BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair AB 502 (Wagner) - Commercial law: secured transactions. Amended: June 24, 2013 Policy Vote: Judiciary 6-0 Urgency: No Mandate: No Hearing Date: August 12, 2013 Consultant: Jolie Onodera This bill meets the criteria for referral to the Suspense File. Bill Summary: AB 502 would incorporate amendments made to the Uniform Commercial Code (UCC) Article 9 into California's comparable statute, Commercial Code Division 9, which governs security interests in personal property, to be effective July 1, 2014. This bill makes an appropriation to the Secretary of State (SOS), as specified. Fiscal Impact: One-time appropriation of $240,000 (Special Fund) from the SOS Business Fees Fund for expenditures associated with promulgating regulations, modifying automated filing systems and programming, and updating filing forms. Background: Article 9 of the UCC generally governs security interests in personal property. This Article was vastly rewritten and modernized by the Uniform Law Commission (ULC, formerly the National Conference of Commissioners on Uniform State Laws, or NCCUSL) in the late 1990s. As a whole, the new Article 9 simplified and clarified the rules for creation, perfection, priority and enforcement of a security interest. Every state has adopted Article 9 as revised, and California's revised Article 9 (called "Division 9 of the Commercial Code") took effect on July 1, 2001 (AB 45 (Sher) Chapter 991/1999). Since the enactment of AB 45 in 1999, the ULC has adopted additional amendments based upon experiences with respect to filing issues and other matters that arose in practice following a decade of experience with the prior version of the Article ("the 2010 amendments"). The ULC's goal is to have every state and territory adopt the 2010 amendments to Article 9 by July 31, 2013. As of June 14, 2013, the ULC reports that there have been 41 enactments and 10 introductions of legislation to do so, including this measure. This bill seeks to adopt the changes AB 502 (Wagner) Page 1 that have been made to the UCC Article 9 within California's Division 9, with a delayed operative date of July 1, 2014. Proposed Law: This bill would incorporate amendments made to the UCC Article 9 into California's comparable statute, Commercial Code Division 9 (governing security interests), to, among other things: Provide a new definition for "public organic record," and clarify other definitions. Clarify rules relating to the control of electronic chattel paper. Clarify rules prescribing the location of debtors for purposes of financing statements. Specify rules relating to the perfection of a security interest that is attached to collateral within four months of the debtor's change in location to another jurisdiction, as well as temporary perfection rules relating to collateral owned or acquired by a successor to the original debtor. Modify provisions relating to the priority of competing security interests. Revise rules relating to the sufficiency of the name of the debtor provided on financing statements. Modify rules relating to when a change in debtor name on a filed financing statement becomes seriously misleading. Revise rules relating to ineffective filings. Replace references to "correction statements" with "information statements." Update statutory forms and provide other clarifying and technical amendments. This bill would take effect July 1, 2014, and would apply to a transaction or lien within its scope, even if entered into or created prior to July 1, 2014, but would specify that its changes do not affect any action, case or proceeding commenced prior to that date. This bill would provide previously perfected security interests one year to meet the requirements for perfection under the amended division. This bill appropriates $240,000 from the SOS Business Fees Fund for expenditures in the 2013-14 fiscal year to implement the provisions of this measure, including promulgating appropriate regulations, modifying automated filing systems and programming, and updating filing forms. AB 502 (Wagner) Page 2 Related Legislation: SB 6 (Lieu) Chapter 54/2013 reenacts repealed provisions of California's UCC, Article 9, relating to the rights that certain licensees take under a nonexclusive license where a security interest exists in a general intangible, as specified. Staff Comments: The SOS has indicated one-time costs of $240,000 will be required for regulatory updates and computer application modifications. These costs are addressed by an appropriation from the Business Fees Fund (BFF). The 2013-14 Governor's Budget reflects a year-end balance in the BFF of $35.2 million that would appear sufficient to support the appropriation specified in this bill. The SOS has indicated no other costs associated with this measure.