Legislature(2013 - 2014)BARNES 124
02/20/2013 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB68 | |
| HB9 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 68 | TELECONFERENCED | |
| *+ | HB 9 | TELECONFERENCED | |
HB 9-SECURED TRANSACTIONS AND FUNDS TRANSFERS
3:59:33 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 9, "An Act relating to secured transactions under
the Uniform Commercial Code and to the regulation of funds
transfers, including remittance transfers, under the Uniform
Commercial Code and federal law; and providing for an effective
date."
3:59:47 PM
REPRESENTATIVE MAX GRUENBERG, Alaska State Legislature, sponsor
of HB 9, introduced himself.
MILES BROOKES, Staff, Representative Max Gruenberg, Alaska State
Legislature, introduced himself.
4:00:23 PM
REPRESENTATIVE GRUENBERG said HB 9 is a very important, time
sensitive bill. He stated the bill would amend the uniform
commercial code. The first two sections of HB 9 assist the
banking industry and the remaining sections assist creditors who
attempt to collect debts from people who change their names or
may not give their correct name. Further, it is also easy to
have a misspelling entered into transactions, which can stop the
process, he also said.
4:01:15 PM
REPRESENTATIVE GRUENBERG thanked Mr. Brookes for his work on the
bill. He said this bill was introduced at the request of the
Uniform Law Commissioners. He listed potential testifiers and
letters of support. He also pointed to a letter of support from
Deborah Behr, on behalf of the administration. He reported the
deadline of July 1, 2013, that all states must meet so the
provisions involving creditors' rights will go into effect
simultaneously nationwide.
CHAIR OLSON asked whether this is part of a compact.
REPRESENTATIVE GRUENBERG answered no. He said the first two
sections remedy an issue that arose with passage of the federal
Dodd-Frank Act [Wall Street Reform and Consumer Protection Act
(Pub.L. 111-203, H.R. 4173), which became effective on July 10,
2010]. The Dodd-Frank Act did not cover certain types of
financial transfers between banks and individuals. As a result,
the states must cure this defect with state law and the last
parts of HB 9 do so and pertain to issues with name changes.
4:03:58 PM
DEBORAH BEHR, Chief Assistant Attorney General, Legislation and
Regulations Section, Civil Division (Juneau), Department of Law
(DOL), Chair; Alaska Uniform Law Delegations, National
Conference of Commissioners on Uniform State Laws (NCCUSL), said
the Alaska statutes assigned to the Department of Law (DOL) the
duty to promote uniform laws in Alaska where uniformity among
the states is important. The state has been a member of the
Uniform Law Commission for over a hundred years. She
characterized the Uniform Law Commission as a states' rights'
organization, in which states propose uniform solutions to state
legislatures to address common problems where uniformity across
state lines is desirable. In particular, one area is commerce,
she stated. She said that businesses buy and sell products and
borrow money across state lines. All fifty states have adopted
the Uniform Commercial Code (UCC) since the UCC ensures
reliability and predictability of business transactions. The
goal of this bill is to update two articles of the UCC, with the
first pertaining to the UCC, Article 9 on secured transactions.
4:05:47 PM
MS. BEHR related a scenario to illustrate the first update to
the UCC, Article 9. She and her husband are buying a car and
very few people pay cash for a car. Instead, people make a down
payment on the car, the bank loans the remainder, but takes a
secured interest in the car. Thus if the owner were to default
on the loan, the bank wants to have an easy way to get the car
back. The Uniform Commercial Code (UCC), Article 9, sets up the
easy way to do this, which is perfected by filing the
transaction with the recorder's office. Thus a secondary
creditor, who is interested in the owner's interest in the car,
can check the transaction. In short, this is what the UCC,
Article 9 secured transactions is about, she said.
4:07:22 PM
MS. BEHR reiterated that it is also very easy to misspell
someone's name on a secured transaction. For example, when she
and her husband buy their car, the bank would prepare the
document; however, it is very easy to misspell her name since
there are many different ways to spell Deborah and also to spell
Behr. In the event the name doesn't match up, the creditor has
a problem although it shouldn't be the creditor's problem since,
in this instance, she promised to pay for the car and she
received the car. In any case, it causes a problem if names
don't match, she said. In essence, this explains the first
update.
