House Study Bill 142 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON STATE GOVERNMENT BILL BY CHAIRPERSON RIZER) A BILL FOR An Act relating to security interests in farm products, by 1 establishing a central filing and notification system, 2 providing for fees and their expenditure, and including 3 contingent implementation provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 2231YC (3) 87 da/rn

H.F. _____ Section 1. Section 554.9102, subsection 4, Code 2017, is 1 amended to read as follows: 2 4. Federal Food Security Act. 3 a. For purposes of the Federal Food Security Act, 7 U.S.C. 4 §1631, written notice shall be considered to be received by the 5 person to whom it was delivered if the notice is delivered in 6 hand to the person, or mailed by certified or registered mail 7 with the proper postage and properly addressed to the person to 8 whom it was sent. The refusal of a person to whom a notice is 9 so mailed to accept delivery of the notice shall be considered 10 receipt. 11 b. This subsection is repealed on the date that this Act is 12 fully implemented as provided in section 554C.14. 13 Sec. 2. Section 554.9320, Code 2017, is amended by adding 14 the following new subsection: 15 NEW SUBSECTION . 1A. A buyer of farm products takes subject 16 to a security interest in farm products created by the seller 17 as provided in chapter 554C. 18 Sec. 3. NEW SECTION . 554C.1 Definitions. 19 As used in this chapter, unless the context otherwise 20 requires: 21 1. “Approved unique identifier” means a number, combination 22 of numbers and letters, or other identifier selected by the 23 secretary as required in section 554C.3. 24 2. “Buyer” means a buyer in the ordinary course of business, 25 a commission merchant, or a selling agent. 26 3. “Buyer in the ordinary course of business” means a person 27 who, in the ordinary course of business, buys farm products 28 from a person engaged in farming operations who is in the 29 business of selling farm products. 30 4. “Central filing system” means a system for filing 31 effective financing statements, and statements amending, 32 continuing, or terminating effective financing statements as 33 provided in section 554C.4. 34 5. “Commission merchant” means a person engaged in the 35 -1- LSB 2231YC (3) 87 da/rn 1/ 14

H.F. _____ business of receiving farm products for sale, on commission, or 1 for or on behalf of another person. 2 6. “Effective financing statement” means a financing 3 statement required to be filed as part of the central filing 4 system as provided in section 554C.6. 5 7. “Knows” means having actual knowledge. “Knowledge” means 6 actual knowledge. 7 8. “Secretary” means the secretary of state. 8 9. “Security interest” means an interest in farm products 9 that secures payment or performance of an obligation in the 10 same manner as provided in chapter 554. 11 10. “Selling agent” means a person, other than a commission 12 merchant, who is engaged in the business of negotiating the 13 sale and purchase of farm products on behalf of a person 14 engaged in farming operations. 15 Sec. 4. NEW SECTION . 554C.2 Special definitions. 16 To every extent consistent with the application of federal 17 law, unless the context otherwise requires: 18 1. “Crop year” means the calendar year in which a crop is or 19 will be harvested, animals are born or acquired, or poultry or 20 eggs are or will be sold. 21 2. “Debtor” means a person indebted to the secured party and 22 subjecting a farm product to a security interest. 23 3. “Farm products” means the same as defined in section 24 554.9102. 25 4. “Farming operation” means the same as defined in section 26 554.9102. 27 5. “Registered buyer” means a buyer who has registered 28 with the secretary pursuant to section 554C.5 to receive a 29 master list or portions of a master list as provided in section 30 554C.8. 31 6. “Secured party” means a secured party as defined in 32 section 554.9102 in whose favor a security interest in farm 33 products is created. 34 7. “Signature” means to sign, execute, or otherwise adopt a 35 -2- LSB 2231YC (3) 87 da/rn 2/ 14

