BILL ANALYSIS �
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THIRD READING
Bill No: AB 1858
Author: Perea (D)
Amended: 7/1/14 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 7-0, 6/24/14
AYES: Jackson, Anderson, Corbett, Lara, Leno, Monning, Vidak
ASSEMBLY FLOOR : 73-0, 5/23/14 - See last page for vote
SUBJECT : Commercial law: secured transactions
SOURCE : California Bankers Association
DIGEST : This bill specifies that for the purposes of filing a
Uniform Commercial Code (UCC) Article 9 financing statement
where the debtor is an individual, the financing statement
sufficiently provides the name of the debtor only if it reflects
the name that is on the individual's most current driver's
license, or, if the person does not have a driver's license,
only if the financing statement provides the individual name of
the debtor or the surname and first personal name of the debtor.
ANALYSIS :
1. Existing law, the UCC -Secured Transactions division, governs
security interests in personal property.
Existing law specifies rules for the perfection of and
priority given to a security interest. Existing law provides
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that a security interest perfected pursuant to the law of the
jurisdiction in which the debtor is located, as specified,
remains perfected until the earliest of any of the following:
A. The time perfection would have ceased under the law
of that jurisdiction;
B. The expiration of four months after a change of the
debtor's location to another jurisdiction; or
C. The expiration of one year after a transfer of
collateral to a person that thereby becomes a debtor and
is located in another jurisdiction.
Existing law generally provides that a financing statement
(the filing of which is necessary to perfect a security
interest in collateral) is sufficient only if it satisfies
all of the following conditions:
A. It provides the name of the debtor;
B. It provides the name of the secured party or a
representative of the secured party; and
C. It indicates the collateral covered by the financing
statement.
Existing law provides that a financing statement sufficiently
provides the name of an individual debtor only if the
financing statement provides either of the following:
A. The individual name of the debtor; or
B. The surname and first personal name of the debtor.
This bill instead, provides that a financing statement
sufficiently provides the name of the debtor only if it
does so in accordance with the following rule:
A. If the debtor is an individual to whom the Department
of Motor Vehicles (DMV) has issued a driver's license
that has not expired or an identification card that has
not expired, only if the financing statement provides
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the name of the individual indicated on that driver's
license or identification card ("driver's license
rule"); or
B. If the debtor is an individual to whom the above does
not apply, only if the financing statement provides the
individual name of the debtor or the surname and first
personal name of the debtor ("safe harbor").
This bill provides that if the DMV has issued to an
individual more than one driver's licenses or
identification cards of a kind described above, the
relevant driver's license for the above propose refers to
the most recently issued license or card.
This bill provides for the above purposes, "driver's
license" includes an original driver's license issued by
the DMV to a person who is unable to submit satisfactory
proof that the applicant's presence in the United States is
authorized under federal law if he/she meets all other
qualifications for licensure and provides satisfactory
proof to the DMV of his/her identity and California
residency.
2. Existing law, the Unruh Civil Rights Act, provides that all
persons in California are free and equal, and regardless of a
person's sex, race, color, religion, ancestry, national
origin, disability, medical condition, genetic information,
marital status, or sexual orientation, everyone is entitled
to the full and equal accommodations, advantages, facilities,
privileges, or services in all business establishments.
This bill provides that, it is a violation of the Unruh
Civil Rights Act for a secured party or proposed secured
party to decline to provide credit to a debtor or proposed
debtor, or offer to make the terms and conditions of the
credit less favorable to the debtor or proposed debtor if:
A. That decision was based on the fact that the debtor's
name to be included on the financing statement is or
would be that provided under the safe harbor to the
driver's license rule, above, and
B. All elements that are required to establish a claim
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for violation of Unruh Civil Rights Act (including any
elements relating to motivation or state of mind) are
established. Any affirmative defenses that will be
available to a claim under Unruh Civil Rights Act will
be affirmative defenses to a claim under this paragraph.
3. Existing law provides transitional provisions that govern the
effect and priority given to securities perfected prior to or
after the operative date of the 2001 changes to Division 9,
as well as for those security interests perfected prior to or
after the 2010 changes to Division 9.
This bill includes similar transitional provisions for these
2014 amendments that govern the effect and priority given to
securities perfected prior to or after the operative date of
this bill. For example, the transitional provisions would
provide:
A. The changes to this division make this bill become
operative on January 1, 2015.
B. This bill's transitional provisions apply to a security
interest only to the extent that, with respect to such
security interest, both of the following apply:
(1) A debtor is an individual; and
(2) A financing statement filed before January 1,
2015, provides the name of an individual as a debtor.
C. Except as otherwise provided this bill's transitional
provisions for the 2014 amendments, the changes to this
division made by this bill apply to a transaction or lien
within its scope, even if the transaction or lien was
entered into or created before January 1, 2015.
D. The changes to this division made by this bill do not
affect an action, case, or proceeding commenced before
January 1, 2015.
E. A security interest that is a perfected security
interest immediately before January 1, 2015, is a
perfected security interest under this division as amended
by the Unruh civil Rights Act if, as of January 1, 2015,
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the applicable requirements for attachment and perfection
under this division as of that date are satisfied without
further action.
