Hoping to stimulate bank lending on its reservation, the Cheyenne River Sioux Tribe of South Dakota has adopted a law giving lenders the same protections on the reservation as they enjoy in the rest of the state.
Banks have been reluctant to lend in "Indian country" because Native Americans cannot pledge land as collateral and because repossessing other collateral in defaults has been difficult for lenders working through tribal courts.
On Thursday the tribe also signed an agreement with the state that guarantees lenders' rights on the reservation and allows for joint filing of credit transactions with the reservation and the state. It is believed to be the first agreement of its kind.
"Before this, it was a hodgepodge of little laws and whatever the judge decided in tribal court," said Gregg J. Bourland, the tribal chairman.
Indian reservations have sovereign legal status, and many have their own courts. Indian land, whether owned by the tribes or individual tribal members, is held in trust by the federal government, so selling land or pledging it for collateral requires government permission.
"That is the reason they haven't been getting loans for years," said Thomas G. Leckey, South Dakota's deputy secretary of state. "A lot of banks have made loans anyway because the bankers knew the person, but there was no guarantee" on their collateral.
By making tribal law identical to state law regarding recovery of collateral, the tribe has guaranteed lenders' rights to collateral and added the right to appeal tribal court decisions to federal court. Repossession procedures remain different on tribal land, and the agreement will not simplify land issues but will affect collateral such as vehicles.
Remedies vary from tribe to tribe, said J.D. Colbert, president of the North American Native Bankers Association. Only recently have bankers seen opportunities on Indian reservations, he added.
"Now that they see opportunity, bankers are telling the tribes what they need," Mr. Colbert said. "We've seen in recent years more cooperation among Indian tribes and private lenders."
The Cheyenne River Tribe began to offer such cooperation five years ago when a tribal leader met with officials of the Federal Deposit Insurance Corp. and the Minneapolis Federal Reserve Bank, according to Mr. Bourland. The goal, of course, was to increase credit for Native Americans.
All South Dakota tribes were invited to meet with the FDIC and local bankers, said John P. Misiewicz, director of compliance and consumer affairs in the FDIC's Kansas City region, but initial meetings went poorly because some tribes did not trust the bankers and regulators.
"We tried the big picture," Mr. Misiewicz said of approaching all the tribes. "It didn't work, so we chose a tribe with a progressive tribal chairman and good local bankers."
One local banker, Keith E. Willard, president and chief executive officer of $120 million-asset First Financial Bank USA of Dupree, said his bank lends to tribal members because it knows them. It is often the lender of last resort, he said. He mentioned that tribal members who could not finance tractors with dealers must borrow money at a higher rate from the bank. Mr. Willard said the agreement will aid the tribe's economic development.
"It will mean more competition for us, but we don't mind that," Mr. Willard said. "Competition always brings more businesses and opportunities."
Mr. Bourland said he hopes the agreement will be a model for other tribes. Mr. Leckey, the South Dakota official, said two other tribes have expressed interest in making similar agreements. And the FDIC's Mr. Misiewicz said tribes in Montana and Colorado are examining the agreement.
"We hope to develop a mold for other tribes to step into," Mr. Bourland said.