Managing Risk Throughout the Lending Lifecycle | Wolters Kluwer
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  • Managing Risk Throughout the Lending Lifecycle

    Suzanne Konstance

    by Suzanne Konstance, Vice President of Product Management and Marketing

    Published July 26, 2019

    (Published in Bank News magazine, July 2019)

    “Disruption” is the hot trend of the moment. It seems every industry, whether commercial or consumer, has an individual, company, or technology that promises vast improvements via the disruption of existing practices. The truth is that disruption is constant, and in the banking sector, automation actually led to the disruption of consumer and retail banking some time ago. As a result, big changes are now cascading into other areas of banking.

    Customers have witnessed the digital transformations occurring on the front end of banking, which has led to changed expectations of what can be delivered on the back end. Back-end operations are feeling pressure from customers—and from shareholders—to positively disrupt how operations are coordinated, how due diligence is performed, and how risk is managed.

    As this disruption moves across the commercial lending landscape, there are significant implications for lien management. Lien filings are not a one-and-done matter, but a fluid and ongoing practice with a long lifecycle. Effectively managing this lifecycle is critical to mitigating a lender’s exposure to additional risks, protecting assets and position in line among secured creditors, and enabling lenders to make the best use of their resources.

    UCC Filing: The Cornerstone of All Lending

    The risks associated with maintaining perfection are real, no matter the size of a financial organization or the breadth of its portfolio. According to data gleaned from public secretary of state records, lenders can have up to six percent of their lien portfolio unperfected at any given time and not even know it. Failure to secure their assets because of an overlooked nuance means lenders may lose the ability to collect if something goes wrong.

    Smart lenders know that protecting and perfecting their interests in assets is essential to sound lending. However, a Uniform Commercial Code (UCC) lien is not a static document. It’s a dynamic document that can, and usually does, undergo changes throughout the life of the loan, making it extremely challenging to keep track of all the granular aspects of the UCC and secured lending.

    As a result, lien managers are now expected to step up their game by:

    • Looking more deeply into their portfolios
    • Applying best practices to operate more efficiently
    • Delivering better service quality
    • Taking proactive steps to protect their interests
    • Actively managing liens from start to finish

    How does this apply to a traditional UCC filing? Contrary to public opinion, there’s no such thing as an insignificant change to a UCC filing. Even the smallest modification or error can impact standing and security as the lender or lessor. According to Wolters Kluwer’s Lien Solutions, 16 percent of debtor names had a change event in 2017, and 25 percent of borrowers have at least two variations of their address listed in public filings. Those are not insignificant numbers. If any of those changes go unnoticed by a lender, it can mean the loss of hundreds of thousands—if not millions—of dollars.  In addition to those kind of debtor variations, a UCC can expire without being continued before the underlying debt is paid off, or a filing might be terminated by a third party without a lender’s knowledge. These and many other external events constantly pose a financial risk to a bank by compromising the perfection of assets it has financed.

    Because so many factors can potentially put a lender’s interest in the borrower’s assets at risk, it’s essential to stay aware of changes that can impact a bank’s position. All the effort that goes into an initial UCC filing can be for naught if those filings are not continuously tracked and kept current.

    What You Don’t Know CAN Hurt You

    Obtaining perfection—and just as importantly, maintaining it—requires an understanding of which filings are needed and when. Unfortunately, many lenders have no way to get actionable information on their filings. Or, if they have a way, it’s not cost-efficient. That means that information is essentially invisible to them and lurks as a constant risk to their portfolios.

    The only way to be truly sure that one is maintaining perfection of a lien is through ongoing lien monitoring and active portfolio management. A comprehensive lien management solution combines a proactive monitoring and alert capability with a robust set of management tools for taking the steps necessary to preserve perfection. It can also eliminate surprises by continuously checking the status of debtor and business entity names, and alerting lenders to changes that could compromise their position. In addition to natural loan lifecycle events, such as the need to renew a filing after five years, alerts can be triggered by debtor name changes, mergers, dissolutions, loss of good standing, administrative cancellations and more. By learning sooner about changes that affect their debtors, lenders can act faster to protect their investments.

    The Big Picture

    The lending world is fraught with risk and always will be. Lenders want—and need—a way to gain a better understanding of the risks they face and to identify liens that pose a danger so that proper action can be taken before costly problems arise. With a smart selection of technologies and process improvements combined with the right lien management service provider, lenders can become more efficient, accurate and thorough than ever before, leading to increased confidence in their lending overall.

    About the Author

    Suzanne Konstance is vice president of Product Management and Marketing for Wolters Kluwer’s Lien Solutions business. For more information, visit

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