MS. BEHR said under current law, if the creditor gets things
exactly right there isn't any problem and the creditor can get
the car back; however, with a misspelling, it has been a
problem. Thus the UCC has recommended all states have a safe
harbor and examine the person's driver's license. Even though
the driver's license may have a misspelling the creditors will
have taken the necessary steps to protect its interest in the
car. Further, if the person held a commercial driver's license
and a personal driver's license, the most current driver's
license would be used. Additionally, if the person held both a
driver's license and a state identification card, in this state
the Alaska driver's license would be used. This process allows
creditors and businesses a means to obtain an easy way to get
expectations fulfilled - one that is fast, smooth, and easy, and
avoids lawsuits, she stated.
4:08:26 PM
MS. BEHR related the second update to the UCC, Article 9 makes
changes to "registered organizations." Since the UCC, Article
9, was adopted, new limited liability corporations (LLCs) and
limited liability partnerships (LLPs) have cropped up. These
LLCs and LLPs also purchase things and can conduct business in
several different states. This second change sets up a rule,
similar to corporations, in which the paperwork of organization
is examined to determine the origin of formation and becomes the
state the LLCs or LLPs would file their paperwork. This change
makes it much easier for the banking community to feel more
comfortable loaning businesses money. In fact, that's one of
the advantages of the UCC. In essence, when banks feel more
secure that purchasers will repay the loan, it can offer better
interest rates or allow businesses to obtain more liquidity they
can use to run their businesses.
4:09:34 PM
MS. BEHR turned to the final major change to the UCC, Article 9,
which relates to "after acquired property." She related a
scenario in which she lives in Anchorage and wants to open a
bike construction company. She detailed that she would first
ask the bank for a loan to buy parts and put together bikes.
The bank would loan her the money, but would take a security
interest in parts and bicycles of her business. However, she
related that businesses don't always stay at their original
location. In fact, she might decide to move her bicycle
business to Arizona for a couple of months during Alaska's
winter. In the process, she would also take the proceeds the
bank loaned her to buy more bicycles in Arizona. In doing so, a
legal issue arises as to where a creditor would need to look to
find the business statement filed. Under the changes to the
UCC, Article 9, the new change would state that the filing in
Alaska trails with the property to Arizona for four months each
year in order to allow the bank time to record against the
bicycles. In short, the changes to the UCC, Article 9, would
allow commerce move more smoothly and provide greater comfort to
lending institutions that are loaning money to businesses.
4:11:00 PM
MS. BEHR turned to the final changes, which relate to the UCC,
Article 4A. She indicated these changes are supported by the
Alaska Bankers Association - noting the letter of support of
January 28, 2013 in members' packets. This change pertains to
"remittance transfers," which are electronic transfers that are
generally made overseas. She related that typically if the
transaction is a consumer transaction, it is set up under
federal law, but if it is a business transaction it is covered
under state law; however, a recent change in the Congress made
it murky and the banks asked for clarity - nationwide. Thus
things that fall under the UCC, Article 4A, will continue to be
covered by UCC, Article 4A for these remittance transfers, she
said.
MS. BEHR reported that 30 states have adopted the Article 9
changes, 13 other states have legislation pending, and all 50
state's changes are due by July 1; 2013. She said that the
Article 4A changes are brand new and a few states are currently
doing this; however, all states are trying to quickly pass the
changes to accommodate the banking community since the bankers
really want the changes. She pointed out technical advisors who
are available for questions, including Mr. Bill Henning,
University of Alabama, who is a nationwide expert on the UCC.
She expressed her gratitude that he is available to the
committee today.
4:12:30 PM
CHAIR OLSON asked whether this is a model law.
MS. BEHR answered that all the states are making changes and try
to keep to the UCC. In further response to a question, she
answered thus far, 30 states have made the Article 9 changes.
4:12:48 PM
REPRESENTATIVE MILLETT referred to materials in the packet
[Uniform Law Commission, "Why States Should Adopt 2010
Amendments to UCC Article 9,"] that indicates states must ensure
the state's driver's license database is compatible with its UCC
database as to characters and fields. She asked whether
Alaska's DMV's database is compatible.
MS. BEHR answered that the state has two options. One option is
to have Alaska's DMV computers communicate directly with the
state recorder, which was not feasible without a significant
fiscal note. The other approach, which Alaska will take is the
"safe harbor" one in which the actual physical Alaska driver's
license (ADL) is viewed at the time of the transaction. She
clarified the ADL would not be viewed electronically, but would
be viewed in the individual creditor's office.
REPRESENTATIVE MILLETT asked what happens if the person does not
have an Alaska driver's license.
