BILL ANALYSIS Ó
AB 502
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Date of Hearing: May 15, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 502 (Wagner) - As Amended: May 7, 2013
Policy Committee: JudiciaryVote:6-4
Urgency: Yes State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill:
1)Adopts amendments, to be effective July 1, 2014, to Division 9
of the Uniform Commercial Code, which governs secured
transactions in personal property.
2)Appropriates $240,000 to the Secretary of State (SOS) to
implement the UCC changes.
FISCAL EFFECT
One-time special fund appropriation of $240,000 to the SOS to
promulgate regulations, update forms, and modify an automated
filing system. [Business Fees Fund]
COMMENTS
1)Background and Purpose . This bill is sponsored by the
California Commission on Uniform State Laws to adopt the 2010
revisions to Article 9 of the Uniform Commercial Code (UCC) as
set forth by the American Law Institute and the National
Conference of Commissioners on Uniform State Laws. The last
major revision of Article 9, in 1999, was adopted in all 50
states. The ULC's goal is to enact the 2010 Amendments in
every state, with an effective date of July 1, 2013. This
revision is current law in over 30 states, and has been
introduced this year in the legislatures of another sixteen
states.
According to the Uniform Law Commission, Article 9 of the UCC
governs secured transactions in personal property-the granting
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of credit secured by personal property. Hundreds of millions
of dollars of commercial and consumer credit are granted every
year in secured transactions under UCC Article 9. These rules
apply, for example, when a manufacturer finances the
acquisition of machinery, a retailer finances inventory, or a
consumer finances home furnishings.
Article 9 provides rules that govern any transaction, other
than a finance lease, that involves the granting of credit
coupled with a creditor's interest in a debtor's personal
property. If the debtor defaults, the creditor may possess
and sell the property to satisfy the debt. The creditor's
interest is called a security interest, and perfection of the
creditor's security interest establishes the creditor's
priority over other creditors. Article 9 specifies who has
the first rights in the collateral when two or more competing
creditors have legally enforceable interests in the
collateral.
2)Amendment A . The provisions of AB 502 are non-controversial
with one exception, as described briefly below, and in more
depth in the Assembly Judiciary Committee's analysis of the
bill.
According to the ULC, some courts have struggled with the
question of what name a financing statement must provide for
an individual debtor in order for the debtor's name on the
financing statement to be sufficient. The problem arises
because an individual does not typically have a single name.
The individual's name on his or her birth certificate,
driver's license, passport, tax return or bankruptcy petition
may all be different.
In response to this problem, the ULC developed not one, but
two proposed solutions. The first, Alternative A, is also
referred to as the "only if" approach, because under this
alternative, the name on the financing statement filed with
the Secretary of State against an individual debtor is deemed
sufficient only if it provides the name that appears on the
debtor's unexpired driver's license or DMV-issued state
identification card. If, however, the debtor has not been
issued a driver's license or state ID card, then either (a)
the individual name of the debtor (i.e. as under current
Article 9), or (b) the debtor's surname and first personal
name would be sufficient. By contrast, Alternative B, also
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known as the "safe harbor rule", would instead allow (a) the
driver's license as specified by Alternative A, in addition
to: (b) the individual name of the debtor, as under current
Article 9, and (c) the debtor's surname and first personal
name.
AB 502 includes Alternative A, which is supported by the
California Bankers Association, the California Chamber of
Commerce, and other business and lender groups, who state that
it "is the most effective, simple and certain method for
lenders to identify the name of an individual commercial
borrower and provides a preferred method for the secured
lending community to follow when filing and conducting
searches."
Due to several concerns expressed with this approach,
including that it could be discriminatory in extending credit
to non-license holders, the policy committee adopted, over the
author's objection, an amendment prohibiting such
discriminatory credit practices. As a result, the author
voted against his own bill.
Analysis Prepared by : Chuck Nicol / APPR. / (916) 319-2081