Deposits and Treasury Services for Indian Nations and their Subsidiaries

Indian Nations, their members, and related businesses run on tribal properties are historically underserved communities who have an ongoing and growing need for banking services. Historically, many tribal governments, their citizens, and their businesses have had relatively little in the way of resources and commerce, which can limit banking opportunities in these communities. However, there are a number of significant business successes run by members of Indian Nations. Love’s Travel Stops of Tom Love, a member of the Chickasaw Nation is one example. In recent years, a wider number of Indian Nations have successfully found ways to drive new commerce and earn new money on their own lands on a broader and more diversified basis. Developing commerce has, of course grown demand and need for banking services for lending, deposit services, cash management services, and other financial services for Indian Nation members and communities.

In some cases, and tribes have been able to bring in new and significant funds and resources based on activities like oil and gas drilling, tourism, and running hospitality and casino services and venues. Increases in cash flow and resources ought to lead to further development of other businesses and industries that operate within and close to Indian Nations.  The influx in revenue and business have created new opportunities for other industries to serve businesses on Indian Nation lands.  

Because banking Indian Nations is an area that requires some additional knowledge beyond nationwide offering of banking services, banking Indian Nations offers an excellent niche banking opportunity with moderate barrier to entry. For a banking service provider who is willing to get to know the necessary background and develop a relationship with Indian Nation communities, there are opportunities for lending, deposit services, cash management, and other basic but critical banking services.

Developing Familiarity with Banking Indian Nations

Much of the barrier to entry can be dealt with by developing some familiarity with the ins and outs of the nature of laws and governing bodies of Indian Nations. Banking can deliver most services efficiently by having a basic understanding of laws and by making some limited adjustments to service contracts.

Sovereign Status

Indian Nations have their own sovereign power and make their own laws. Indian Nations are not subject to the state laws of the state which surrounds the reserved territory. Congress has plenary power over Indian tribal lands and nations which means it may enact laws and legislation to govern Indian Nations in their lands. However, since Indian Nations have their own sovereign power, Indian Nations govern their own affairs within their own lands. Indian Nations have their own courts and own lawmaking organizations and authorities.

Addressing Differences in Laws

Though the variety in legal authorities sounds like a recipe for legal difficulties, many Indian Nations have enacted laws and rules that coordinate with uniform laws efforts or are otherwise similar to state law. For example, many governing bodies have enacted versions of the Uniform Commercial Code in an effort to make business transactions simpler and more consistent on and off Indian Nation lands.

Also, just as with contracts across state lines, it is common practice and permissible to use choice of law contract provisions to clarify which laws apply and which do not. Choice of venue and forum clauses can be used to select an appropriate court and location for resolving disputes regarding a contract. Agreeing to arbitration is a possible option for dispute resolution.

Sovereign Immunity

Similar to municipal and state bodies, the sovereign status of Indian Nations provides them immunity from most types of lawsuits and legal actions. As with any city, it is usually not possible to bring suit against a local government if you don’t like its taxes or policy. It is possible, however, for an Indian Nation to waive its sovereign immunity by contract. Cities, states, and the federal government regularly waive their immunity by entering into contracts that may be enforced against them in court. Indian Nations may do the same.

Indian Nation Subsidiaries

Also like municipal and state governments, Indian Nations may form subsidiary corporations for providing services or operate businesses. It is not uncommon for an Indian Nation to operate a hospitality service as a subsidiary to the nation’s governing body. Government subsidiaries may also have the benefit of sovereign immunity.

Addressing Legal Hurdles by Contract

Considering the points above, a bank can offer deposit services and cash management services to an Indian Nation, its businesses, and residents by making some relatively simple adjustments to service agreements. One of the simpler approaches may be to adjust deposit contracts and service agreements to provide for dispute resolution by arbitration, set a choice of law provision that is acceptable to both parties, and select an appropriate location for holding disputes. For agreements to provide services to an Indian Nation itself or a subsidiary of the nation, the agreement should include a limited waiver of immunity for purposes of managing disputes between the financial institution and the Indian Nation. Where a bank and an Indian Nation are both agreeable to these contract adjustments, services provided by a bank can be readily and efficiently offered to sovereign organizations.  

While dealing with banking services for a sovereign nation may sound intimidating and out of reach, there are some legal solutions that make banking Indian Nations and their residents and business feasible for banks who are willing to spend a little time getting to know the rules of the road.

In the United States, legal lotteries and raffles are the exception, rather than the norm. Most states ban lotteries with few exceptions. However, in recent years, many states have opened up lotteries ever so slightly to allow for promotions that encourage people to save money. These savings promotions come in the form of a prize-linked savings account.

Prize-Linked Savings Accounts

A prize linked savings account offers account holders a chance to win an amount of money simply by making a deposit of money in a savings account. The deposit and prizes may vary, but, to illustrate, a bank might offer account holders one chance to win $25,000 for every $15 deposit an account holder makes within a month’s period of time. After the month is over, the bank would run a drawing based on the numbers of $15 deposits made by each account holder, and one lucky winner would gain $25,000.

One critical difference between prize-linked savings accounts and traditional lotteries is that the account holder keeps her deposits and interest earned on those deposits. Reports from pilot programs seem to show that these types of deposits tend to accumulate, rather than disappear. (See the links at the end of this article.) This is encouraging as prize-linked savings have been a successful draw for people who might not otherwise retain an account at a bank.

From a depository institution perspective, this program presents a niche banking opportunity. That is, offering a unique and still little-used incentive for opening a savings account and making regular deposits. The cost of prizes, spread over many accounts, does not need to unreasonably increase the cost of funding to the bank. For new account holders, this can be an attractive way to earn a little interest and also to get a chance to increase the income from a deposit account.

Niche Banking Opportunity

As this sort of prize linked savings program directly falls within the definition of a lottery, states wishing to permit this sort of program have been changing their lottery laws to allow this savings promotion to be conducted legally by banks and other financial institutions. Federal laws prohibiting banks from conducting a lottery have also been changed to allow banks and financial institutions to offer prize-linked accounts.

Lawful Lottery

In Texas, banks may offer prize linked savings account where a chance to win is obtained by the deposit of an amount of money in a savings account or savings program. The fees, interest earned, and withdrawal limitations for the prize-linked account must be commensurate with the fees, interest earned, and withdrawal limitations applied to other accounts at the bank offering the program. The program must also be administered in a safe and sound manner for the financial institution.  

Federal law has been amended to permit prize linked savings accounts where a person may obtain a chance to win by depositing a specified amount of money in a savings account or savings program. Each chance to win must be equal, and the prize must be designated in advance. The text of the change implies that the prize could be money or other prizes, like a trip, hotel stay, or valuable property.  

Many other states permit similar prize-linked savings account programs that banks and other financial institutions may offer to their customers.  

Pilots and Studies

Michigan Pilot  

South Africa Study

Heard of other success stories? Please send a note.