1. Bismarck, ND | November 3-4, 2016
Tribal Nations and the Global Secured Transactions Reform Movement ~~~ Encouraging Capital Flows into your Economies with a UCC
AIBA Conference
Bismarck, ND | November 3-4, 2016
Presented by Sue Woodrow
Center for Indian Country Development
Federal Reserve Bank of Minneapolis

2. Disclaimer
The views expressed in this presentation represent the presenter’s views and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System

3. Agenda
The Importance of Legal Infrastructure Development to Support Sustained Economic Development
Uniform Commercial Code (UCC) and Secured Transactions
Model Tribal Secured Transactions Act
Impact of Successful Implementation
Filing Systems
Other Issues

4. Legal Infrastructure Development
Why is it important for sustained economic development?
There is a difference between economic activity and sustained development
Inward and outward focused laws: what is the difference?
Inward focused
Outward focused
When is uniformity important?

5. What is the UCC? Uniform Commercial Code
Drafted by the Uniform Law Commission (ULC) in partnership with the American Law Institute during the 1940s and 1950s and continually updated – a set of model codes addressing a wide range of commercial transactions
A set of template codes developed as a resource for use and enactment by state legislatures to help establish a reasonably consistent commercial law environment within and across the United States
Enacted by all 50 states and some U.S. territories - not exactly uniform but substantially uniform enactment

6. What is a UCC?
A collection of template codes governing commercial transactions of various kinds
Article 1 Definitions and General Rules
Article 2 Sales
Article 2A Leases
Article 2B Licenses
Article 3 Negotiable Instruments
Article 4 Bank Collections
Article 4A Funds Transfers
Article 5 Letters of Credit
Article 6 Bulk Sales
Article 7 Documents of Title
Article 8 Investment Securities
Article 9 Secured Transactions

7. Why did all the States adopt the UCC?
Economic development: Non-uniformity among state laws was hindering “cross-border” commerce, thus interfering with economic development
Sovereignty: Concern by states of federal legislative intervention/preemption if states did not act to address the non-uniformity issue
Now, substantial uniformity among the states’ commercial laws, including those governing secured lending, permits ease of transactions across state lines, enabling efficient “cross border” commerce

8. Why did all the States adopt the UCC?
QUESTION: With regard to economic development and sovereignty, are there similar concerns about economic development and sovereignty in Indian Country?

9. Secured Transactions
Article 9 governing secured transactions is far and away the most important of the commercial topics addressed in the UCC
Article 9 provides a unified structure covering an immense array of financing transactions
At least tens of thousands of secured transactions occur every day
A secured transactions code is the single most important legal infrastructure for promoting access to credit

10. What is a Secured Transaction?
A loan or credit extended by a seller of goods
Using personal property, which is everything other than real property, as collateral securing the loan or extension of credit
A security interest in personal property operates like a mortgage on land

11. What is Personal Property?
Tangible property such as equipment, inventory, crops, standing timber, livestock, minerals/gas/oil removed from the ground
Intangible property such as accounts receivable, bank accounts, and intellectual property

12. Secured Transaction Example:
Possessory Security Interest
Bill gives Sam a loan of $100
Sam gives Bill his leather jacket (approx. value $100) to hold on to until Sam repays the loan as assurance that Sam will repay (the jacket is the collateral)

13. Secured Transaction Example:
Possessory Security Interest
When Sam fully repays Bill, Bill returns the jacket
If Sam fails to repay Bill, Bill may sell the jacket to pay off the loan balance
Bill would have to give Sam any extra proceeds from the sale

14. Secured Transaction Example:
Non-possessory Security Interest
Bill gives Sam a loan of $100
Sam signs a security agreement (contract) giving Bill a security interest in Sam’s leather jacket
Bill now has a nonpossessory security interest in the jacket (the collateral)
Sam may continue to use his jacket

