Electronic UCC Filing Faster and Cheaper
Texas will implement online UCC services by next year.
Level of Gvt: Federal, State
Problem/situation: The volume of paperwork generated by UCC filing requirements makes for long turnaround time and creates a drag on commerce.
Solution: Automation of the UCC filing systems.
Jurisdiction: Iowa, Texas, Minnesota.
Vendors: West Publishing/Information America, CT Corporation System, Lexis Document Services, Librasoft, Commercial Finance Association, Dunn & Bradstreet, Whirlpool Finance Corp., IBM Credit, AT&T; Capital Corp.
Contact: Allen Welsh (515) 279-1373.
By Blake Harris
As required by Article Nine of the Uniform Commercial Code (UCC), seven million original financing statements are filed each year in over 4,300 locations across the United States. Another four million documents are filed annually to amend, assign, continue, or terminate these financing statements. At any one time, about 35 million financing statements remain active and in effect.
The sheer volume of paperwork generated by UCC filing requirements, which vary slightly from state to state, can often mean a turnaround time of weeks. This creates a drag on the very commerce that the UCC is intended to promote.
"The obvious solution is the computerized automation of UCC filing systems which would shorten the delays in closing business transactions and reduce the number of business decisions based on insufficient or inaccurate information," said Allen Welsh, former deputy secretary of state for Iowa and now a consultant with the Article Nine Filing Project of the University of Minnesota Law School Center for Law and Business Studies.
"Imagine a UCC financing statement that prepares itself, delivers itself to a governmental filing officer, drops itself into the government's filing system without bureaucratic handling, and within minutes informs the company filing the statement that it has been filed properly," he said, describing the future system for UCC filing - a future reality for which he has been a primary driving force. "Imagine a universal pipeline for UCC documents and lien search requests - a pipeline that can deliver the documents and requests from your office to the proper filing officer in any state in the country."
Recent developments in Electronic Data Interchange (EDI) have now eliminated virtually all the barriers to making this vision possible within a few short years, not just in every state in America, but also, it is hoped, throughout all NAFTA trading partner territories and possibly even Europe.
EDI, which provides a standard way for businesses and organizations of all kinds to exchange data electronically, has become something of a buzzword these days. Many companies are investing in the technology, for instance, to facilitate routine transactions such as orders, supplies and tracking parts availability in the hopes of saving millions of dollars each year.
EDI simply consists of a collection of standard message formats that can be sent by an electronic messaging service - essentially e-mail messages that follow a preset format so the information can be automatically processed by the software receiving it.
The International Association of Corporation Administrators (IACA), the professional association of senior corporation, Uniform Commercial Code and Personal Property Security Act administrators, has been promoting EDI as the solution to the problems of UCC filing and search automation. In writing to Vice President Al Gore last year, Jim Clevenger, director of the IACA, described an EDI-based UCC filing system as "perhaps the greatest opportunity for significant change" in drastically reducing the amount of paper which now strangles the government-business interface.
A similar letter from the Commercial Finance Association (CFA) to the Vice President stated, "When this technology becomes widely fielded, it will fundamentally change the way America does business. Commercial transactions will be completed and secured in seconds as opposed to days or weeks as is now the case."
EDI STANDARD NOW SET
The biggest barrier to the development of a nationwide system for electronic UCC filing lay in the differences in filing requirements from state to state. A CFA subcommittee resolved this problem by developing a standard EDI format that included all information required by each and every state. This EDI standard, now adopted by the American National Standards Institute (ANSI) and dubbed "ANSI X12 transaction set 154," will allow each state to develop inexpensive software which can automatically take the information they required from the standard EDI document and easily manipulate it to meet all their individual filing requirements.
The new UCC EDI standard has already been utilized in an electronic "alpha test" filing conducted in Iowa while Welsh was deputy secretary of state there.
IBM Credit Corp. electronically submitted an EDI UCC-1 financing statement and then later a UCC-3 amendment statement to the secretary of state of Iowa. The filing officer accepted the statement and amendment, sending back EDI acknowledgements to IBM Credit showing the date and time of filing for each. Copies were also sent to Dun & Bradstreet as a service bureau acting under a hypothetical agreement for bulk purchase of such information.
