California – Amends Article 9 to adopt individual debtor name alternative A

August 26, 2014

California Amends Article 9 to adopt individual debtor name alternative A.  House Bill 1858 was signed into law by the governor August 25, 2014 and will be effective January 1, 2015.

California originally enacted the 2010 Amendments to UCC Article 9 in 2013 with a non-uniform rule for the sufficiency of individual debtor names.  That law, which took effect on July 1, 2014, omitted any reference to the individual’s driver’s license as the source of an individual debtor name.  The omission was intended as a consumer protection measure.

Earlier this year, the California legislature introduced Assembly Bill 1858 to adopt the uniform version of legislative Alternative A for sufficiency of individual debtor names in Cal. Com. Code § 9503(a)(4).  The bill passed the legislature and was signed into law by the governor on August 25, 2014.  The new law takes effect on January 1, 2015.

While AB 1858 does include some non-uniform provisions related to civil rights of individual debtors, California’s substantive individual debtor name sufficiency rules will become uniform with the vast majority of other states.  However, due to the delayed enactment of this provision, some special transition rules were added to the bill.

The new law adds transition provisions in § 9901 through § 9907 to address the changes to § 9503(a)(4).  The transition rules apply only when the debtor is an individual and the financing statement was filed before January 1, 2015 (the “effective date”).

Under the transition rules, a financing statement filed before the effective date that correctly provides an individual debtor name will remain effective after the effective date, even if it fails to provide the name on the individual’s driver’s license.   The financing statement will remain effective until it would have ceased to be effective had AB 1858 not taken effect.  Thus, the pre-effective date financing statement will remain effective until the next scheduled lapse date.

What does this mean for secured parties?  Until the new law takes effect, secured parties should maintain their current practices for determining the correct name of an individual debtor.  In addition, secured parties should review the individual debtor’s driver’s license and, if the name is different from the other name or names on the financing statement, add the driver’s license name as an additional debtor.

Secured parties may need to take action to remain perfected if a financing statement was filed before the effective date.  If the secured party intends to continue the pre-effective-date financing statement and the individual debtor name does not comply with new § 9503(a)(4), then the secured party will need to amend the record to add the driver’s license name prior to filing a continuation.  However, if the secured party intends to allow the record to lapse, not action is necessary.  The record will remain effective until the lapse date.

Additional resources on the 2010 Amendments to UCC Article 9 are available at csctransactionwatch.com/amendments.

If you have questions or need more information on Article 9 legislation, please contact Paul Hodnefield, Associate General Counsel, at phodnefi@cscinfo.com or 800-927-9801, ext. 62375.