15. Secured Transaction Example:
Non-possessory Security Interest
Upon repayment, Bill no longer has a security interest in the jacket
If Sam fails to repay Bill, Bill may repossess and sell the jacket to pay off the loan balance
Bill would have to give Sam any extra proceeds from the sale

16. Non-Possessory Security Interests
Common Examples:
Inventory for sale
Equipment (e.g. combine) needed to run a business
Consumer items (e.g. car purchased on credit)
Non-possessory security interests are very important
They allow borrowers to continue to use collateral
Facilitating non-possessory security interests is one way that secured transactions laws improve access to credit

17. What is a Secured Transactions Law?
Set of contract and property-based rules governing secured transactions
Secured Transaction: A loan that uses personal property as collateral
Secured transactions laws govern:
How a borrower gives a security interest in collateral
Lenders’ rights relative to third parties (e.g. other lenders)
Remedies available to lenders if a borrower defaults
Protections available for borrowers to make sure that lenders’ remedies are fairly applied

18. The Secured Transactions Global Reform Movement
Most, if not all, free market economies around the world have secured transactions laws, or have initiatives to enact or modernize them, in order to facilitate the flow of credit for business development and some consumer purposes
Because access to credit is absolutely necessary for sustained business development, developing and emerging nations have made adoption of secured transactions laws a priority

19. The Secured Transactions Global Reform Movement
Examples of the forty plus countries have recently developed, are currently developing, or are beginning to reform their secured transactions legal regimes:
Middle East: Yemen, Jordan, Afghanistan, Palestine, Morocco, Egypt
Asia: India, China, Sri Lanka, Lao PDR, Philippines, Indonesia, Viet Nam, Cambodia, Mongolia
Africa: Ghana, Malawi, Nigeria, Burundi, Liberia, Sierra Leone, South Africa, Zambia, South Sudan, Uganda
Central Asia: Azerbaijan, Belarus, Tajikistan, Uzbekistan, Pakistan
Latin America: Columbia, Haiti, Peru, Nicaragua, Mexico, Belize, Chile, Costa Rica, Dominican Republic, Trinidad, Tobago

20. The Secured Transactions Global Reform Movement
Many other countries have expressed interest
The development of modern, comprehensive secured transactions regimes has become a global movement to help facilitate development through improved access to business and consumer credit

21. The Secured Transactions Global Reform Movement
U.N. Commission on International Trade Law (UNCITRAL)
Identified secured transactions law as a key foundational building block for economic development
Developed a legislative guide to help nations develop such laws and registry (filing) systems
Principles in the guide are highly consistent with Article 9
In the process of drafting a model secured transactions law
Secured transactions legislative guide may be found at

22. The Secured Transactions Global Reform Movement
2010 World Bank Study
Secured Transactions Systems and Collateral Registries at

23. What is the Relevance for Tribes?
Like other emerging economies around the world, Native nations in the United States have expressed the dire need for improved access to capital to spur economic development
There are several reasons for the lack of adequate access to capital in tribal jurisdictions. The lack of legal certainty is one of the most significant
The need for this important legal infrastructure has been articulated in countless reports, studies, presentations, and articles – typically as the need to “adopt UCCs”

24. What is the State of Secured Transactions Law in Indian Country Today?
The state of secured transactions laws in Indian Country is very confusing, sometimes significantly different from tribe to tribe, and often non-existent
Some tribes have no secured transactions law – state law is the default (e.g., per boilerplate contract language)
Some have comprehensive but unique secured transactions laws
Some have adopted the Official Text of UCC Article 9
Some have adopted Article 9 as enacted by the state in which their Tribe’s jurisdiction is located

25. What is the State of Secured Transactions Law in Indian Country Today?
Some Tribes have adopted by resolution the version enacted by the state in which their jurisdictions are located for single transactions
Some have only components, such as collection codes governing repossession
Some have adopted “pre-revision” model tribal versions or state versions (e.g., the Montana Tribal Secured Transactions Code – drafted 1997)

26. What is the State of Secured Transactions Law in Indian Country Today?
The environment for supporting secured lending in Indian Country is significantly non-uniform, with the majority of Tribes having no reliable legal infrastructure to support and promote secured financing for business development and consumer purposes.

