Bill Text: TX SB1862 | 2011-2012 | 82nd Legislature | Comm Sub
Bill Title: Relating to certain extensions of credit to consumers.
Spectrum: Partisan Bill (Democrat 2-0)
Status: (Introduced - Dead) 2011-05-20 - Not again placed on intent calendar [SB1862 Detail]
Download: Texas-2011-SB1862-Comm_Sub.html
By: Davis, West | S.B. No. 1862 | |
(In the Senate - Filed March 11, 2011; March 24, 2011, read | ||
first time and referred to Committee on Business and Commerce; | ||
April 11, 2011, reported adversely, with favorable Committee | ||
Substitute by the following vote: Yeas 5, Nays 1; April 11, 2011, | ||
sent to printer.) | ||
COMMITTEE SUBSTITUTE FOR S.B. No. 1862 | By: Watson |
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relating to certain extensions of credit to consumers. | ||
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: | ||
SECTION 1. Subchapter A, Chapter 302, Finance Code, is | ||
amended by adding Section 302.003 to read as follows: | ||
Sec. 302.003. PROHIBITION ON THIRD-PARTY FEES TO ARRANGE OR | ||
GUARANTEE CERTAIN EXTENSIONS OF CONSUMER CREDIT. (a) A fee paid | ||
or to be paid to a third party to assist a consumer in the | ||
transacting, arranging, guaranteeing, or negotiating of an | ||
extension of credit may not be contracted for, charged, or received | ||
by a creditor or third party in connection with the extension of | ||
credit if: | ||
(1) the extension of credit is secured by a | ||
non-purchase money security interest in personal property or is | ||
unsecured; and | ||
(2) the proceeds of the extension of credit are used | ||
for personal, family, or household purposes. | ||
(b) The amount of a fee contracted for, charged, or received | ||
in violation of Subsection (a) is considered interest for usury | ||
purposes under state law. | ||
SECTION 2. Section 342.604, Finance Code, is amended by | ||
adding Subsection (c) to read as follows: | ||
(c) A creditor who extends consumer credit to a member of | ||
the United States military or a dependent of a member of the United | ||
States military must comply with 10 U.S.C. Section 987 and any | ||
regulations adopted under that law, to the extent applicable. | ||
SECTION 3. Subchapter M, Chapter 342, Finance Code, is | ||
amended by adding Sections 342.606 and 342.607 to read as follows: | ||
Sec. 342.606. REQUIREMENTS FOR DEFERRED PRESENTMENT | ||
TRANSACTIONS. (a) The provisions of Subchapter F apply to a | ||
deferred presentment transaction made under this subchapter. | ||
(b) As an alternative to the rate provided by Sections | ||
342.252, 342.253, and 342.259, the combined interest and fees for a | ||
deferred presentment transaction made under this subchapter with a | ||
maximum cash advance computed under Subchapter C, Chapter 341, | ||
using a reference base amount that is not more than $200, may not | ||
exceed 15 percent of the amount advanced. | ||
(c) A lender may not enter into a deferred presentment | ||
transaction in which the amount of cash advanced exceeds 35 percent | ||
of the borrower's gross monthly income. | ||
(d) On the prepayment of a deferred presentment | ||
transaction, the finance charge authorized under this section is | ||
considered to be earned at the time the transaction is made and is | ||
not subject to refund. | ||
(e) A lender must accept partial payment of the outstanding | ||
principal balance at any time during regular business hours. | ||
(f) A lender may not for a fee renew, roll over, or otherwise | ||
consolidate a deferred presentment transaction. For purposes of | ||
this subsection, "roll over" means the refinancing or paying of all | ||
or part of the finance charges and advance of a deferred presentment | ||
transaction with a new deferred presentment transaction. | ||
(g) In this subsection, "consecutive loan" means a new | ||
deferred presentment transaction that a lender enters into with a | ||
borrower not later than the seventh day after the date a previous | ||
deferred presentment transaction made to the same borrower is paid | ||
in full. If a borrower enters into a third consecutive loan, a | ||
lender must automatically convert the loan at no additional cost | ||
under a written repayment plan as authorized by this subsection | ||
under which the borrower must be allowed to repay the loan in not | ||
less than four substantially equal installments. A lender is not | ||
required to enter into a repayment plan with a borrower more | ||
frequently than once every 12 months. The borrower must agree not | ||
to enter into an additional deferred presentment transaction during | ||
the repayment plan term. | ||
(h) A lender may not impose a default charge in connection | ||
with a deferred presentment transaction. | ||
(i) The finance commission by rule may require a lender to | ||
provide to a borrower materials approved by the commissioner that | ||
