This file describes the institutional details behind the Uniform Commercial Code and describes data sources for researchers interested in studying secured lending in the U.S.
While most of this post focuses on business lending, UCC-1 filings are made for individual debtors as well and can be accessed similarly from sources desbribed below
Uniform Commercial Code
The UCC is a set of laws governing commercial transactions in the U.S., such as sales, leases, and rentals. Article 9 of the UCC deals with secured transactions. Under Article 9 of UCC, secured creditors have the right to make a public filing specifying the assets (personal property) of the borrower over which the creditor has a claim in case of default. These filings determine priority order of creditors in bankruptcy, with priority decided by the order of filing. Without a UCC filing, a lender is not considered a secured party, irrespective of the details underlying the loan contract.
Filings are made at the state level and states provide public registries of active UCC filings. Electronic filings cost roughly $25 to make, but prices vary by state. UCC filings are valid for 5 years from the date of filing after which they lapse, unless renewed.
- Borrower - Legal name and address. Filings are made in the state of registration for incorporated companies, and state of operation for unincorporated companies. Firms with multiple places of operation require the filing to be made where the CEO is located.
- Lender - Name and address (sometimes, name of the agency filing on behalf of the lender)
- Collateral - Detailed description of firm assets pledged in the loan
Types of Collateral Covered
- "Personal property" by UCC definitions includes consumer goods, equipment, inventory, general intangibles, farm products and fixtures
- Includes property not covered by title laws. For example, motor vehicles do not require UCC-1 filings for creation of security interest under Artcile 9. However, certain court rulings have opened up debate on the need for UCC-1 filings on titled property (see for example). Thus, for security, many lenders file UCC-1 filings even for titled property.
- Similarly, a true lease -wherein the lessor holds the ownership rights, and can repossess the item in case of failure to pay- does not require UCC-1 filings for security interest on assets. But, leases which are in fact secured transactions (refer here for differences), require the lender to make a UCC filing for security. Many times, though, because of potential grey-area in how courts interpret whether a lease can be classified as a "true-lease", leassors make UCC filings even for true leases.
- Real-estate, while covered by UCC laws, require filings at local (usually county) offices. Researchers collecting data from state-level filings will miss these recordings. The reason for local filing of transaction information for real estate is to help link the piece of land to local land registry records. Often, lenders accepting real-estate in combination with personal property (requiring UCC-1 filing) describe the real estate in the description of collateral under UCC-1 filings.
Bulk download of the Texas data can be obtained from the Texas Secretary of State Website here
For a detailed description of the California data, please refer to:
Edgerton, Jesse, 2012. “Credit Supply and Business Investment During the Great Recession: Evidence from Public Records of Equipment Financing”. Working Paper.
Below are some tips to keep in my mind while processing the UCC data for use
- UCC-1 filings are made to stake claim on a debtor's property including claims by governement agencies such as the IRS. Depending on the purpose, researchers may want to drop these records
- Some filings contain multiple secured parties - researchers may want to be wary of repeat counting loans
Comparison to CRA Data
Differences between the UCC and CRA data
- CRA contains aggreagted data without borrower identity while in the UCC filings, borrowers can be identified.
- UCC data includes all secured lenders, including nonbank companies, and small banks, while CRA only includes banks with $1billion in assets
- Unlike the CRA data, UCC filings do not include unsecured lending
- CRA limits loans to size below $1 million while UCC filings cover all loan sizes.
- CRA data counts loan renewals and refinancing as new loans
- Loan size of credit lines in the CRA data are based on credit limits, not drawdown amount and changes to credit limits count as new loan originations.