27. What is the State of Secured Transactions Law in Indian Country Today?
This confusing environment raises significant risk issues for lenders and other creditors that often result in what are perceived in Indian Country to be discriminatory lending practices (such as higher interest rates, shorter loan terms, or simply no deals), but which are more often than not risk mediation practices commonly and necessarily employed by regulated lenders in high-risk credit transactions.

28. Recommendation for Tribes
Similar to many emerging economies, Tribes should consider which fundamental economic development building blocks they need to establish
Among these should be a secured transactions law that is both culturally appropriate and that is based on principals that will be understood by lenders and other credit providers

29. Common Myths Cultural mismatch Favors creditors Sovereignty Issues
Not true. Consider all the countries and many different cultures across the globe that have secured transactions laws and/or are engaging in initiatives to adopt them
Favors creditors
Not true. Secured transactions laws spell out the “rules” - both the rights and responsibilities – of creditors (lenders), debtors (borrowers), and possibly other parties (such as co-signors or good faith purchasers)
Sovereignty Issues
Sovereignty: self-governance, including making, executing and applying laws . . .

30. Model Tribal Secured Transactions Act
ULC Committee on Liaison with American Indian Tribes and Nations
Drafting committee comprised of more than a dozen commissioners, including several that worked on 1999 revisions to Article 9 (adopted by all states), representatives from ten Tribes, other advisors with experience in Indian Country legal/development issues

31. Model Tribal Secured Transactions Act
Drafting effort took four years; completed in August 2005
Largely based on revised Article 9, with key components of Articles 1, 2 and 8 (where UCC Article 9 incorporates provisions from these Articles by reference)
Purpose: to draft a “stand-alone” code that will, if other Articles are subsequently adopted, still harmonize (or blend) with those Articles

32. Model Tribal Secured Transactions Act
MTSTA was drafted to provide a wide range of protections for Tribes, Native-owned businesses and consumers, but also for ease of use by lenders and other creditors who will be familiar with the core rules
Intended to help reduce “cross-border” transaction concerns

33. Model Tribal Secured Transactions Act
A few of the special considerations in the MTSTA:
No affect on sovereign immunity
“Fixtures” attached to trust land
Possible exemptions from covered property
Consumer protections – limitation on choice of law
Manufactured homes – interim financing
Coordination with other Tribal law
Tribal customs and traditions
Treatment of self-help remedies
Choice of law and venue issues
Implication of tribal liens

34. Revised MTSTA ULC began MTSTA revision initiative in 2015
Consideration of 2010 revisions to Article 9 – what is relevant in these revisions to the MTSTA?
From comments, concerns and developments over the last ten years of experience with the MTSTA, what other provisions need to be revised, changed, added?
Draft law is complete; will be published on the ULC website soon

35. Revised MTSTA Implementation Guide is also being revised
Will contain specific guidance for tribes that have already enacted the MTSTA to assist in reviewing and adopting the revisions
Will also contain guidance for tribes that are reviewing for enactment for the first time

36. Filing Systems: The Heart and Soul of ST Laws
SO, a good model secured transactions law for tribes is available, and successful implementation can have great results, but implementing the law also requires a means by which a creditor can publicize a notice of its interest in a borrower’s asset.

