BILL ANALYSIS �
AB 1858
Page 1
ASSEMBLY THIRD READING
AB 1858 (Perea)
As Amended May 13, 2014
Majority vote
JUDICIARY 10-0
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|Ayes:|Wieckowski, Wagner, | | |
| |Alejo, Chau, Dickinson, | | |
| |Garcia, Gorell, | | |
| |Maienschein, Muratsuchi, | | |
| |Stone | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Revises the requirements for a Uniform Commercial Code
(UCC) Article 9 financing statement to sufficiently provide the
name of an individual debtor. Specifically, this bill :
1)Requires a filer to provide on the financing statement the
name indicated on the debtor's driver's license or
identification card, if the debtor is an individual to whom
the Department of Motor Vehicles (DMV) has issued a driver's
license or identification card that has not expired.
2)Further provides that if the debtor does not have a driver's
license or identification card, the filer must provide on the
financing statement either the individual name of the debtor,
or the surname and first personal name of the debtor.
3)Clarifies that the most recently issued driver's license or
identification card is to be used if more than one was issued
by the DMV, and further clarifies that the term "driver's
license" includes licenses authorized to be issued pursuant to
AB 60 (Alejo), Chapter 524, Statutes of 2013.
4)Provides that the Unruh Act (Civil Code Section 51) shall be
construed to prohibit discrimination in the provision or terms
of credit against persons who do not hold or present a valid
driver's license, as specified, and that all elements of a
claim and any affirmative defenses available under the Unruh
Act shall apply to claim under this bill.
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FISCAL EFFECT : None
COMMENTS : Article 9 of the UCC governs secured transactions in
personal property-that is, the granting of credit secured by
personal property. Article 9 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.
According to the California Bankers Association, the sponsor of
this bill, 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. Moreover, the debtor
may be known in his or her community by a name that is not
reflected on any official document. According to the bankers,
the court cases have created a level of uncertainty that has led
secured parties to search and file financing statements under
multiple names. They contend, "When lending to a sole
proprietorship (an individual), the secured party has little
statutory guidance as to the source for that name. Is it the
name appearing on a tax return, birth certificate, social
security card, passport, marriage license, business card,
driver's license or state identification card? Article 9 of the
UCC does not clearly define what the name of an individual
debtor is for these purposes. Lenders struggle to determine
what name to file upon and also what name or names to search for
in order to identify other secured parties who might have filed
before them."
To address the stated problem, this bill would adopt a
sufficiency standard for financing statements in California
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sometimes referred to as "Alternative A," the name originally
given to it by the drafters of the UCC. The Alternative A rule
proposed to be established by this bill is also sometimes
referred to as the "only if" approach because it provides that
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 identification 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.
According to the sponsor, this bill will primarily affect
financing statements in commercial loan transactions, and not
typical consumer transactions (such as a person buying a washing
machine on credit from a department store) in which the security
interest attaches upon signing of the purchase contract without
the need to file a financing statement. These commercial loan
transactions, according to proponents, are typically loans to
small businesses owned by an individual or sole proprietorship
and secured by the account receivable of the business.
The bill is opposed by a group of prominent law professors who
teach commercial law in California and are experts, who contend
that the bill is not needed and would even be "uniquely harmful"
in this area of California law. In direct contrast to
proponents' claims about uncertainty in the courts, these
opponents contend that there are no California court cases in
which the court has held that a bank was unperfected because it
guessed wrong when confronted with "uncertainty" about a
debtor's name, despite having the debtor's loan applications,
credit reports and past tax returns to indicate the name. They
also contend that the near unanimity in opposition to the bill
among the opposing commercial law professors should carry
special weight because, unlike lenders who presumably support
the bill out of economic self-interest, the law professors have
no private economic interest at stake.
The proponents and opponents differ on a number of issues raised
by the bill. First, proponents contend that the bill is needed
to address difficulties lenders face when they must: 1) search
under many different names with no certainty that they have
discovered all financing statements covering the debtor; and 2)
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list many different names to ensure that they are listing all
names that the debtor is using. They explain that "secured
parties do not want to 'win a lawsuit' about priority with
another secured party; they want to avoid disputes with other
secured parties by making sure that everyone's security interest
with respect to a particular debtor can easily be ascertained so
that no one will extend credit based on a lack of knowledge
about another secured party's position." Opponents contend
that, despite proponents' claims that the bill is needed to
reduce the costs of both searching and filing under multiple
name variants, in fact the UCC filing system operated by the
Secretary of State employs a very reasonable fee structure, and
has very generous search logic that yields multiple relevant
results for a single search. In addition, they contend that
searching only against the driver's license name will not
necessarily result in cost savings because the current name rule
for tax lien notices (filed by the Franchise Tax Board and
Employment Development Department) and judgment lien notices
(filed by judgment creditors) will continue to require diligent
searchers to search under multiple names to get a complete
picture of the debtor.
Second, proponents contend that because the rule proposed by
this bill (Alternative A) has been adopted by 37 states, its
adoption in California will further the goal of uniformity of
state laws shared by the National Conference of Commissioners on
Uniform State Laws and by lenders that operate in multiple
states. In response, opponents assert that, even if a majority
of states enact Alternative A, uniformity across states will not
result because the agency that issues driver's licenses in a
particular state does not coordinate its naming practices with
their counterparts in other states, nor with the UCC filing
office in each state. They contend that opposition to
Alternative A is more widespread than it appears, as evidenced
by the fact that there are between seven to 10 other states that
have chosen to reject the Alternative A standard contained in
this bill, in favor of a separate "safe haven" standard titled
Alternative B by the UCC drafters.
Third, proponents contend that the driver's license standard is
the best solution for the asserted problem because most
individual borrowers have either a driver's license or state
identification card readily available, and these two cards are
commonly used means of identification familiar to most people.
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They contend that the correct name for the financing statement
will be easily ascertainable from the license and can be readily
verified by reference to public DMV records. In response,
opponents contend that the bill will likely increase the number
of inquiries presented to the DMV seeking to verify driver
license information, resulting in potentially large but unknown
new burdens upon DMV staff obliged to provide this service.
They also contend that if the Legislature now ties UCC names to
drivers' license names, decisions made by DMV officials, whose
primary concerns are with law enforcement and with efficient
operation of the DMV system, will be imposing changes on a UCC
system that exists for entirely different purposes that are of
no concern to them.
Because the bill so highly incentivizes lenders to demand
presentation of a driver's license or state identification in
order to determine the name of the prospective borrower that
shall be recorded on the financing statement, there is a
significant risk that it may cause lenders to be less willing to
extend credit to non-license holders in order to avoid the extra
risk and work associated with searching and filing for more than
one name per borrower. Recent author's amendments to the bill
seek to address the potential discriminatory effect that
Alternative A may have upon extension of credit for those who
lack a driver's license.
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334
FN: 0003425