Professor Margit Livingston on Article 9 Security Interests in Deposit Accounts

Professor Margit Livingston on Article 9 Security Interests in Deposit Accounts

 
In this Emerging Issues commentary, Professor Margit Livingston of DePaul University College of Law discusses the special problems under UCC Article 9 that's posed by security interests in deposit accounts. She references a 2009 Nebraska Supreme Court decision that reveals that depository banks that take security interests in their customer's accounts enjoy a favored status under Article 9. This status pushes other secured and lien creditors down the priority ladder. She writes:
 
"Security interests in deposit accounts pose special problems under U.C.C. Article 9. First, the normal mechanism for perfecting a security interest—the filing of a financing statement in the public record—is not used for secured transactions involving deposit accounts. Second, the ordinary chronological rules for prioritizing competing secured parties often do not apply either. Thus, a secured creditor seeking to create, perfect, and enforce a security interest in its debtor's deposit accounts must be mindful of the particular Article 9 provisions governing these types of transactions."
 
"A recent Nebraska Supreme Court decision reveals that depository banks that take security interests in their customer's accounts enjoy a favored status under Article 9—a status that pushes other secured and lien creditors down the priority ladder."
 
"Until relatively recently, security interests in deposit accounts were outside the scope of Article 9 and governed by non-U.C.C. law. By bringing such transactions within Article 9, the drafters hoped to bring the benefits of the Code's straightforward and uniform scheme to the creation, perfection, and enforcement of security interests in deposit accounts. At the same time, the drafters recognized that the historic expectations of depository banks necessitated a carefully drawn set of specialized rules to sort out the priorities among the various claimants to this unique form of collateral."
 
 
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