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)
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          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)
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          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.