MS. BEHR answered that the person would use their name, noting
people can also obtain a state identification card. She
emphasized that the mistake could be a typo in an agreement and
does not necessarily mean fraud.
4:14:20 PM
REPRESENTATIVE MILLETT acknowledged her name is frequently
misspelled.
MS. BEHR stated that if everyone is acting appropriately, it
works fine. She referred to her earlier scenario - the car
purchase - and said if she wasn't able to make the car payment,
she would just go to the car dealer and indicate she couldn't
make the payment and work out an agreement. However, she said
the recording function is beneficial when another creditor wants
to loan her money and can view the database at the state
recorder's office to ensure she doesn't have substantial debt.
She emphasized this does not stop the transaction because the
name is misspelled, but it makes it more difficult and more
expensive.
REPRESENTATIVE MILLETT was unsure how this would affect rural
Alaska since many rural Alaskans don't have access to photo
identification.
4:15:39 PM
REPRESENTATIVE REINBOLD referred to page 2 of the fiscal note,
which read, "Section 34 instructs DNR to adopt, amend, or repeal
regulations and this section takes effect immediately per
Section 36. The Recorders/UCC Central Section has begun work on
amending definitions that exist in regulations and thus DNR
anticipates completing regulations by September 16, 2013." She
asked how this will affect DNR.
MS. BEHR deferred to the Department of Natural Resources (DNR)
to answer.
4:16:32 PM
VICKY BACKUS, State Recorder, State Recorder's Office, Division
of Support Services (DSS), Department of Natural Resources
(DNR), answered that HB 9 makes minor changes to the Recorder's
office to their regulations; however most of the changes amend
their forms.
4:17:22 PM
REPRESENTATIVE REINBOLD said she was alarmed this bill would
affect the DNR.
MS. BACKUS responded that the DNR's involvement would be
minimal.
4:17:45 PM
REPRESENTATIVE JOSEPHSON recalled that 30 states have opted into
the recommendations. He asked how many states have adopted the
4A recommendations.
MS. BEHR answered that less states have; however, this is due
primarily to the changes being circulated to the industry for
only a few months. She offered that many states have bills
pending. Additionally, the banking community thinks the changes
are a good idea, she said.
4:18:26 PM
REPRESENTATIVE CHENAULT asked whether a misspelling in a
person's name has anything to do with repossessing car from the
bank or creditor's standpoint.
MS. BEHR, using her earlier scenario of her car purchase,
answered that the issue would arise if the party had to go to
court to prove the creditor was going after the same Deborah
Behr's car; however, if no objection arose and the debtor did
not complain, it would go pretty smoothly.
REPRESENTATIVE CHENAULT suggested that the creditor loaning the
money would use the vehicle identification number (VIN) and not
be as concerned about the name being misspelled.
4:19:43 PM
REPRESENTATIVE JOSEPHSON said it strikes him that the bill
pertains mainly to creditors, but it did not seem as though
anything in the bill was unreasonable.
MS. BEHR answered that HB 9 is also a debtor's bill, since it
creates a smooth mechanism for creditors to get back
merchandise, such as her car in the aforementioned scenario.
Absent that mechanism, the car dealer would be reluctant to give
her the car so it would make credit easier for consumers to
obtain, she said. She related that thus far the legislation has
passed 30 states and to date no consumer protection group has
objected.
4:21:08 PM
WILLIAM HENNING, L.L.M., Uniform Law Commissioner; Professor,
University of Alabama, School of Law, related he has worked
extensively with Ms. Behr on the Uniform Law Commission.
4:22:20 PM
REPRESENTATIVE REINBOLD understood 30 states have adopted
Article 9 and 20 states have not, although 13 are in the process
of doing so. She asked why these state have not all adopted the
changes. She further asked whether any national organizations,
such as the National Conference of State Legislatures (NCSL)
have weighed in.
MR. HENNING answered that the amendments [contained in HB 9]
were finalized by the American Law Institute and Uniform Law
Commission in 2010. As Ms. Behr mentioned earlier, the
commission wants the changes to go into effect at the same time
nationwide. He said that some states passed bills, but the
commission asked them to defer the effective date to July 1,
2013. He acknowledged many more than 13 states have not yet
brought in legislation yet, but are preparing to do so. He
related his understanding that universal adoption in all 50
states will occur. In fact, there has been no opposition to the
changes.