H.F. _____ symbol, or encrypt or similarly process a record in whole or in 1 part, with the present intent of authenticating for purposes of 2 identifying the person and adopting or accepting a record. 3 Sec. 5. NEW SECTION . 554C.3 Uniform commercial code —— 4 federal law —— signing documents. 5 1. This chapter shall be interpreted in conjunction with 6 chapter 554, and terms and phrases used in this chapter shall, 7 to every extent practicable, be interpreted consistently with 8 chapter 554, article 9. 9 2. The provisions of this chapter including the 10 establishment of a central filing system established in section 11 554C.4 must comply with applicable requirements set forth in 12 7 U.S.C. §1631 in order to be certified by the United States 13 secretary of agriculture as required in that federal statute. 14 3. The secretary shall provide for methods of signing 15 documents required to be filed with the secretary under this 16 chapter, including effective financing statements or statements 17 amending, continuing, or terminating effective financing 18 statements described in section 554C.6. The secretary shall 19 establish a selection system or method approved by the United 20 States secretary of agriculture to provide for approved unique 21 identifiers. 22 Sec. 6. NEW SECTION . 554C.4 Central filing system —— 23 establishment. 24 1. The secretary shall establish and administer a central 25 filing system for the filing of effective financing statements 26 or statements amending, continuing, or terminating effective 27 financing statements as described in section 554C.6 on a 28 statewide basis. The central filing system shall provide for 29 the electronic filing and examining of the statements. 30 2. The central filing system shall be designed to allow 31 persons to file and examine effective filing statements or 32 other statements described in subsection 1 using the internet. 33 The secretary may provide for the filing and examining of the 34 statements in a paper format. 35 -3- LSB 2231YC (3) 87 da/rn 3/ 14

H.F. _____ Sec. 7. NEW SECTION . 554C.5 Registered buyers list. 1 1. The secretary shall maintain a registered buyers list. 2 2. In order to be registered and be placed on the registered 3 buyers list, a buyer must submit a completed form to the 4 secretary as prescribed by the secretary. The form shall 5 include all of the following: 6 a. The name and address of the buyer. 7 b. The interest of the buyer in receiving the list. 8 c. The farm products in which the buyer has an interest. 9 d. Other information that the secretary requires to comply 10 with 7 U.S.C. §1631 and to administer this chapter. 11 Sec. 8. NEW SECTION . 554C.6 Effective financing statements 12 and related statements —— filing requirements. 13 1. The secretary shall provide for filing of effective 14 financing statements, and statements amending, continuing, or 15 terminating effective financing statements. The presentation 16 of a statement by a secured party and the acceptance of the 17 statement by the secretary constitutes filing under this 18 section. A statement shall be valid if it substantially 19 complies with the requirements of this section and section 20 554C.7 even though it contains minor errors that are not 21 seriously misleading. 22 2. An effective financing statement must be an original or 23 reproduced copy which is signed by the secured party and the 24 debtor. If filed electronically, the debtor is not required to 25 sign the effective financing statement. The statement must be 26 filed with the secretary by the secured party. The secretary 27 shall record the date and hour of the filing of the effective 28 financing statement. 29 3. An effective financing statement must contain all of the 30 following: 31 a. The name and address of the secured party. 32 b. The name and address of the debtor. 33 c. The unique approved unique identifier of the debtor. 34 d. A description of the farm products subject to the 35 -4- LSB 2231YC (3) 87 da/rn 4/ 14

H.F. _____ security interest, the county in Iowa where the farm products 1 are produced or will be produced, the crop year unless 2 every crop of the farm product in question for the duration 3 of the effective financing statement is to be subject to 4 the particular security interest, further details of the 5 farm product subject to the security interest if needed to 6 distinguish it from other quantities of the farm product owned 7 by the same person or persons but not subject to the particular 8 security interest, and other information that the secretary 9 requires to administer this section. The effective financing 10 statement may cover more than one farm product located in more 11 than one county. 12 e. Other information that the secretary requires to comply 13 with 7 U.S.C. §1631 and to administer this chapter. 14 Sec. 9. NEW SECTION . 554C.7 Effective financing statements 15 and related statements —— effectiveness. 16 1. An effective financing statement shall remain effective 17 for a period of five years from the date of filing, subject to 18 extensions for additional periods of five years each by filing 19 or refiling a continuation statement within six months before 20 the expiration of the five-year period. 21 2. An effective financing statement shall be amended in 22 writing to reflect a material change within three months of the 23 material change. The amendment shall be signed and filed as 24 required for an original effective financing statement. If the 25 statement is filed electronically, the signature of the debtor 26 shall not be required. 27 3. A continuation statement shall be signed by the secured 28 party, identify the original effective financing statement by 29 file number, and state that the original financing statement 30 is still effective. 31 4. Upon timely filing of a continuation statement, the 32 effectiveness of the original financing statement shall be 33 continued for five years after the last date to which the prior 34 filing was effective, whereupon it shall lapse unless another 35 -5- LSB 2231YC (3) 87 da/rn 5/ 14

