in-20250326-IR-075250149RAA: $597,457

TITLE 75 SECRETARY OF STATE Regulatory Analysis LSA Document #25-149

I. Description of Rule

With the advent of the Secretary of State’s office “Business One Stop” and “INBiz” initiatives (circa 2011) the agency was charged with developing and maintaining a state of the art, highly automated on-line business registration hub, which other state agencies could easily interface with (i.e. DOR, IDWD, IPLA), that provided 24-7 self-service access to millions of imaged and digital business records administered by the agency. The agency’s array of IT applications, which the public and other state agencies depend on, exists in a state of nearly constant revision and reinvention – to keep with the pace of IT evolution. The statutory framework for the agency’s Business Services Division calls for its IT infrastructure to be entirely transaction funded from “enhanced access” transaction fees. The fee structure contentiously developed by previous administrations) appears to have struck a reasonable balance between low filing and transaction fees (Indiana ranks among the 10% lowest in the nation for low-cost business registration costs) and costs of hosting, sustaining, and advancing the necessary IT infrastructure for the array of business services the agency is charged with providing. In keeping with HEA 1623’s directives and intent, the agency will be promulgating administrative rules for its transaction fee-based UCC services. Pursuant to IC 26-1-9.1-501 the Secretary of State administers the filing office for commercial secured transaction filings. Pursuant to IC 26-1-9.1-525 the Secretary of State collects statutory fees for commercial secured transaction filings and services ranging from $5 to $12. In addition to, or in specific instances in lieu of, statutory filing fees, pursuant to IC 4-5-10-2 and IC 4-5-10-5 the agency collects fees for electronic, expedited, and enhanced public and commercial access to information maintained by the Secretary of State. “Enhanced Access” fees collected by the agency for online commercial secured transaction filings range from $3 to $13. Note: in the case of online filings, the agency collects “Enhanced Access” fees in lieu of statutory “paper filing” fees. Pursuant to IC 26-1-9.1-523 (f) the agency collects “Enhanced Access” fees for commercial bulk data file upload services ranging from $425 for limited record upload service to $3,000 for comprehensive record upload service. Secretary of State Business Services Division “Enhanced Access” (“EA”) UCC statement filing fees: IC 4-5-10-5 Electronic and enhanced access fund The secretary of state may enter into one (1) or more agreements in furtherance of the purposes of this chapter. Fees collected by the secretary of state under IC 23, IC 24, IC 26, or IC 33 may not be deposited into the fund. Interest that accrues from investment of money in the fund shall be deposited into the fund. As added by P.L.260-1997(ss), SEC.38. Amended by P.L.114-2011, SEC.2; P.L.177-2019, SEC.2. Historically, these fees have been set by policy; HEA 1623-2023 requires that all fees be set by rule. The proposed rules accomplish that mandate. These rules add divisions fees and clarify rejections per HEA 1623-2023. No new fees!

II. Fiscal Impact Analysis

The anticipated effective date of the rule is July 1, 2025. All revenues from UCC financing statement filings and commercial bulk data upload subscriptions are deposited into the agency Enhanced Access Fund. The agency Enhanced Access fund is used for the creation and maintenance of the publicly accessible and searchable UCC financing statement record filing system and administrative functions, pursuant to Indiana Commercial Code (UCC) Secured Transactions law (IC 26-1-9.1-501). More generally the agency estimates the expenses associated with the collective duties and infrastructure at 15% of the total to meet the requirements of our UCC responsibilities per Indiana Commercial Code (UCC) Secured Transactions law (IC 26-1-9.1-501). For context the Business Service Division has 10 individuals, one director and one deputy director that are cross trained to handle the variety of UCC transactions, complaints, and bulk data downloads we are charged with completing and recording each day. Those people, our vendor supported call center along with our INBiz portal provide a high level of service to all who need to interact with us. Note revenue and expenses below Fiscal Year All 10 Types of UCC Revenues Enhanced Access Fund Expenses (15%) of Agency’s costs Number of UCC Filings Number of Bulk Data Subscriptions FY 20 $597,457 $780,380 83,107 129 FY 21 $796,105 $640,722 62,949 221 FY 22 $946,523 $791,211 63,060 354 FY 23 $856,717 $1,008,416 55,921 352 FY 24 (8 months) $500,338 $716,528 31,863 265 Total $ 3,697,140 $ 3,937,257 296,900 1,321 Average Revenue $10.46 $447.00 1) Revenue for 7 types of UCC financing statement transaction filings: FY20 $564,245 for 83,107 filings; FY21 $723,443 for 62,949 filings; FY22 $763,898 for 63,060 filings; FY23 $677,417 for 55,921 filings; FY24 (8-months) $377,813 for 31,863 filings. From FY20 through February 2024 the average filing revenue for 296,900 filing transactions was $10.46 2) Revenue for 3 types of commercial use bulk data upload subscriptions: FY20 $33,212 for 129 subscriptions; FY21 $72,662 for 221 subscriptions; FY22 $182,625 for 354 subscriptions; FY23 $179,300 for 352 subscriptions; FY24 (8 months) $122,525 for 265 subscriptions. From FY20 through February 2024 the average commercial bulk data revenue for 1,321 subscriptions was $447. The rule changes do not change or increase fees as explained below but are added for clarity and per requirements of HEA-1623-2023

III. Impacted Parties

A creditor normally files a UCC-1 to provide notice to interested parties that he or she has a security interest in a debtor’s property. This property is being used as collateral in some type of transaction, usually a loan or a lease. The group of financial and individuals that may use this filing is large. The volume of transactions pulled from Table II b. Fiscal Year Number of UCC Filings Number of Bulk Data Subscriptions FY 20 83,107 129 FY 21 62,949 221 FY 22 63,060 354 FY 23 55,921 352 FY 24 (8 months) 31,863 265 Total 296,900 1,321 Average Revenue $10.46 $447.00 Since these rules are being promulgated in response to HEA-1623 all the above parties are currently in compliance so we will explain the impact of these fees based on a comparison of similar fees charge by states both close to Indiana in distanced and economic cost of living.

