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.