MR. HENNING, with respect to the consumer organizations,
explained he served on the drafting committee that prepared the
Article 9 amendments and served with someone who brought the
consumer perspective to the committee [Gail Hillebrand]. She
was involved throughout the process. He related that this
member is an expert in the UCC, serves on the permanent
editorial board of the UCC, and did not find any problem with
the proposed changes. In fact, she reported back that using
driver's license name as a safe harbor would give additional
certainty to creditors and would not disadvantage someone
without a driver's license because other ways exist to show the
name would be perfectly adequate. In short, there is no
opposition from anyone, including consumer groups. The proposed
changes have happened rapidly during a three-year period;
however, he anticipated the remaining states would act promptly.
4:25:13 PM
REPRESENTATIVE REINBOLD asked whether any unintended
consequences have been reported by the 30 states that have
passed the bill.
MR. HENNING answered no; however, he cautioned that the proposed
changes will not be effective until July 1, 2013. He emphasized
that the proposed changes the UCC have been very carefully
reviewed by the Uniform Law Commissioners, by banking groups,
and by consumer groups. In fact, he is not aware of any
problems that have ever surfaced. Additionally, he reported
that he lectures nationwide to provide continuing legal
education presentations. He has presented these changes in a
number of states to groups of lawyers and he has not yet been
asked a question that leads him to believe any problem exists.
4:26:13 PM
REPRESENTATIVE REINBOLD asked for the reason for the July 1,
2013 effective date.
MR. HENNING indicated that a single effective date for all
states is important since problems can arise if some states
incorporate the changes at different times. If that were to
occur, then some states would have adopted the proposed UCC
amendments and others would not. This would create a "conflicts
of law" problem, and uncertainty could arise over which state's
laws govern the transaction. He indicated the UCC asked states
to defer the effective date until July 1, 2013 to avoid any
issues. He pointed out the proposed UCC amendments pertain to a
large scale revision of Article 9 that was dispersed in 1998 or
1999. The UCC undertook the process to adopt the large package
of changes through all states. At the time the UCC used July 1,
2001 as the deferred effective date and all fifty states
successfully adopted the changes. In conclusion, the UCC has
previously used this process to make changes so the same pattern
used then is very similar to the one being used now.
4:27:57 PM
CHAIR OLSON related that it's a common practice to use a July 1
effective date to incorporate changes that affect all states.
He explained that every year or so changes which will affect the
insurance or banking communities necessitate the whole country
must use a July 1 effective date to implement the changes.
4:28:42 PM
REPRESENTATIVE GRUENBERG referred to page 8, lines 11-18 of HB
9. He asked whether the general rule for financing statement
must include the following, which read:
(A) the individual name of the debtor;
(B) the surname and first personal name of the debtor;
or
(C) subject to (g) of this section, the name of the
individual that is indicated on an unexpired driver's
license that this state has issued to the
individual or on an unexpired identification card
issued to the individual under AS 18.65.310; ....
REPRESENTATIVE GRUENBERG then referred to page 9, lines 6-9, to
subsection (g), which read:
(g) If this state has issued to an individual more
than one driver's license, more than one
identification card under AS 18.65.310, or both an
identification card under AS 18.65.310 and a driver's
license, the driver's license or identification card
that was issued the most recently is the one to which
(a)(4)(C) of this section refers.
REPRESENTATIVE GRUENBERG asked whether his interpretation
is correct that this language is very carefully set out.
MR. HENNING answered yes. He elaborated that he would be happy
to explain more fully, but Representative Gruenberg has
correctly stated how the rules would work.
4:30:16 PM
REPRESENTATIVE REINBOLD referred to page 9, lines 24-30, of HB 9
and asked what is meant by the language "financing statement
becomes seriously misleading."
MR. HENNING answered that a couple of situations have arisen
that this language would address. For example, frequently a
loan to a decedent's estate occurs. Even though one would
imagine this to happen infrequently, it doesn't. He explained
that often times an infusion of capital is necessary to keep
businesses going during the winding down process of a business.
The name used on the financing statement is the name of the
deceased person, yet the deceased person is not the debtor in
the transaction; instead, the debtor is the estate itself.
These paragraphs indicates when the name included in a filed
financing statement for a debtor becomes insufficient, it does
not represent a name change. Briefly, the current language
spoke to a name change, but it does not accurately describe all
situations. He characterized proposed Section 20 as technical
changes as the content of the rule will remain exactly the same,
although this language is more descriptive.