F. A security interest that is an unperfected security
interest immediately before January 1, 2015, becomes a
perfected security interest as follows:
(1) Without further action, on January 1, 2015, if
the applicable requirements for perfection under
Division 9 as amended by this bill are satisfied
before or at that time; and
(2) When the applicable requirements for perfection
are satisfied if the requirements are satisfied after
that time.
G. The changes to this division made by this bill
determine the priority of conflicting claims to the
collateral. However, if the relative priorities of the
claims were established before those changes become
effective and operative on January 1, 2015, this division
as it existed before those changes become effective and
operative determines priority.
Background
A "security interest" is a creditor's interest in property
(usually called "collateral") to satisfy a debt in the event
that the debtor defaults. In other words, a security interest
is the creditor's right to have the secured property sold to
satisfy the debt owed by the debtor. In order to enforce that
security interest in court and potentially against other
creditors, the security interest must have been properly created
and perfected ("perfection" is the process of validating any
legal document or interest by properly executing it and then
filing it with the correct public authority, essentially putting
the world on notice that an enforceable security interest exists
on that property), and have priority against other security
interests.
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
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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, Statutes of
1999).)
Subsequent to 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 was to
have every state and territory adopt the 2010 amendments to
Article 9 by July 31, 2013. Last year, AB 502 (Wagner, Chapter
531, Statutes of 2013) was enacted, adopting within California's
Division 9, with a delayed operative date of July 1, 2014, those
changes that were made to the UCC Article 9 by the ULC. One
issue, however, was ultimately left unresolved by AB 502:
whether California will adopt Alternative A or Alternative B--or
neither-with respect to the issue of the sufficiency of the
debtor's name on the financial statement. Alternative A
mandates that if a debtor has an unexpired driver's license, the
correct name of the debtor can only be the name as it appears on
the driver's license. If the debtor does not have an unexpired
driver's license, then either the debtors' individual name" or
the surname and first personal name of the debtor may serve as
the correct name for filing purposes. Alternative B allows for
three possible name constructions, all of which would be correct
for purposes of the rule: (1) the debtor's name on the driver's
license, the use of which is not mandatory; (2) the debtor's
individual name; or (3) the debtor's surname and first personal
name.
While AB 502 originally included language to incorporate
Alternative A into California law, the provision was ultimately
taken out before the bill was heard in this Committee due to
concerns by a prior policy committee with respect to potential
for discrimination. It appears that at this time, 37 states
have elected Alternative A, while a handful of others have
elected Alternative B. California, having adopted neither of
these rules, provides that a financing statement sufficiently
provides the name of the debtor, in the case where the debtor is
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an individual, if the financing statement provides either of the
following: (1) the individual name of the debtor; or (2) the
surname and the personal name of the debtor (this second option,
safe harbor, was adopted by AB 502).
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 6/24/14 - Per Senate Judiciary analyses)
(unable to reverify at time of writing)
California Bankers Association (source)
Association of Financial Development Corporations
Bay Area Council California Business Roundtable
California Chamber of Commerce
California Credit Union League
California Independent Bankers
California Mortgage Bankers Association
Latin Business Association
National Federation of Independent Business
ARGUMENTS IN SUPPORT : According to the author:
Banks and other lenders provide loans to individual
borrowers, loans which are frequently business purpose
loans to sole proprietorships secured by accounts
receivable, inventory and equipment. To obtain a priority
security interest in such collateral, the secured creditor
most often has to file a Uniform Commercial Code (UCC)
financing statement in the state where the borrower is
located. The UCC requires that the secured party identify
the "name of the debtor" on the financing statement.
When the borrower is an entity such as a corporation,
determining the name is relatively easy, as there is an
organic record of that name within the state where the
entity was formed. For example, with a corporation that
is a borrower, its name for filing purposes would be
derived from the name listed in its filed Articles of
Incorporation. But 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, a birth certificate, a social
security card, a passport, a marriage license, a business
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card, a driver's license or a state identification card?
Therein lies the problem for secured creditors today.
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.
AB 1858 would require the lenders to use the name
indicated on the borrower's driver's license when they
file a Uniform Commercial Code (UCC) financing statement.
If the borrower does not have a driver's license, then it
would be filed with the first name and surname. This is
known as Alternative A.
Alternative A states that the name on a financing
statement filed against an individual debtor will only be
sufficient if it provides the name indicated on the
debtor's driver's license (if the debtor does not have an
unexpired driver's license, then it is to provide the
individual name or the surname and first personal name).
ASSEMBLY FLOOR : 73-0, 5/23/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonta, Bradford, Brown, Buchanan, Ian Calderon,
Campos, Chau, Ch�vez, Chesbro, Conway, Cooley, Dababneh,
Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier, Beth
Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray,
Grove, Hagman, Hall, Holden, Jones, Jones-Sawyer, Levine,
Linder, Logue, Lowenthal, Maienschein, Mansoor, Medina,
Melendez, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan,
Patterson, Perea, John A. P�rez, Quirk, Quirk-Silva, Rendon,
Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Atkins
NO VOTE RECORDED: Bonilla, Donnelly, Harkey, Roger Hern�ndez,
V. Manuel P�rez, Yamada, Vacancy
AL:d 7/2/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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