H.F. _____ continuation statement is filed prior to the lapse. Succeeding 1 continuation statements may be filed in the same manner to 2 continue the effectiveness of the original effective financing 3 statement. 4 5. The effective financing statement lapses upon the 5 expiration of the effective period of the effective financing 6 statement or is terminated upon the filing of a statement 7 signed by the secured party that the effective financing 8 statement is terminated. 9 a. If the effective financing statement has not lapsed or is 10 not terminated and there are no outstanding secured obligation 11 and no commitment to make advances, incur obligations, or 12 otherwise give value, the debtor may notify the secured party 13 in writing to terminate the effective financing statement. 14 b. Until the debtor instructs the secured party in writing 15 to terminate the effective financing statement, the secured 16 party has no obligation to terminate the effective financing 17 statement. 18 c. Within thirty days after receipt by the secured party 19 of the statement from the debtor to terminate the effective 20 financing statement, the secured party shall file with the 21 secretary a termination statement with respect to the effective 22 financing statement. 23 Sec. 10. NEW SECTION . 554C.8 Master list —— organization 24 and contents. 25 1. The secretary shall compile the effective financing 26 statements into a master list. 27 2. The master list shall be organized according to farm 28 products. The master list shall contain information required 29 to be contained in effective financing statements filed with 30 the secretary. The secretary shall arrange the master list for 31 each farm product as follows: 32 a. In alphabetical order according to the last name of the 33 individual debtors or, in the case of debtors doing business 34 other than as individuals, the first word in the name of such 35 -6- LSB 2231YC (3) 87 da/rn 6/ 14

H.F. _____ debtors. 1 b. In numerical order according to the approved unique 2 identifier of the debtors. 3 c. Geographically by county. 4 d. By crop year. 5 3. The master list shall include information regarding 6 buyers who register with the secretary under section 554C.5. 7 4. The master list may include other information that 8 the secretary requires to comply with 7 U.S.C. §1631 and to 9 administer this chapter. 10 Sec. 11. NEW SECTION . 554C.9 Master list —— distribution to 11 registered buyers. 12 1. The secretary shall distribute to each registered buyer 13 a copy in written, printed, or electronic form the master list 14 or those portions of the master list relating to farm products 15 in which the buyer has registered an interest. The secretary 16 may provide for the distribution of the master list or portions 17 of the list on any other medium requested by a registered 18 buyer. If a registered buyer so requests, the information 19 provided to the registered buyer may be limited to a county or 20 group of counties where the farm product is produced or to a 21 crop year or crop years or to a combination of that requested 22 information. 23 2. The secretary shall provide for the distribution of the 24 master list or portions of the master list according to the 25 following requirements: 26 a. The distributions shall be by first class mail or 27 electronic mail. 28 b. The distributions shall be made on a quarterly basis. 29 The secretary shall adopt rules establishing the dates when 30 quarterly distributions will be made, the dates after which 31 a filing of an effective financing statement will not be 32 reflected on the next quarterly distribution, and the date by 33 which a buyer must submit a completed registration form to 34 receive the next quarterly master list or portion of the master 35 -7- LSB 2231YC (3) 87 da/rn 7/ 14

