Clear TitleProtection for Purchasers of Farm Products

DEPARTMENT OF AGRICULTURE

Grain Inspection, Packers and Stockyards Administration

9 CFR Part 205

RIN 0580-AA63

Clear Title--Protection for Purchasers of Farm Products

AGENCY: Grain Inspection, Packers and Stockyards Administration, USDA.

ACTION: Final rule.

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SUMMARY: This document amends regulations relating to the establishment

and management of statewide central filing systems as they pertain

specifically to the filing of ``effective financing statements'' for

``farm products'', as defined in section 1324 of the Food Security Act

of 1985 (7 U.S.C. 1631), to allow a continuation of an effective

financing statement to be filed without the signature of the debtor

provided State law authorizes such a filing. This rule responds to

comments received when the regulations were previously amended by a

final rule published on April 1, 1997 (62 FR 15363) that brought the

regulations into conformity with statutory amendments found in Sections

662 and 663 of the Federal Agriculture Improvement and Reform Act of

1996.

EFFECTIVE DATE: January 4, 1999.

FOR FURTHER INFORMATION CONTACT: Gerald E. Grinnell, Director,

Economic/Statistical Support, Grain Inspection, Packers and Stockyards

Administration, (202) 720-7455. Kimberly D. Hart, Esquire, Trade

Practices Division, Office of the General Counsel, (202) 720-8160.

SUPPLEMENTARY INFORMATION:

Background

Section 1324 of the Food Security Act of 1985 (7 U.S.C. 1631) (the

Act) provides that certain persons may be subject to a security

interest in a farm product created by the seller under certain

circumstances in which a lender files an ``effective financing

statement'' with the ``system operator'' in a State that has a

certified central filing system as defined by the Act. The Act requires

the Secretary of Agriculture to prescribe regulations ``to aid States

in the implementation and management of a central filing system.''

Final regulations were published on August 18, 1986 (51 FR 29450).

The Secretary's authority and responsibility under the Act is

limited to certification of the State central filing systems and to

prescribing regulations to aid in the implementation and management of

certified central filing systems. The Act does not give the Secretary

the authority or responsibility for such matters as direct notification

by secured parties, sales of and payment for products, procedures for

payment or procedures for personal liability protection. Those matters

are governed by State law.

Prior to the 1996 amendment of the Act, lenders could not file

effective financing statements or amendments to those statements

electronically with State certified central filing systems because such

statements were required to bear the signature of the debtor, which

could not be transmitted electronically. Commercial lenders also

expressed concern and confusion due to the vagueness of the provisions

for effective financing and continuation statements contained in the

Act and the inconsistency between the Act and the Uniform Commercial

Code.

Section 662 of the Federal Agriculture Improvement and Reform Act

of 1996 (Pub. L. 104-127) (hereinafter the ``FAIR Act'') amended the

Act to allow lenders to file ``effective financing statements'' by

electronic transmission without the necessity of obtaining the

signature of the debtor provided State law authorizes such a filing.

The Department published interim and final rules in the Federal

Register to implement the FAIR Act amendments (61 FR 54727 and 62 FR

15363, respectively). The rule allows electronic filing of amendments

to effective financing statements without the signature of the debtor.

Comments received in response to the rule encouraged the Department to

further amend the regulations to allow the filing of paper continuation

statements without the signature of the debtor as well. Section

205.209(d) of the regulations (9 CFR 205.209(d)) currently provides

that continuation statements are to be treated in the same manner as

amendments to effective financing statements. Therefore, the rule

implementing the 1996 FAIR Act amendments allows continuation

statements to be filed electronically, without the signature of the

debtor as well. However, because the purpose of that rule was to bring

the regulations into conformity with the 1996 amendment (which

addressed electronic filings), the final rule did not address the

commentors' request to eliminate the signature requirement for paper

continuation statements.

The Department published a proposed rule in the Federal Register on

June 8, 1998 (63 FR 31130), which would remove the requirement from the

regulations that a filing of a continuation to an effective financing

[[Page 66721]]

statement bear the signature of the debtor. Section 1324 of the Food

Security Act of 1985 does not require that continuation statements be

signed. This rule will make it easier for lenders to file continuation

statements because lenders would no longer be required to obtain the

signature of the debtor. This rule will also simplify the filing of

lien notices by bringing the regulations for central filing systems

into conformity with Article 9 of the Uniform Commercial Code, which

covers non-farm products.

Comments Received

Only one comment was received in response to the proposed rule. The

commenter, an association purporting to represent more than 200 farm

credit institutions throughout the United States, fully supported the

proposed rule because the change would make it easier--and therefore

less costly--for lenders to file continuation statements. The commenter

also stated that it would simplify filing of lien notices by bringing

the regulations for central filing systems into conformity with the

Uniform Commercial Code.

After review of the proposed rule and the comment received, we have

determined that the proposed rule as published at 63 FR 31330 will be

adopted as the final rule.

Compliance With Regulatory Requirements

As set forth in the proposed rule published at 63 FR 31130, this

rulemaking was reviewed under and is issued in conformance with

Executive Order 12866, Civil Justice Reform (Executive Order 12778),

and Regulatory Flexibility Act and Information Collection requirements.

The information collection and recordkeeping requirements for 9 CFR

Part 205 have been previously approved by the Office of Management and

Budget under control number 0580-0016.

List of Subjects in 9 CFR Part 205

Agriculture, Central filing system.

For reasons set out in the preamble, the Grain Inspection, Packers

and Stockyards Administration is amending 9 CFR Part 205 as set forth

below.

PART 205--CLEAR TITLE--PROTECTION FOR PURCHASERS OF FARM PRODUCTS

1. The authority citation for Part 205 is revised to read as

follows:

Authority: 7 U.S.C. 1631 and 7 CFR 2.22, 2.81.

2. Section 205.209 is amended by revising paragraph (d) to read as

follows:

Sec. 205.209 Amendment or continuation of EFS.

* * * * *

(d) An effective financing statement remains effective for a period

of 5 years from the date of filing and may be continued in increments

of 5-year periods beyond the initial 5-year filing period by refiling

an effective financing statement or by filing a continuation statement

within 6 months before expiration of the effective financing statement.

A continuation statement may be filed electronically or as a paper

document, and need not contain the signature of the debtor.

Dated: November 24, 1998.

James R. Baker,

Administrator, Grain Inspection, Packers and Stockyards Administration.

[FR Doc. 98-32127 Filed 12-2-98; 8:45 am]

BILLING CODE 3410-EN-P