Clarks' Secured Transactions Monthly

  • December 26, 2016

    The Food Safety Modernization Act: A Primer For Secured Lenders (Part II)

    As covered in Part I of this Primer published in last month’s newsletter, the Food Safety Modernization Act (FSMA) constitutes the largest overhaul of food safety regulations in over 70 years. With the implementation of this new regulatory food safety framework, there are far-reaching implications for food and feed entities and their secured lenders, ranging from contracting provisions to insurance, underwriting and collateral considerations.

  • December 26, 2016

    Supremes Will Address Whether Proofs Of Claim For Time-Barred Debts Violate The Fair Debt Collection Practices Act

    This term, the United States Supreme Court takes up the issue of whether a “debt collector” who files a proof of claim based on a debt that may no longer be enforced because of applicable statutes of limitation violates the Fair Debt Collection Practices Act (“FDCPA”). 

  • November 21, 2016

    DC Appellate Court: CFPB's Structure Is Unconstitutional And Enforcement Actions Are Subject To Statutes Of Limitation

    On October 11, 2016, the United States Court of Appeals for the D.C. Circuit issued its highly anticipated opinion in PHH Corp. v.  Consumer Fin. Protection Bureau, _____F.3d_____, 2016 U.S. App. LEXIS 18332 (U.S. Ct. App. D.C. Cir. 10/11/2016), holding that the Consumer Financial Protection Bureau's (CFPB) structure is unconstitutional.  But, surprisingly, that may not be the most significant holding in the opinion because the court also held that the CFPB's administrative enforcement actions are subject to applicable statutes of limitations, which could significantly limit the agency's authority and companies' potential exposure to fines and penalties for alleged offenses.

  • November 21, 2016

    The Food Safety Modernization Act: A Primer For Secured Lenders (Part I)

    As the largest overhaul of food safety regulations in over 70 years, the Food Safety Modernization Act (FSMA) has long been a topic of discussion in the food and animal feed industries. With the implementation of this extensive new regulatory framework, there are far-reaching implications for food and feed entities and their secured lenders, ranging from contracting provisions to insurance, underwriting and collateral considerations.

  • November 21, 2016

    Supreme Court Agrees To Hear Credit Card Anti-Surcharge Case

    On September 29, the U.S. Supreme Court granted review in Expressions Hair Design v. Schneiderman (Case No. 15-1391), a case out of the Second Circuit testing whether New York’s anti-credit-card surcharge statute runs afoul of the First Amendment’s free speech protections. The Second Circuit is one of three circuit courts to have recently considered the constitutional validity of anti-surcharge laws. The Second Circuit and the Fifth Circuit (analyzing a Texas statute) both determined that the laws before them regulated conduct rather than speech and were readily understandable, not unconstitutionally vague. In contrast, the Eleventh Circuit held that Florida’s anti-surcharge law “directly targets speech to indirectly affect commercial behavior.”

  • October 18, 2016

    California Court Confirms Rule Giving Priority To Judgment Creditor As A "Transferee" From The Debtor's Deposit Account

    If a debtor has granted a consensual security interest in the funds in its deposit account to a secured lender, does the lender have priority over the claims of a judgment creditor who later levies against the deposit account?  In a recent decision from California, the court gives priority to the judgment creditor under the rules of Article 9.  The decision is both thoughtful and exhaustive in resolving the priority issue based on the language and policies behind UCC 9-332(b).  Yet there's a good argument on the other side. 

  • October 19, 2016

    Louisiana Court Rules That Secured Lender Could Enforce Buyer's Rights Under Purchase Agreement

    When a borrower defaults, the secured lender has a right to foreclose on the collateral by public or private sale.  With respect to receivables owing to the debtor—accounts receivable, executory contract rights, general intangibles, chattel paper, or negotiable instruments—the secured lender can avoid the pitfalls of a foreclosure sale and collect directly from the account debtors. That's the beauty of being able to step into the shoes of the borrower. For example, if the debtor is a retail dealer, proceeds from the inventory might include accounts receivable (from customers who buy on 30-day open account), chattel paper (from customers who buy on secured installment credit) and promissory notes (from customers who buy on long- term unsecured credit). With respect to direct collection against the third-party obligors, the rights and duties of the secured party are set forth in UCC 9-607.  A recent bankruptcy court decision from Louisiana nicely illustrates the power of direct collection in the context of a Chapter 11 bankruptcy. 

  • October 19, 2016

    Strict Foreclosure On Agricultural Equipment Extinguishes Junior Lien Even In Absence Of Notice

    A handy option to holding a foreclosure sale is to retain the collateral in satisfaction of the debt, as authorized by UCC 9-620 through 9-622.  This "strict foreclosure" approach has historical antecedents in the law of real property, particularly the deed in lieu of foreclosure.  From the secured lender's viewpoint, there are many advantages to strict foreclosure: (1) it avoids the extra costs of a foreclosure sale in situations where no deficiency claim is likely to be collected; (2) it insulates the creditor from later attack upon the disposition as "commercially unreasonable"; (3) it can quickly remove property from the debtor's estate, as when bankruptcy is imminent. (4) it can be used for a variety of personal property assets, including intangible collateral such as receivables.  It is sometimes used by blanket secured lenders as a way of maintaining the debtor's business as a going concern; and (5) collateral may be retained in full satisfaction of the debt or, as part of a workout, in partial satisfaction.  If a consumer transaction is involved, retention in partial satisfaction is not allowed.  UCC 9-620(g).

  • September 30, 2016

    Supplier Of Oil To Distributor Learns About UCC Consignment Rules The Hard Way

    Although consignments of inventory are not true secured transactions, the drafters of the UCC have brought them within the scope of Article 9. UCC 9-103(d). A classic consignment arrangement is treated as a form of purchase-money security interest in inventory, with the consignor as the secured lender and the consignee as the debtor. As a result, the consignor will be in deep trouble if it fails to file a financing statement before delivery of the goods and to notify prior filers against the consignee of the consignment arrangement. UCC 9-324(b). Failure to jump through the hoops of Article 9 will be fatal as against the consignee's trustee in bankruptcy. This was the lesson learned in a recent case from Washington.

  • September 30, 2016

    The Perils Of Purdy: Floating Leases Of Livestock

    Some readers may recall an article from the September, 2014, edition of this newsletter about a Sixth Circuit ruling that a cattle lease was a "true lease" instead of a financing arrangement. The ruling is one of many in a long line of rulings on this issue. The only notable aspect of the ruling was that the Sixth Circuit held that it was possible to have a "true lease" of a "floating mass" of cattle (i.e. – a lease for a specific number of cattle to be maintained over the life of the lease and returned to the lessor at the end of the lease, as opposed to the specific cattle identified at the commencement of the lease). This was happy news for the lessor who was competing against a prior perfected secured party for at least a portion of the proceeds from the sale of all the lessee's cattle (leased and not leased) after the lessee had filed bankruptcy.

  • September 30, 2016

    New OCC Credit Card Lending Booklet Identifies Risks And Provides Compliance Guidelines For Credit Card Debt

    At the end of last year, the Comptroller of the Currency issued a revised “Credit Card Lending” booklet for the Comptroller’s Handbook, replacing a 1996 booklet of the same name. The OCC, part of the U.S. Department of the Treasury, is the prudential regulator for all national banks, federal savings associations, and federal branches of agencies of foreign banks. Part of the OCC’s role involves supervising these institutions to ensure their “safety and soundness.” Thus, as with other booklets, the Credit Card Lending booklet “is prepared for use by OCC examiners in connection with their examination and supervision of national banks and federal savings associations.”