SENATE BILL REPORT
SB 6501
BYSenators Barr, Hansen, Bailey, Newhouse, Gaspard and Bauer
Creating a central filing system for security interests in farm crops.
Senate Committee on Agriculture
Senate Hearing Date(s):January 19, 1990; January 30, 1990; February 1, 1990
Majority Report: That Substitute Senate Bill No. 6501 be substituted therefor, and the substitute bill do pass.
Signed by Senators Barr, Chairman; Anderson, Vice Chairman; Gaspard, Hansen, Madsen, Newhouse.
Senate Staff:Stephen Nelsen (786-7464)
February 9, 1990
AS REPORTED BY COMMITTEE ON AGRICULTURE, FEBRUARY 1, 1990
BACKGROUND:
In 1986 federal law preempted Washington State law regarding the discovery of security interests in farm crops. Under current federal law, lenders with a secured interest in farm crops must either give buyers of those crops notice of the lender's interest or use a central filing system in a manner set forth in the federal law.
Federal law requires that any central filing system be authorized by the state. The state has not yet authorized such a system. Lenders assert the lack of a central filing system may threaten the availability of production credit for farmers.
SUMMARY:
The director of the Department of Agriculture is required to define the categories of farm products for central filing and adopt rules governing the licensing of central filing system operators subject to the rule making provisions of the Administrative Procedure Act.
A license is required to operate a central filing system. Applications for a license must be made on or before January 1 of each year, accompanied by a $5000 fee, and on a form prescribed by the director.
The director shall not issue a license until the applicant has demonstrated the capacity to: obtain certification by the Secretary of the United States Department of Agriculture, receive effective financing statements from subscribers and submit them to the Department of Licensing within one business day, operate an electronic data system by which registrants can access information on effective financing statements maintained by the Department of Licensing, provide registrants with a quarterly list and bi-weekly cumulative supplements of debtors organized alphabetically according to farm product categories, and provide non-registrants confirmation of the filing of an effective financing statement.
Central filing system operators are directed to keep records of effective financing statements filed with the operator, the amount of fees paid by subscribers, and the names and addresses of registrants.
Acts are enumerated for which an applicant's license may be denied, suspended or revoked including: failure to file effective financing statements or provide registrants with requested information in a timely fashion; failure to keep and maintain required records; failure to comply with the requirements of this act or the director's rules; or fraud in the making of records, invoices, reports or the application for a license.
Evidence of financial responsibility is required for central filing system operators consisting of either a surety bond, a liability insurance policy, or certification of either. The amount of protection is prescribed.
Any person suffering loss or damage from the operation of a central filing system is required to file a verified report of loss with the director but failure to file such a report is not a bar to the prosecution of any criminal or civil action.
A central filing system advisory board is created consisting of three state residents appointed by the Governor. A central filing system program fund is created in the custody of the State Treasurer where licensing fees are to be deposited. The director may authorize expenditures from this fund only for the purposes of this act. The fund is subject to allotment but no appropriation is required for expenditures.
The director is authorized to cooperate with other agencies to secure uniformity of regulations, subject civil penalties up to $5000 for violations, and bring actions in superior court to enjoin violations and threatened violations.
Violations of this act are a misdemeanor. Repeat violations are a gross misdemeanor.
The Uniform Commercial Code is amended to prescribe the requirements for an effective financing statement, to require the Department of Licensing to keep record of effective financing statements filed with them, and to provide that a buyer of farm products remains free of any security interest if the buyer has registered with a central filing system operator, and the buyer has not received notice of the interest from the central filing system operator, the secured party has not filed an effective financing statement with the Department of Licensing, or the seller has not provided the buyer with written notice of the interest.
EFFECT OF PROPOSED SUBSTITUTE:
The Department of Licensing will be the licensing authority for central filing system operators. The director of the department will make application to the federal government for certification of the central filing system. The department shall issue regulations requiring notice of statutory crop liens with the master lists distributed to registrants and defining provisions for notices of termination of effective financing statements.
Provisions for the establishment of a Central Filing System Advisory Board and for providing criminal penalties for violations of this act were removed.
The Department of Licensing is protected from civil liability for the acts or omissions of a licensed central filing system operator.
Prior to the 1992 legislative session, the director of the Department of Agriculture, on the advice of the Senate Committee on Agriculture and the House Committee on Agriculture and Rural Development, shall evaluate whether the Department of Licensing shall be authorized to act as a central filing system operator.
The definition of "effective financing statement" is clarified to prevent confusion with effective financing statements in Uniform Commercial Code law.
Appropriation: none
Revenue: yes
Fiscal Note: requested January 15, 1990
Senate Committee - Testified: AGAINST: Jonathan Schlueter, Pacific NW Grain and Feed Association; Mary Bea McCaffray, National Frozen Foods Corp.; Lou Hiett, Twin City Foods; Bruce Lee, Agri Business Coalition; FOR: Keith Hopper, WBA; Gary Garrett, First Interstate Bank; Bert Bovenkamp, Skagit State Bank; Brad Ruland, Bank of Whitman; Karen Bailor, Farmers Home Administration; John Gilbert, Bank of Latah; Joe Niemer, Security Pacific Bank of Washington