Is Your Security Interest in Jeopardy if Your Customer’s Name Changes?
The accuracy of critical data within your UCC Financing Statement can make or break your security interest. Unfortunately, one critical piece of data can change quickly and even worse, it can easily go unnoticed: a change in your customer’s name.
Names change, it happens.
Perhaps your customer is an individual and has recently married or divorced, or maybe your customer has opted to change its corporation’s name based on brand recognition. Whatever the reason, names change and if you have filed a UCC to properly perfect your security interest, you may need to take swift action to ensure your security interest remains perfected.
First, What Does Article § 9-503 Address
Article § 9-503 provides guidance on how to correctly identify your customer within the UCC Financing Statement.
In compliance with § 9-503, if your customer is a registered entity, your customer’s name must appear on the UCC exactly as it appears in the public organic record.
If your customer is an individual, first determine whether the state has implemented Alternative A or Alternative B:
Alternative A: if the debtor holds an unexpired driver’s license, the Financing Statement must list the debtor’s name as it appears on the unexpired driver’s license. (If the debtor does not have a driver’s license, the Financing Statement should list the “individual name” of the debtor or the debtor’s surname and first personal name.)
Alternative B: the debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the Financing Statement.
Most states implemented Alternative A, which means your customer’s name must appear on the UCC exactly as it appears on his/her unexpired driver’s license.
OK, What Happens if My Customer’s Name Changes?
As a best practice, we recommend amending your UCC filing if your customer’s name changes. There may be situations where an amendment is not “required,” but it’s a risk to not amend. If you are unsure whether you want to amend your filing, I would recommend you determine whether the name change renders your filing as seriously misleading.
What is Seriously Misleading?
According to § 9-506 (b), a Financing Statement that “fails sufficiently to provide the name of the debtor in accordance with Section § 9-503 (a) is seriously misleading.” OK, succinct yet vague. How would you know whether the UCC sufficiently identifies your customer? Three words: Standard. Search. Logic.
“Standard Search Logic” is the holy grail of determining whether a filing is seriously misleading. Search logic is created, determined & managed through an algorithm – not entirely unlike a typical Google search, although a Google search is very flexible and the parameters for this search logic are narrower.
In 2015, International Association of Commercial Administrators (IACA) released the revised Model Administrative Rules, which include a specific section that is frequently referred to as “standard search logic.”
One rule for standard search logic is 503.1.2 “No distinction is made between upper and lower case letters.” This means that the debtor’s name could be entered as ABC COMPANY INC or ABC Company Inc, and both are acceptable.
Another rule addresses punctuation: 503.1.3 (b) “Punctuation marks and accents are disregarded. For the purposes of this rule, punctuation and accents include all characters other than the numerals 0 through 9 and the letters A through Z (in upper and lower case) of the English alphabet.”
IACA recognizes the general idea of “noise words”. Typically noise words include “and,” “the,” “inc” and “co.” Although noise words are addressed in the Model Administrative Rules, the list of actual noise words are determined by each individual filing office. This difference by jurisdiction could mean that a filing that would not be seriously misleading in Virginia may be seriously misleading in Georgia, based on the individual search logics.
Like I said, risky. Which is why it may be in your best interest to set a standard business practice to amend a filing any time you encounter a customer name change.
You’ve Got 4 Months
Article 9 – 507(c) provides a 4 month window to amend the filing for a debtor name change that may be considered “seriously misleading.” If the change in your customer’s name makes the filed Financing Statement “seriously misleading,” UCC Section 9-507(c) states the Financing Statement will only be effective for collateral acquired prior to the name change or within four months following the change.
This rule applies even if the you have not received actual or constructive notice of the name change from your customer. You can prevent a UCC from becoming unperfected on collateral acquired beyond this 4 month window by filing an amendment to the Financing Statement with the new business name of your customer.
How Will I Know if The Name Has Changed?
Of course, there is the issue of knowing when your customer’s name changes. In a perfect world, your customer would notify you of name and address changes, but we certainly don’t live in a perfect world. NCS offers corporate monitoring and driver’s license monitoring, which provide alerts when there are changes in your customer’s name.
Prefer to manage it on your own? Create a schedule to periodically check the Secretary of State where your customer is registered or obtain a copy of the current driver’s license and review the information on incoming payments: bonus, the check may have the new name AND the new address.