37. Filing Systems: The Heart and Soul of ST Laws
If a creditor has a security interest (lien) in a borrower’s asset, and that asset is left in the borrower’s hands, it appears to the world that the borrower still owns the asset “free and clear”
Who would want to know if the asset is encumbered by a lien or liens? Prospective buyers of the asset and subsequent lenders who want to use the asset as collateral

38. Filing Systems: The Heart and Soul of ST Laws
A filing system (sometimes called a registry or central indexing system) is a system for giving public notice of security interests
Enables creditors and others to search for existing security interests in a debtor’s asset before agreeing to take the asset as collateral or to otherwise acquire the asset
Provides a way to determine priority between creditors (borrowers may give security interests in the same collateral to multiple creditors)

39. Filing System Example
Sam signs a security agreement (contract) giving Bill a security interest in Sam’s jacket to secure a loan
A month later, Sam also gives Joe a security interest in the jacket secure a loan from Joe
Sam fails to pay back both Bill and Sam
Who gets to repossess and sell Sam’s jacket?
Filing systems provide a means to determine the answer
Creditor priority is often governed by which creditor filed the first financing statement

40. Filing System Recap Purposes of filing systems:
Give notice to potential creditors when collateral is subject to security interests
Determine the priority of various creditors
NOT to derive fee income for the filing system administrator
Without a reliable and accessible filing system, secured transactions laws are not effective

41. Impact of ST Reform/Filing Systems on Credit Access
World Bank Study, June 2013
*Collateral Registries for Movable Assets: Does their Introduction Spur Firms’ Access to Finance?
by Inessa Love, Sole Martínez, and Sandeep Singh; World Bank Development Research Group, June 2013
Variable
Effect
Access to finance
8 percentage points ↑
Access to a loan
7 percentage points ↑
% of working capital financed by banks
1 percentage points up ↑
Interest rates
3 percentage points ↓
Loan maturity
6 months ↑
Study also provides evidence that the impact of the introduction of “movable registries” (UCC filing systems) on businesses’ access to credit is larger among smaller businesses who also report a reduction in subjective, perception-based measures of finance obstacles.
Collateral Registries for Movable Assets: Does their Introduction Spur Firms’ Access to Finance?
by Inessa Love, Sole Martínez, and Sandeep Singh; World Bank Development Research Group, June 2013

42. Impact of Collateral Registries
Example:
In Columbia, a new ST law in 2013 and new centralized collateral registry in March 2014
Impact: In 3 months after the system went into effect, more loans were registered than in the 30 years prior. More than 16,000 loans were registered for a value of US$6 billion

43. Filing Systems in Indian Country
In Indian Country, lack of comprehensive, accurate and trusted public filing systems is a significant and all-too-common issue for Tribes that have adopted a secured transactions law
For these Tribes, their secured transactions laws are essentially ineffective .

44. Filing Systems in Indian Country
Options available to tribes:
Develop and self-administer own filing system
Multiple tribes develop and maintain a filing system as a consortium (multi-jurisdictional)
Enter into compacts with a state to use the state’s filing system (e.g. Crow Nation/Montana; Oglala Sioux (Pine Ridge)/South Dakota; Leech Lake Band of Ojibwe/Minnesota; Chippewa Cree (Rocky Boys)/Montana); Standing Rock Sioux/North Dakota
Potential pitfalls described in the next two slides

45. Self-administer a Tribal Filing System
Tribal secured transactions laws often specify “clerk of tribal court” or other tribal office as the “place to file.” Paper-based systems/non-electronic
PROBLEM: Often, the clerk of the court or other staff are not aware of filing or search procedures and/or there are no specified means of actually filing or searching. OR, even if there is a way to file, creditors do not trust that the Tribe’s system is reliable and/or timely (may be perceived or real)

46. Informally use a State Filing System
Some Tribes utilize a state’s UCC filing system, but do so informally without a compact or other type of agreement

47. Informally use a State Filing System
PROBLEM: Filing system and tribal law are not legally integrated.
State filing systems depend on the use of standard forms, and the contents of those forms are dictated by the state's version of UCC Article 9. Because Article 9 has been significantly revised in recent years (most recently in 2010), its standard filing forms are likely to require information either not required by tribal law or in a different format (e.g., form of name) than is required by tribal law. This practice is “messy” at best and should not be considered a permanent solution by Tribes to support their secured transactions laws