H.F. _____ list. 1 3. The secretary shall remove information from the master 2 list pertaining to a lapsed or terminated effective financing 3 statement from the master list prior to preparation of the 4 master list or portions of the master lists for distribution. 5 4. Upon written notice to the secretary by a registered 6 buyer requesting termination of a distribution of the master 7 list or a portion of the master list to that registered buyer, 8 the secretary shall terminate distribution of the master list 9 or a portion of the master list to that registered buyer. The 10 secretary may unregister the buyer. 11 5. In order to verify the existence or nonexistence of a 12 security interest, a buyer may request a seller to disclose the 13 seller’s approved unique identifier. 14 Sec. 12. NEW SECTION . 554C.10 Inquiries and responses – 15 confirmations. 16 1. a. Oral or written inquiries regarding information 17 pertaining to the master list or portions of the master list by 18 an unregistered buyer may be made to the secretary during hours 19 determined by the secretary. 20 b. The secretary shall provide for responses to inquiries 21 by unregistered buyers, including a written confirmation 22 of the information to such buyers. An oral confirmation 23 must be made within twenty-four hours after the inquiry. A 24 written confirmation must be delivered by first class mail 25 or electronic mail to the unregistered buyer, at an address 26 provided by the unregistered buyer, not later than the second 27 regular business day following the day on which the secretary 28 received the inquiry. 29 2. The secretary may establish a computerized system for 30 receiving and responding to inquiries and the transmission of 31 written confirmations. 32 Sec. 13. NEW SECTION . 554C.11 Perfection —— creation of 33 superior interests. 34 1. If a buyer registers with the secretary prior to the 35 -8- LSB 2231YC (3) 87 da/rn 8/ 14

H.F. _____ purchase of farm products under section 554C.5, the registered 1 buyer takes subject to a security interest in the farm products 2 only if all of the following apply: 3 a. The secured party has filed an effective financing 4 statement under section 554C.7 that covers the farm products 5 being sold. 6 b. The registered buyer does not secure a waiver or 7 release of the security interest as specified in the effective 8 financing statement filed by the secured party. If a buyer in 9 the ordinary course of business buying farm products identified 10 in the master list as provided in section 554C.9 tenders to 11 the seller the total purchase price payable to such seller and 12 each secured party filing an effective financing statement 13 covering the same farm product, an authorization or endorsement 14 by the seller and each secured party together with the payment 15 shall constitute a waiver or release of the security interest 16 specified in the effective financing statement to the extent of 17 the amount of the payment. A waiver or release of the security 18 interest shall not establish or alter security interest or lien 19 priorities under chapter 554 or other Iowa law. 20 2. If the buyer fails to register with the secretary prior 21 to the purchase of farm products, the buyer takes subject 22 to a security interest in the farm products only if the 23 secured party has filed an effective financing statement that 24 covers the farm products being sold, and the buyer could have 25 discovered the existence of the effective financing statement 26 prior to the purchase by conducting an inquiry of and receiving 27 a confirmation by the secretary under section 554C.10. 28 Sec. 14. NEW SECTION . 554C.12 Fees. 29 1. The secretary shall establish fees for registering as a 30 buyer as provided in section 554C.5 and for initially filing 31 effective financing statements, or for filing a statement 32 amending, continuing, or terminating an effective financing 33 statement as provided in sections 554C.6 and 554C.7. The fees 34 shall not be more than provided for filing financing statements 35 -9- LSB 2231YC (3) 87 da/rn 9/ 14

