National Conference of Commissioners on Uniform State Laws

211 E. Ontario St., Suite 1300, Chicago, IL 60611
tel 312-915-0195, fax 312-915-0187

For Immediate Release

Key Revisions on Letter of Credit Law
Have Prompted State Legislative Action
LEGISLATION GOVERNING THE $200 BILLION U.S. LETTER
OF CREDIT INDUSTRY ADOPTED IN 44 JURISDICTIONS

January 2000 - Article 5 of the Uniform Commercial Code (UCC), which has governed letters of credit for more than 40 years, was updated in 1995 by the Uniform Law Commissioners (ULC) and the American Law Institute (ALI), to better comply with modern banking practice and electronic and computer technology. The revision, already adopted in 43 states and the District of Columbia, not only better aligns the Article to current practice, but is flexible enough to allow the law to remain aligned as market practices develop to meet inevitable changes in technology, commerce and finance.

Letters of credit are issued by banks to better assure payment to a third party by a customer up to a stated amount, for a stated period of time. With half of all exports outside the U.S. financed by letters of credit, these instruments are of particular importance in international trade.

"If the United States wants to remain competitive in international trade, the law which regulates letters of credit--UCC Article 5--must be kept current," says John M. McCabe, Legislative Director of the ULC. "UCC5 is obviously important for American business in this era of increased foreign trade."

UCC Article 5 was originally promulgated in the 1950s, when paper rather than electronic transactions were the norm. Other customs and practices for letters of credit have changed substantially since that time; in several areas, court decisions have resulted in conflicting rules. The result has been uncertainty and unnecessary litigation.

Revised UCC Article 5 responds to these changes and uncertainties. It explicitly recognizes current letters of credit practices and incorporates them into the governing law. Thus, the Uniform Customs and Practices for Documentary Credits (UCP 500), promulgated by the International Chamber of Commerce and widely accepted in international business, can be used with greater reliance by American financial institutions and businesses. Revised UCC5 further achieves greater harmony with standard bank letter of credit practices by permitting deferred payment letters of credit and two-party letters of credit, and conforming to other existing practices.
It is important that U.S. law regarding letters of credit be in accord with international rules of practice and that these rules be consistent within the United States. The original Article 5 was the law in every state.

The new UCC Article 5 has been adopted in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia and Wyoming. It has been introduced in 2000 in Pennsylvania and the US Virgin Islands.

The Uniform Commercial Code, originally promulgated in 1951, has been in a long-term revision process since 1987, the year UCC Article 2A, Leases, was approved. Other recent revisions include the new Article 4A, Electronic Transfers; UCC Articles 3 and 4, Negotiable Instruments; UCC Article 6, Bulk Sales; UCC Article 8, Securities; and UCC Article 9, Secured Transactions. The ULC is currently revising Article 2, Sales and 2A, Leases. This revision process will insure that the UCC will remain the important law of business and finance well into the 21st century.

The ULC, officially known as the National Conference of Commissioners on Uniform State Laws, is now in its 109th year. The organization comprises more than 300 lawyers, judges, and law professors, appointed by the states as well as the District of Columbia, Puerto Rico, and the U.S. Virgin Islands, to draft proposals for uniform and model laws and work toward their enactment in their legislatures. Since its inception in 1892, the group has promulgated more than 200 acts, among them such bulwarks of state statutory law as the Uniform Commercial Code, the Uniform Probate Code, and the Uniform Partnership Act.

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