48. Formally Use a State System
Several tribes have entered into (or are in the process of doing so) compacts, memoranda of understanding, or joint powers agreement with applicable state divisions, typically Secretary of State’s Offices, to utilize state UCC filing systems to support the tribes’ secured transactions laws (the states recognize the Tribes’ laws, and agree that use of the state filing system does not infringe on the tribe’s sovereignty or jurisdiction)
These arrangements are working well, and are likely the best option currently available to most tribes
Examples: Crow and Chippewa Cree/MT; Oglala Sioux and Cheyenne River Sioux/SD; Leech Lake/MN; and Standing Rock Sioux/ND

49. Proprietary Multi-jurisdictional Tribal Filing System
Concept is under development
Would be privately managed on behalf of participating tribes
Not under federal management or oversight
State-of-the-art “all-electronic” system

50. Other Issues: Law and Filing System Implementation
When implementing a filing system, it is important to:
Consider what may be the most appropriate filing system option for your tribe, an implementation plan for the filing system, and a maintenance plan (funding, trained staff, public search capabilities, etc.) – does your Tribe have the capacity to host its own robust filing system?
Avoid adopting another Tribe’s law without careful consideration of cultural issues, date of enactment, and source of the law (for example, pre-revision state law)

51. Other Issues: Law and Filing System Implementation
When implementing a filing system, it is important to:
Avoid conflicts of interest in drafting , e.g. having a tribal judge who may have to determine a future legal dispute draft the secured transactions law (potential separation of powers issue)

52. Other Issues: Regional Uniformity
Benefits of UCC/MTSTA-based secured transactions laws include:
Substantial uniformity among jurisdictions
Certainty in the lending/borrowing relationship
Low transaction costs
Lack of regional uniformity can limit effectiveness of secured transaction laws
Lack of certainty in lending/borrowing relationship
High transaction costs

53. Other Issues: Courts and Enforcement
Three main components to successful secured transactions law:
The law itself
Filing system
Enforcement Mechanism(s):
Court system
Self-help repossession OR a process that works effectively in lieu of self-help

54. Other Issues: Courts and Enforcement
Successful enforcement mechanisms must be:
Timely
Consistent
Accessible
Alternatives to tribal court system

55. A Final Note
There is a difference between economic activity and economic development A nation may experience economic activity without a comprehensive legal infrastructure and supporting institutions in place, but experience shows it will likely not experience sustainable and robust economic development without it

56. MTSTA Resources
For the Model Tribal Secured Transactions Act, go to
Click on Acts, then Find an Act in the drop down box
Go to Model Tribal Secured Transactions Act for downloadable WORD and PDF versions of:
Model Act (Revised Act to be published soon)
Implementation Guide for comprehensive information about secured transactions laws, filing systems, legislative and judicial guidance (Revised Guide to be published soon)
Crow-Montana Filing System Compact
Other related information

57. Other Resources
Minneapolis Fed’s Center for Indian Country Development website: for related articles and working papers
2010 World Bank Study:
Secured Transactions Systems and Collateral Registries at
2013 World Bank Study: Collateral Registries for Movable Assets: Does Their Introduction Spur Firms’ Access to Bank Finance?

58. Other Resources
For Montana Secretary of State/Tribal UCC filing compacts, see
For South Dakota Secretary of State/Tribal UCC filing system memoranda of understanding, see

59. Contact Information
Sue Woodrow Branch Executive & Assistant Vice President and Co-Director, Center for Indian Country Development Federal Reserve Bank of Minneapolis/Helena, Montana Branch (406) Steve Powell Attorney, Federal Reserve Bank of Minneapolis (612) Patrice Kunesh Assistant Vice President and Co-Director, Center for Indian Country Development Federal Reserve Bank of Minneapolis (612)