H.F. _____ as provided in section 554.9525. However, the secretary shall 1 not charge a fee for allowing a person to examine or print 2 a buyer’s registration, an effective financing statement, or 3 a statement amending continuing, or terminating an effective 4 financing statement which is accessible via the internet or 5 electronic transmission. 6 2. Notwithstanding section 22.3, the secretary may charge 7 a person a fee to receive a master list distributed pursuant 8 to section 554C.9 or for responding to verbal inquiries and 9 delivering confirmations pursuant to section 554C.10. However, 10 the secretary shall not charge a person a fee to receive a 11 master list which is accessible via the internet by electronic 12 transmission. The secretary shall not charge a person a fee to 13 respond to an inquiry or deliver a confirmation by electronic 14 transmission. 15 3. All moneys received by the secretary under this section 16 shall be handled in the same manner as repayment receipts as 17 defined in section 8.2, and shall be used by the secretary 18 exclusively for the administration of this chapter. 19 Sec. 15. NEW SECTION . 554C.13 Rules and forms. 20 The secretary shall adopt all rules and prepare and publish 21 all forms required to administer this section and comply with 7 22 U.S.C. §1631. The secretary may require the mandatory use of a 23 form and refuse to file a document that is not prepared using 24 a mandatory form. 25 Sec. 16. NEW SECTION . 554C.14 Full implementation. 26 1. The secretary shall fully implement this Act only 27 upon adequate moneys being appropriated to the secretary 28 as determined by the secretary or as otherwise provided in 29 statute. 30 2. If the condition set forth in subsection 1 is satisfied, 31 this Act shall be fully implemented on a date certified by 32 the secretary which shall not occur until the certification 33 is to be published in three consecutive Iowa administrative 34 bulletins. The secretary shall deliver each certification for 35 -10- LSB 2231YC (3) 87 da/rn 10/ 14

H.F. _____ publication to the Iowa administrative code editor and the Iowa 1 code editor. 2 3. This section is repealed three years after the date that 3 the certification described in subsection 2 is last published 4 in the Iowa administrative bulletin. 5 Sec. 17. DIRECTIONS TO THE SECRETARY OF STATE. 6 1. Notwithstanding the date that all provisions of this 7 Act become fully implemented as provided in section 554C.14 8 as enacted in this Act, the secretary of state shall adopt 9 rules necessary to administer this Act under section 554C.13 as 10 enacted in this Act as if it were being fully implemented under 11 section 554C.14 as enacted in this Act. The rules shall take 12 effect as provided in section 17A.5 on the date that the Act is 13 fully implemented as provided in section 554C.14. 14 2. If necessary to obtain federal certification required 15 to implement this Act, the secretary of state may adopt by 16 rule additional or alternative requirements than otherwise 17 provided in this Act so long as the requirements are made in 18 conformity with 7 U.S.C. §1631 and the United States department 19 of agriculture. The secretary of state shall describe the 20 purpose for the requirements in the preamble to each rule it 21 adopts under section 17A.4. The secretary shall also propose 22 legislation for consideration by the general assembly meeting 23 during the following legislation session. The legislation 24 shall be limited to amendments required to comply with 25 requirements of 7 U.S.C. §1631 or the United States department 26 of agriculture or provisions to improve the administration of 27 the Code chapter 554C as enacted in this Act. 28 EXPLANATION 29 The inclusion of this explanation does not constitute agreement with 30 the explanation’s substance by the members of the general assembly. 31 ESTABLISHMENT OF CENTRALIZED SYSTEM. This bill creates a 32 centralized, statewide filing system for security interests in 33 farm products to notify buyers of farm products that a security 34 interest has attached to the product. A farm product includes 35 -11- LSB 2231YC (3) 87 da/rn 11/ 14

