On January 1, 2016, the Oregon legislature amended ORS 79.0503 to adopt Alternative A in the 2010 Amendments to Article 9 of the UCC.  What does that mean and should you be worried?

The 2010 Amendments to Article 9 gave states a choice between two approaches regarding how to handle individual names in UCC financing statements.  These alternatives are referred to as Alternative A and Alternative B.  Oregon adopted the 2010 Amendments, including Alternative B, effective July 1, 2013.  Under Alternative A, a financing statement naming a debtor who is an individual is effective “only if” the name exactly matches the name on a particular document (ordinarily a driver’s license).  Alternative A is also known as the “only if” alternative.  Under Alternative B, a financing statement naming a debtor who is an individual is effective if it matches the name on that document, but also if it gives “the individual name of the debtor” or “provides the surname and first personal name of the debtor.”  Alternative B is also known as the “safe harbor” alternative.

The ramifications of this change will likely be minor for a number of reasons.

First, financing statements rarely are filed against individuals because most consumer finance transactions involving individuals pledging collateral do not require a financing statement. The types of lending transactions that require financing statements against individuals is mostly agricultural loans, loans to high net worth individuals, equipment lending to sole proprietorships, loans involving purchases of closely held businesses, and loans to family members.

Second, the practical effect of the change from Alternative B to Alternative A may not be that great. This analysis depends on a lot of rather picayune factors involving driver’s licenses.  The first question should be: did Oregon issue the individual a driver’s license (or alternate ID card) that is still valid?  If the individual does not have a valid Oregon driver’s license, then the proper name for a financing statement filed against an Oregon resident is simply the individual’s surname and first personal name, just as is required under Alternative B.  So if the person is “located” in Oregon for Article 9 purposes and does not have a valid license or ID issued by Oregon, the practical effect of the change in the law is nil.

The second and perhaps most important question is whether or not there is a difference between the name of the individual and the name on that individual’s driver’s license or ID. In the vast majority of cases, the answer  will be no.  The largest exception, of course, is for individuals who change their surnames as a result of a change in marital status, whether upon marriage or upon divorce, and who have not bothered to change their names on their driver’s licenses or IDs. There are other examples, such as where there is a discrepancy between the name on the license and the name actually used because of a typo on the license, truncation of a field on the license, or the failure of the license to use diacritical marks used typically by the individual.

Ultimately, this legislative change—from Alternative B to Alternative A—will likely only affect those transactions involving individuals that require the filing of financing statements in whichthe individual debtor has a discrepancy between his or her name and his or her name listed on an Oregon license or ID.

The one palliative to bear in mind as Oregon changes from Alternative B to Alternative A is that it is imperative in the security agreement to require the debtor to provide his or her driver’s license and to give the secured party notice of any changes in the name on the license or ID. When Alternative A was drafted, its proponents claimed it made the rules for individual names on financing statements similar to those for registered organizations.  However,  while the names of registered organizations are readily searchable in the public records, the names on driver’s licenses cannot be searched in most instances at all.  So providing a contractual right to access the individual’s driver’s license is critical in connection with a secured financing

Issues relating to the adoption of the 2010 Amendments are addressed in broader detail here.