnerships are supporting similar efforts. First Nations Oweesta Corporation (a community development financial institution or CDFI) has partnered with the Federal Reserve Bank of Minneapolis to host webinars on the Model Act principally for the rapidly growing Native CDFI community; and the Indian Business Alliances in Montana, South Dakota, Minnesota and North Dakota have hosted workshops and conference sessions on the Model Act in their respective regions. These collaborative efforts have been successful in reaching out to tribes across the country, and increasing numbers of tribes are utilizing the Model Act to help bring needed legal infrastructure to their communities.
For more information about the Model Act and the workshops, contact Susan.Woodrow@mpls.frb.org. You may also access the Model Act and Implementation Guide at www.uniformlaws.org. Under “Committees,” click on “American Indian Tribes and Nations.” For additional articles on tribal secured transactions laws, visit http://www.minneapolisfed.org/indiancountry/#articles.
Growing Economies in Indian Country: Taking Stock of Progress and Partnerships – A Summary of Challenges, Recommendations, and Promising Efforts, April 2012 (GEIC Report). Published by the Board of Governors of the Federal Reserve System.
For more information about the Uniform Law Commission, go to www.uniformlaws.org.