IV. Changes in Proposed Rule

The provisions of the proposed rules are an entirely new section. They are the promulgation of fees already permitted to be assessed by the Indiana Code. The following is a table of fees, and IC/IAC which sets forth the applicable law: Online filing Type EA Fee IC Authority Proposed IAC Financing Statement $13.00 IC 4-5-10-2 75 IAC 10-2-1(2) Public Finance Transaction $3.00 IC 4-5-10-2 75 IAC 10-2-1(1) Manufactured Home Transaction $3.00 IC 4-5-10-2 75 IAC 10-2-1(1) Transmitting Utility $13.00 IC 4-5-10-2 75 IAC 10-2-1(2) Financing Statement Amendment $13.00 IC 4-5-10-2 75 IAC 10-2-2 Information Statement $13.00 IC 4-5-10-2 75 IAC 10-2-3 Search Certificate/Information Request $11.00 IC 4-5-10-2 75 IAC 10-2-4 One Time Bulk Download $3,000.00 IC 4-5-10-2 75 IAC 10-2-5(1) Bulk Download with Weekly Updates $2,900.00 IC 4-5-10-2 75 IAC 10-2-5(2) Bulk Weekly Update $425.00 IC 4-5-10-2 75 IAC 10-2-5(3)

V. Benefit Analysis

The statutory framework for the agency’s Business Services Division calls for its IT infrastructure to be entirely transaction funded from “enhanced access” (“EA”) transaction fees. The fee structure (contentiously developed by previous administrations) appears to have struck a reasonable balance between low filing and transaction fees (Indiana ranks among the 10% lowest in the nation for low-cost business registration costs) and costs of hosting, sustaining, and advancing the necessary IT infrastructure for the array of business services the agency is charged with providing. Uniform Commercial Code (UCC) filings allow creditors to notify other creditors about a debtor’s assets used as collateral for a secured transaction. UCC liens filed with Secretary of State offices act as a public notice by the "creditor" of the creditor's interest in the property. This service is a foundational part of the financing community and allows for ease of commerce and complaint based transactional activity. These are key evidentiary elements to defending these assets in litigation if abuses occur. Fees for UCC filings, searches and related transactions have not changed in the past 5 years. Costs for the IT infrastructure to administer UCC filings and searches have increased significantly over the same period and exceed transaction filing fee revenues.

VI. Cost Analysis

Comparison cost of UCC-1 Filings (central states) State Cost of Filing Reference Illinois $ 20 https://www.ilsos.gov/publications/business_services/ucc.html Indiana $ 13 https://inbiz.in.gov/business-filings/ucc Kentucky $ 10 https://www.sos.ky.gov/bus/UCC/Pages/FAQs.aspx Michigan $ 15 https://www.michigan.gov/sos/industry-services/ucc Minnesota $ 20 https://www.sos.state.mn.us/business-liens/ucc-tax-cns-forms-fees/uniform-commercial-code-ucc-fee-schedule/ Missouri $ 10 https://www.sos.mo.gov/ucc/fees Ohio $ 12 https://www.sos.state.oh.us/businesses/uniform-commercial-code/ Wisconsin $ 17 https://dfi.wi.gov/Pages/BusinessServices/UCC/Fees.aspx Fees for UCC filings, searches and related transactions have not changed in the past 5 years. Costs for the IT infrastructure to administer UCC filings and searches have increased significantly over the same period and exceed transaction filing fee revenues. Compared to states in similar geographic areas and costs of living our fees do not present a burden to someone needing to file a UCC notice. VII. VIII. Regulatory Analysis Pursuant to IC 26-1-9.1-501 the Secretary of State administers the filing office for commercial secured transaction filings. Pursuant to IC 26-1-9.1-525 the Secretary of State collects statutory fees for commercial secured transaction filings and services ranging from $5 to $12. In addition to, or in specific instances in lieu of, statutory filing fees, pursuant to IC 4-5-10-2 and IC 4-5-10-5 the agency collects fees for electronic, expedited, and enhanced public and commercial access to information maintained by the Secretary of State. “Enhanced Access” fees collected by the agency for online commercial secured transaction filings range from $3 to $13. Note: in the case of online filings, the agency collects “Enhanced Access” fees in lieu of statutory “paper filing” fees. Pursuant to IC 26-1-9.1-523 (f) the agency collects “Enhanced Access” fees for commercial bulk data file upload services ranging from $425 for limited record upload service to $3,000 for comprehensive record upload service. The Division believes that the direct costs associated with these rules are contained herein. There are no costs to local government. There are no additional costs to state government – the Division already engages in the practice of reviewing and accepting online UCC filings and providing search capability of such to the public. Our fees have not changed in the past 5 years and are equal to or lower than our central state comparative group. These fees do not represent a significant burden to the value they bring to the commercial lending industry. The commercial lending institutions and individuals use this information to calculate the leverage risks and priority of assignment of assets in disputes over nonpayment while those seeking funding can have record of exactly what assets or obligations are in place and when they have been released and satisfied. This provides a valid third-party public record as mandated in Statute IC 26-1-9.1-501 The division has struck a good balance between fees and the costs associated with maintaining and upgrading the IT infrastructure and the staff to validate and maintain accurate records. IX. Contact Information of Staff to Answer Substantive Questions Notice of First Public Comment Period with Proposed Rule: 20250326-IR-075250149FNA Notice of Determination Received: December 13, 2024