Financial fraud bill passes Legislature
June 30, 2004
Secretary of State Terri Lynn Land today announced that individuals who file false or fraudulent Uniform Commercial Code (UCC) financing statements in an attempt to harass or financially harm others will face tough new penalties under legislation on its way to the governor for signing.
House Bill 5148, sponsored by state Rep. Scott Shackleton, R-Sault Ste. Marie, makes filing a false UCC financing statement a crime and provides remedies for victims. UCC governs commercial transactions such as sales, loans, bank deposits, investments and securities.
"I would like to thank Representative Shackleton for addressing an important issue that impacts the financial, business, legal and farming communities," said Land, whose department maintains the repository for Michigan's UCC filings. "This legislation provides the Secretary of State's Office, courts and victims with the tools to remedy fraudulent filings, protect credit records and ensure that lawbreakers are punished."
Individuals have been known to abuse UCC law by filing fraudulent financing statements against public officials, such as judges and law enforcement and corrections officers, wrongly naming them as debtors to harass them or ruin credit records.
The damage done by a false UCC financing statement is sobering, Land explained. For example, individuals with a grudge file a financing statement, naming their unsuspecting target as the debtor and listing collateral worth millions of dollars. In essence, they perpetrate the fraud that a loan agreement exists between the two parties.
"These bogus filings can wreak havoc with victims' credit records and reputations, adversely affecting their ability to enter into legitimate financial transactions," Land said.
Under UCC, the Secretary of State is required to give public notice that an individual or business has pledged certain items or services as collateral against a loan. Upon entering into a loan agreement, the lender files a UCC financing statement with the department. If a loan is defaulted on and a bankruptcy ensues, the UCC financing statements can be used to establish who has priority to the collateral when competing creditors have legally enforceable interests.
Once signed, the legislation takes effect Jan. 1, 2005. HB 5148 amends UCC law to:
- Require the Secretary of State to provide written notice to individuals who are named as debtors in a UCC financing statement;
- Charge anyone identified as filing a false UCC financing statement with a felony, punishable by up to five years in prison, a fine of up to $2,500, or both;
- Allow a debtor named in a false or fraudulent financing statement to bring an action against the person who filed it;
- Replace the current fee structure for filing and indexing records with a flat $15 fee;
- Waive filing fees for individuals filing a correction statement to amend a false or fraudulent financing statement.
In June, the department unveiled UCC Online, which eliminates the need for paper filings by allowing customers to file and search for UCC documents electronically. The new system reduces the processing time for searches from weeks to minutes and makes newly filed financing statements available immediately.
About 178,000 filings, 14,000 tax liens and 76,000 search requests were processed by the department in 2003.