Texas Enacts New Law to Combat UCC Fraud
Key Provisions of SB 2221
- Administrative Termination Process: The new law amends Texas UCC regulations to introduce an administrative mechanism for a person (debtor) to challenge a UCC-1 financing statement they believe is fraudulent or baseless.
- Affidavit and Notice: A debtor can file an affidavit, under penalty of perjury, with the Texas Secretary of State's office. This affidavit must affirm the invalidity of the filing and be accompanied by proof that the secured party of record has been notified.
- Filing Office Action: Upon accepting the affidavit, the filing office will file a termination statement. This termination becomes effective 30 days after it is filed.
- Court Challenge: The person who filed the original financing statement (secured party) can challenge the termination in court within 90 days.
- Exclusion for Regulated Lenders: The affidavit process is not applicable to filings made by or on behalf of regulated lending institutions. These institutions must notify the filing office that they qualify as regulated within 90 days of a termination statement being filed to have the termination become immediately ineffective and the original filing reinstated.
- Immunity: The law ensures that the filing office and its employees are not subject to liability for terminating or amending a financing statement when acting in the lawful performance of their duties under this section.
Existing Penalties
Texas law already considers the filing of a fraudulent financing statement an outright felony if done with the intent to harass or defraud, including significant fines and imprisonment. Victims can also pursue civil penalties, seeking damages, court costs, and attorney's fees.
This new legislation works in conjunction with these existing penalties to provide a more efficient administrative remedy for victims, addressing the increasing number of fraudulent filings often associated with movements like the "sovereign citizen" movement.