H.F. _____ a good other than standing timber that is produced as part of a 1 farming operation and includes crops, aquatic goods, livestock, 2 supplies used or produced on the farming operation or products 3 of crops or livestock in an unmanufactured form (Code section 4 554.9102). The system must be certified by the United States 5 department of agriculture. 6 SECURITY INTEREST ATTACHED TO FARM PRODUCTS —— FILING 7 REQUIREMENTS. The bill allows a person who has a secured 8 interest attached to farm products to complete and file a 9 document referred to as an effective financing statement or a 10 statement amending, continuing, or terminating the effective 11 financing statement, with the secretary of state. 12 BUYER NOTIFICATION —— MASTER LIST. The secretary must 13 compile information contained in the effective financing 14 statements into a master list organized according to farm 15 products which the secretary must regularly distribute to 16 buyers of farm products registered with the secretary. A 17 registered buyer who receives the master list or a portion of 18 the master list is placed on actual or constructive notice 19 and therefore takes subject to the security interest. The 20 secretary may also respond to verbal or written inquiries by 21 buyers including unregistered buyers and deliver a written 22 confirmation to inquiring buyers regarding whether a farm 23 product is subject to a security interest. 24 BUYERS WHO TAKE SUBJECT TO THE SECURITY INTEREST. If a 25 buyer registers with the secretary prior to the purchase of 26 farm products, the registered buyer takes subject to the 27 security interest only if the secured party has filed an 28 effective financing statement that covers the farm products 29 being sold, unless the registered buyer secures a release of 30 the security interest. If a buyer fails to register with the 31 secretary, the buyer takes subject to the security interest 32 only if the secured party has filed an effective financing 33 statement that covers the farm products, and the buyer could 34 have discovered the existence of the effective financing 35 -12- LSB 2231YC (3) 87 da/rn 12/ 14

H.F. _____ statement by conducting an inquiry and receiving a response and 1 confirmation. 2 FEES. The bill authorizes the secretary to establish fees 3 for secured parties filing effective financing statements 4 and buyers registering with the secretary. The secretary 5 may also establish fees for distributing the master list to 6 registered buyers and responding to inquiries and delivering 7 confirmations. The secretary is prohibited from establishing 8 fees for electronic transactions. Moneys received by the 9 secretary are considered repayment receipts and must be used to 10 administer the provisions of the bill. 11 RULES AND FORMS. The secretary is authorized to adopt 12 rules and prepare and publish forms and may adopt additional 13 or alternative requirements than provided in the bill in order 14 to meet requirements for certification by the United States 15 department of agriculture. 16 CONTINGENT IMPLEMENTATION. The secretary is required to 17 fully implement the bill upon meeting two conditions: (1) 18 adequate moneys being appropriated to the secretary and (2) 19 certification of the system by the United States department 20 of agriculture. The date of full implementation occurs on a 21 date selected by the secretary but cannot commence until the 22 date of implementation is published three times in the Iowa 23 administrative bulletin. 24 BACKGROUND —— GENERAL. The provisions of the bill are 25 closely connected with provisions in Code chapter 554, article 26 9, Iowa’s version of the uniform commercial code governing 27 secured transactions. A secured party ordinarily perfects a 28 security interest in collateral (personal property) including 29 farm products by filing a financing statement (UCC-1) with the 30 secretary of state and thereby creating a priority status when 31 compared to other secured parties (article 9, part 3). Article 32 9 provides an exception for buyers in the ordinary course of 33 business who generally take free of a security interest created 34 by the seller even in cases in which the security interest has 35 -13- LSB 2231YC (3) 87 da/rn 13/ 14

H.F. _____ been perfected and the buyer is aware of its existence (Code 1 section 554.9320). However, notwithstanding this exception, 2 a buyer who purchases a farm product from a person engaged in 3 farming operations may not take free of a security interest. 4 The Federal Food Security Act (1985) preempts state’s article 5 9 requirements by providing that a buyer in the ordinary 6 course of business, a commission merchant, or a selling agent 7 (all classified under the term “buyer”) may buy farm products 8 without being subject to a security interest created by the 9 seller. However, the federal law allows a secured party 10 to take action to prevent a buyer from taking clear of the 11 security interest by following certain steps designed to notify 12 buyers. 13 BACKGROUND —— NOTIFICATION SYSTEMS. The federal law allows 14 states to elect between two notification options: (1) Iowa’s 15 current system requiring the secured party to deliver direct 16 notice to potential buyers of a secured party’s interest in the 17 farm products within one year prior to sale or (2) the system 18 contemplated in the bill which would establish the central 19 notification system. In either case, the federal law does not 20 supersede article 9 requirements that govern the filing of a 21 filing statement to perfect creditor rights in collateral or 22 that establishes priories among creditors. 23 -14- LSB 2231YC (3) 87 da/rn 14/ 14