Catawba Indian Nation Passes Banking Code Intended To Attract Fintech Companies

• Published date: 04 August 2023
• Subject Matter: Finance and Banking, Technology, Financial Services, Fin Tech
• Law Firm: Mayer Brown
• Author: Mr Joshua R. Raftis, Matthew Bisanz, Joseph A. Castelluccio and Jeffrey Taft

• Towards the end of April 2023, the Catawba Indian Nation passed a new Banking and Financial Services Code as part of the Tribe's efforts to build a "Digital Economic Zone" that is tailored to attract banks and fintech companies to its small tribal reservation outside of Charlotte, North Carolina.
• The Code is modeled on the banking laws of a combination of states, such as Wyoming, the Dakotas, and Delaware, that have been in the headlines in recent years for their combination of unique tax benefits, business friendly climates, and openness to hosting innovative fintech and digital currency operations. The self-expressed intent of the Catawba Nation is to "disrupt Delaware" by building an even more attractive and easy to navigate legal environment for banks and financial companies than the famously business friendly First State.²
• As part of the Code, the Catawba Nation has established a legal framework to (i) charter a new tribal bank similar to the state-owned Bank of North Dakota, and (ii) establish a tribal banking commission to supervise private banks that could be established under a charter issued by the Catawba Nation.³
• The Catawba Nation says that it plans to work with federal banking regulators to make sure that tribally chartered banks comply with federal financial laws and receive the same treatment under federal law as state-chartered banks, including the ability to obtain FDIC deposit insurance.⁴
• However, significant legal uncertainties persist around the ability for Native American tribes such as the Catawba Nation to charter or regulate banks and other financial institutions. There are also legal uncertainties around the extent to which tribally chartered or controlled financial institutions can rely on tribal law to govern their interactions with individuals physically located outside of the respective tribe's territory. For example
  • According to guidance issued by the Office of the Comptroller of the Currency in 2002, any Native American tribe that plans to create a depository institution must do so under either a federal or state charter. ⁵
  • Historically, only state and federally chartered banks have obtained FDIC insurance. In addition, under federal law, non-banks are generally prohibited from receiving deposits through interstate commerce, which would be a desirable activity for many banks that hope to serve the fintech community.⁶
  • The Federal Circuit Courts have generally ruled that Native American tribes cannot enforce tribal law in arbitrations with consumers located outside of tribal territory, with the Second Third, and Fourth Circuits all finding that tribal choice of law clauses are unenforceable to the extent that they waive the consumer protection laws of the consumers' home states.⁷
• In short, the Catawba Indian Nation's recent Banking and Financial Services Code presents a novel innovation in the e-banking industry, that, if successful, could provide a template for replication by numerous Native American tribes across the country. However, substantial legal barriers exist that will require alterations to existing law before the Catawba Nation's desire for tribally chartered banks can become a reality.

Summary

On April 25, 2023, the Catawba Indian Nation (the "Catawba Nation") passed a new Banking and Financial Services Code (the "Code").⁸ The Code is a first for Native American tribes and is part of a multifaceted effort by the Catawba Nation to create a "Digital Economic Zone" that will attract banks and fintech companies to...