Disrupting Secured Transactions

Abstract

Article 9 of the Uniform Commercial Code (U.C.C.) governs secured transactions in personal property in all fifty states and has been lauded as “the most successful commercial statute ever.” But while Article 9 has facilitated commerce and economic growth, it remains complicated and inefficient in numerous respects. Its weaknesses are well known but have been considered necessary evils, accepted because no better approaches were available. But just as the U.C.C. was motivated initially by the idea of streamlining the law to accommodate modern commerce, now that goal should motivate revision of the U.C.C. itself.

This Article proposes to remove and replace a primary structural component of Article 9 of the U.C.C.—the filing system by which secured creditors put others on notice of their interest in items of collateral. The proposal would jettison this outdated and often ineffective method of providing notice of security interests, and instead, looks to modern technologies to stake clearer and more reliable claims on collateral. It would no longer be necessary to file financing statements indexed under the name and location of the owner of collateral. Instead, the proposed regime would allow creditors to stake their claims directly—by means of online “smart” maps or by electronic tags identifying interests in particular items of collateral—and would eliminate numerous arcane, inefficient, and inequitable features of the current regime.

The proposal serves the broader goals of commercial law as well, by reducing needless legal complexity and more closely aligning legal requirements with business realities. The “disruptive” changes proposed in this Article would increase certainty in commerce and shape secured transactions law to emerging practices in business and finance.

Keywords: UCC, Article 9, Commercial Law, Secured Transactions, Internet of Things, Law and Technology

JEL Classification: K11, K12