BWM C.S.H.B. 1375 75(R)BILL ANALYSIS FINANCIAL INSTITUTIONS C.S.H.B. 1375 By: Marchant 3-18-97 Committee Report (Substituted) BACKGROUND Currently, traditional certificate of deposits are not in the definition of "instruments" within the Texas version of the Uniform Commercial Code. This leads to a situation where the secured party must file a financing statement (UCC-1). The fee is $10 for standard forms and $25 for a nonstandard forms. In addition, before filing one, the lender usually does a lien search to determine whether a prior UCC-1 might be filed on the same item, leading to a battle over priority in the collateral. This also has a cost to perform. This procedure can cost the customer, who is pledging their own money in the form of a certificate of deposit. Failure to perfect a security interest leaves the secured party in a tenuous position with regard to competing security interests, tax liens which are subsequently filed, lending limit rules (which require perfected security interests), and other regulations. PURPOSE This bill would amend Article 9 of the Texas version of the Uniform Commercial Code (UCC) to conform to customer's expectations and the practice of many years, namely, permitting of security interests in all certificates of deposit through possession of an instrument rather than through filing of a UCC-1 financing statement. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends the definition of "deposit account" in 9.105(a)(5) of the Business & Commerce Code to clarify that a certificate of deposit is excluded from the term "deposit account" whether or not it is negotiable. SECTION 2. Amends the definition of "instrument" in 9.105(a)(9) of the Business & Commerce Code Article 9 of the Texas version of the UCC to include all certificate of deposit whether or not they are negotiable. In addition, so-called "book entry" certificates of deposit would be included as "instruments" by using their receipts as evidence of the certificate. SECTION 3. Amends 9.105(a) by adding Subsection (14) to define "Nonnegotiable certificate of deposit." SECTION 4. Amends 9.304(a) of the Business & Commerce Code to clarify that possession of a nonnegotiable certificate of deposit can be established through restricting withdrawals on a CD issued by the lender bank. SECTION 5. Effective date. SECTION 6. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The Committee Substitute to H.B. 1375 adds an amendment to the definition of "deposit account" to clarify that a certificate of deposit is excluded from the term "deposit account" whether or not it is negotiable. Furthermore, the Substitute defines "Nonnegotiable certificate of deposit." Lastly, the Substitute clarifies that possession of a nonnegotiable certificate of deposit can be established through restricting withdrawals on a CD issued by the lender bank.