4:32:26 PM
REPRESENTATIVE REINBOLD asked whether this is identical to law
in other states.
MR. HENNING answered yes; it is precisely identical to the
changes in law for the 30 states that adopted the 2010
amendments to Article 9.
4:32:48 PM
REPRESENTATIVE GRUENBERG related his understanding that the
Alaska changes are identical to the uniform act.
MS. BEHR agreed, except for stylistic changes. She indicated
she had the national headquarters review the language and it
meets the test of uniformity and would be accepted.
CHAIR OLSON advised members HB 9 is in its original form.
4:33:24 PM
LUKE FANNING, Vice-President, First National Bank, Alaska;
Alaska Bankers Association (ABA), said he is testifying on
behalf of the ABA, which represents eight state, national, and
federal savings banks in Alaska. These member banks are
responsible for 85 percent of the nonpublic commercial lending
in Alaska as well as 2,500 employees across 130 branches
statewide.
MR. FANNING stated that the ABA supports HB 9 because it
provides for necessary amendments to UCC, Article 9, which was
adopted in all 50 states. He said this legislation is necessary
to address recent changes to the articles in 2010. These
changes to Article 9 have been adopted in 30 states, as
previously discussed, and similar legislation is pending in
other states. In fact, it is important to pass the bill this
legislative session since the amendments will be effective July
1, 2013. He cautioned that if the bill is not passed this year,
Alaska will be inconsistent with the amendments adopted already
by the majority of states. In short, HB 9 is necessary to keep
UCC's Article 9 up to date in Alaska and ensure Alaska's law is
consistent with financial practices in the rest of the country.
Further, failure to pass HB 9 could result in additional cost
and uncertainty for Alaska's businesses and financial services
customers. Besides affecting creditors, which was discussed
earlier, the bill would affect other businesses and parties
trying to purchase property, particularly across state lines.
He concluded that if there is any inconsistency in the security
requirements it could hinder or otherwise hold up property sales
transfers, such as cars being purchased across state lines.
Again, these changes are not limited to creditors, but affect
people purchasing assets or trying to sell assets, regardless of
whether a bank is involved in that transaction. He thanked
members for consideration of the ABA's position on this bill.
4:35:50 PM
CHAIR OLSON asked what would happen if 45 states adopted the
Article 9 amendments, but Mr. Fanning's bank has a multi-state
relationship with a state not party to the agreement by July 1,
2013.
MR. FANNING answered that it could complicate things, in
particular, in the event of foreclosures, sales of assets, or
for private parties trying to buy or sell assets across state
lines. He said it could hinder a transaction or derail the
party's ability to obtain financing on an asset if the chain of
ownership was not clear and consistent.
4:36:34 PM
CHAIR OLSON wondered whether all fifty states can comply by July
1, 2013.
MR. FANNING deferred to Ms. Behr; however, he offered his belief
that if any perception of uncertainly exists, it could drive up
costs for banks. He further offered his belief that it could
discourage lending in a worst case scenario.
4:37:43 PM
STACY SCHUBERT, Director, Government Relations, Alaska Housing
Finance Corporation (AHFC) read prepared testimony as follows:
AHFC, through its multi-family lending department
utilizes Article 9 of the Uniform Commercial Code in
securing some of its collateral when financing multi-
family projects. The collateral, such as kitchen
appliances, furniture, equipment, and the like is
perfected due to recording of the UCC's financing
statement.
As proposed, HB 9 further enhances AHFC's, as well as
other creditors' secured positions, by providing: 1)
greater guidance as to the name of the debtor provided
on the financing statement; and 2) greater protection
for an existing secured creditor having a security
interest in an after acquired property, when debtor
moves to another state or merges with another entity.
For example, in the event AHFC forecloses on a
property and is also trying to repossess and sell the
furniture and appliances, the amendment to UCC's
[Article] 9 would protect AHFC in the event the debtor
has merged with another entity after the loan has
closed.
AHFC supports the revisions as they enhance AHFC's
ability to repossess a security. Thank you, Mr.
Chairman.
4:40:51 PM
The committee took an at-ease from 4:40 p.m. to 4:44 p.m.
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on HB 9.
4:44:07 PM
REPRESENTATIVE REINBOLD moved to report HB 9 out of committee
with individual recommendations and the accompanying fiscal
notes. There being no objection, HB 9 was reported from the
House Labor and Commerce Standing Committee.