Bannks See Opportunity, Risk in Dealing with Indian Tribes

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The presence of so many American Indian tribes in Oklahoma could be viewed as both a blessing and a curse for the state's banks.

On the one hand, the growing concern for economic development within the tribes may provide banks new lending opportunities while also earning favor with regulators for community reinvestment. A panel of legal experts on the issue of banking with Indians warned, however, that lurking not too far beneath the surface of such a deal could be a quagmire which would make it impossible for the bank to recover on the loan.

"Tribal governments have been growing and becoming more independent from the federal government and are using more financial resources," said Margaret A. Swimmer, a Tulsa attorney and panelist at the session on lending to Native Americans at the Oklahoma Bankers Association's 97th Annual Convention and Trade Show.

"Their need for banking services is growing. There are 41 federally recognized tribes in Oklahoma, and we have the largest Indian population in the U.S. The opportunities are growing for banking relationships with tribes."

Swimmer and other members of the panel urged bankers to enter those relationships with caution. At the heart of that concern is the tribe's sovereign immunity, which may make it impossible for a bank to enforce a lending contract. If certain procedures aren't followed _ including getting proper approvals from the U.S. Department of the Interior _ banks could be left high and dry.

A 1988 Rhode Island case illustrates the point. A company contracted to finance, construct and operate a bingo hall for the Narragansett Indian Tribe. Land was purchased for the venture, deeded to the tribe, and mortgage notes were signed in favor of the company. A change in political power within the tribe resulted in a suit to rescind the contracts. The court held that the contracts were void because they had not been executed correctly. The tribe got to keep the land and bingo hall, and the company lost all the money it had invested.

"When you are dealing with a tribe, you might as well be dealing with Belorussia or the Ukraine. You better be sure your documents will stand up under tribal laws," said John C. Platt, an Oklahoma City attorney who was also on the panel.

Getting a waiver of the tribe's sovereign immunity for the purposes of the contract is a must in order to protect the bank's interest. The bank also must be sure that the entity granting the waiver has the proper authority to do so. The waiver and other documents related to the loan then must be approved by the Department of the Interior through the Bureau of Indian Affairs.

The panelists said getting the federal government to act on approvals can take time, so they suggested that the request be presented to the Bureau of Indian Affairs by a tribal leader.

Another important question in dealing with tribes is the status of the land. The bank needs to understand the status of the land in order to determine the jurisdiction in case the bank needs to enforce the loan.

Banks have noticed, for example, that they are unable to repossess a car if that car is garaged on allotted land because there is no jurisdiction for the repossession on allotted land.

Mary Beth Guard, legal counsel for the Oklahoma Bankers Association, said the Oklahoma Supreme Court has ruled that mortgage foreclosures against individual Indians are to be handled in state court. The ruling recognized that no bank would enter a mortgage if it could not be sure of its ability to foreclose in case of default.

In Oklahoma, most Indian lands were allotted to individuals or held in trust rather than placed in reservations. The legal handling of probate and other issues relating to the hand is different for the eastern part of the state than the western part, factors which could affect the handling of a loan. …