Then Whirlpool Finance Corp. electronically filed a EDI UCC-1 search request and received copies of the EDI financing statements previously filed by IBM Credit and also AT&T; Capital Corp. against the debtor. And finally, Whirlpool Financial sent a notice to AT&T; Capital and IBM Credit to indicate that Whirlpool intended to extend to the debtor secured money for inventory purchase.
The significance of this alpha test was that the required information was translated and incorporated into the files of the Iowa secretary of state without human intervention. This highlighted another advantage of UCC EDI filing - the elimination of human error by filing office data entry staff.
However, apart from enhanced speed and accuracy, reduced cost is possibly the biggest advantage of UCC/EDI filing. In contrast to the clerical and service bureau costs of preparing and processing financing statements in paper form, the cost of transmitting EDI filings for a business is roughly the same as first-class postage. In addition, state filing offices can cut processing costs substantially because not only is there no paper handling, but in effect, customers do the data entry that is currently done by staff.
UCC GOES ONLINE IN TEXAS
The success of the Iowa alpha test has now led to a "UCC/EDI Initiative," organized by Allen Welsh and the Article Nine Filing Project, to work with UCC service providers and the Texas secretary of state to implement the nation's first fully functional electronic UCC/EDI filing system. The anticipation is that this system will be operating in Texas by February 1996.
Wally Boggus, director of the UCC Code Section in Texas, explained that Texas was picked as the testing ground for the next stage of UCC/EDI development because the state processes a high volume of UCC documents. By demonstrating the viability of UCC/EDI filing techniques in a major UCC filing state, it is believed that Texas will rapidly generate nationwide momentum toward UCC/EDI filing across all 50 states.
Additionally, Texas is large enough to provide "an immediate and substantial market for UCC/EDI products and services." This has provided the incentive for service companies to step forward and commit money toward development of the necessary software to interface with the state's UCC/EDI system. To date, the major service companies who have joined the initiative include West Publishing/Information America, CT Corporation System, Lexis Document Services, Librasoft, Commercial Finance Association and Dun & Bradstreet (copy service only). Darrell Pierce, chairman of the Article Nine Filing Project, has issued an open invitation for other companies to join the UCC/EDI Initiative either as a member (any organization that proposes to electronically file UCC documents, on its own behalf or as a service to others), or as a participant or observer.
Members of the initiative will form the "beta test" group and will develop or adopt software, using the ANSI X12 standard, to generate UCC documents and search requests and transmit these to the Texas filing office. Copyrights for any user-end software developed by the members will remain with the developing company and each member will have the opportunity of demonstrating its software or prototype for possible sale to other secured parties.
"The Article Nine Filing Project UCC/EDI Initiative is committed to sharing information with other state filing officers regarding the design and implementation of UCC/EDI filing during the development of the Texas system," added Welsh. "Other filing officers are invited to observe the design and implementation of the Texas system. And to the extent possible, we will assist other filing officers in the planning and the implementation of their UCC/EDI filing systems."
In this way, the initiative hopes other states will be able to learn and benefit from the Texas development process and that this will help to pave the way for a nationwide UCC/EDI system.
ASSISTANCE FOR STATE FILING OFFICES
The Article Nine Filing Project "UCC/EDI Initiative" has laid out a number of objectives which will greatly assist the implementation of UCC/EDI filing in each state. These include:
- A review of alternate approaches to the construction of a state filing office UCC/EDI interface.
- Documentation of the ANSI UCC/EDI transaction set in non-technical terms.
- Development of a model trading partner agreement between a state filing officer and a document filer.
- The development of a summary of UCC/EDI legal issues, including alternative resolutions to authentication procedures.
- A set model of administrative rules for implementing a UCC/EDI program in filing offices.
- Preparation of a handbook for UCC filing officers on selecting translator software for UCC purposes.
Newsletters are also planned which will provide state filing officers with updates on the progress of the UCC/EDI Initiative in Texas.
(Might be done horizontally as well) which might be colorful and interesting with some simple images:
Paper UCC Filing
1. Information usually stored on computer
2. Filling out proper forms
3. Mailing or courier service
4. Mail receiving and opening
5. Data entry
6. Payment verification with time notation
7. Notification of receipt of filing by mail
Total handling time = days to weeks
1. Information usually stored on computer
2. Automatically translated to EDI standard format by UCC user software
3. Sent from computer through electronic message service or value added network (VAN)
4. Automatically received in state filing office & notification of filing and time sent back by computer
Estimated handling time = two minutes