are designed to: | ||
(1) inform the borrower of the duties, rights, and | ||
responsibilities of the parties to a deferred presentment | ||
transaction; and | ||
(2) educate a borrower about matters of financial | ||
literacy. | ||
(j) A lender may not charge or receive in addition to the | ||
interest and charges provided for by this section any additional | ||
amount, whether in the form of broker fees, placement fees, or | ||
another fee or charge, except costs and disbursements in connection | ||
with any suit to collect a deferred presentment transaction, | ||
including reasonable attorney's fees that are incurred by a lender | ||
as a result of the suit and to which the lender is entitled by law. | ||
(k) As part of the annual report required under Section | ||
342.559, a lender that engages in deferred presentment transactions | ||
shall submit the following information to the commissioner covering | ||
the preceding calendar year: | ||
(1) the amount of cash advanced under each deferred | ||
presentment transaction made, serviced, or brokered by the lender; | ||
(2) the total number of deferred presentment | ||
transactions made, serviced, or brokered by the lender; | ||
(3) data regarding extended payment plans and | ||
alternative payment arrangements offered by the lender; | ||
(4) the gross monthly income reported by an individual | ||
to whom a cash advance was made under a deferred presentment | ||
transaction, if the lender collects that information from | ||
individuals; | ||
(5) the total amount of interest, fees, or charges | ||
collected by the lender for making, servicing, or brokering | ||
deferred presentment transactions; and | ||
(6) any other information required by the | ||
commissioner. | ||
(l) For purposes of Subsections (c) and (k)(4), a lender is | ||
not responsible for an individual borrower's failure to provide | ||
accurate information relating to the borrower's income. | ||
(m) A person may not threaten or pursue criminal charges | ||
against a borrower related to a check or other debit authorization | ||
provided by the borrower as part of a deferred presentment | ||
transaction. This information must be disclosed in the contract | ||
with the borrower, immediately above the place where the borrower | ||
signs the contract, in at least 12-point, bold, and underlined type | ||
as follows: | ||
"YOU CANNOT BE PROSECUTED IN ANY CRIMINAL ACTION SIMPLY FOR | ||
THE COLLECTION OF THIS TRANSACTION. IT IS NOT A CRIMINAL OFFENSE TO | ||
DEFAULT ON THIS PAYDAY LOAN." | ||
Sec. 342.607. ATTEMPT TO EVADE LAW. This subchapter | ||
applies to a person who offers, makes, or brokers a deferred | ||
presentment transaction, who assists a consumer in this state in | ||
obtaining a deferred presentment transaction, or who wholly or | ||
partly arranges a deferred presentment transaction for a third | ||
party, regardless of whether the third party is exempt from | ||
licensing under this subtitle or whether approval, acceptance, or | ||
ratification by the third party is necessary to create a legal | ||
obligation for the third party through any communication method, | ||
including mail, telephone, the Internet, or other electronic means. | ||
SECTION 4. Subsection (a), Section 342.501, Finance Code, | ||
is amended to read as follows: | ||
(a) An authorized lender may not induce or permit a person | ||
or a husband and wife to be directly or indirectly obligated under | ||
more than one loan contract at any time for the purpose or with the | ||
effect of obtaining an amount of interest greater than the amount of | ||
interest otherwise authorized under this chapter for a loan of that | ||
aggregate amount with a maximum interest charge computed under | ||
Section 342.201(a), Section 342.201(e), Section 342.252, Section | ||
342.259, Section 342.606, Section 342.654, or any combination of | ||
those sections. | ||
SECTION 5. Chapter 342, Finance Code, is amended by adding | ||
Subchapter N to read as follows: | ||
SUBCHAPTER N. AUTO TITLE LOANS | ||
Sec. 342.651. DEFINITIONS. In this subchapter: | ||
(1) "Auto title loan" means an agreement in which a | ||
lender agrees to make a loan of money to a borrower, and the | ||
borrower agrees to give the lender a non-purchase money security | ||
interest in an unencumbered motor vehicle owned by the borrower. | ||
(2) "Lender" means a lender licensed under this | ||
chapter. | ||
Sec. 342.652. GENERAL REQUIREMENTS. An auto title loan | ||
must be in writing and have a loan term of at least one month. | ||
Sec. 342.653. APPLICABILITY OF OTHER LAW. (a) The | ||
provisions of Subchapters E and F apply to an auto title loan made | ||
under this subchapter. | ||
(b) A lender that extends consumer credit to a member of the | ||
United States military or a dependent of a member of the United | ||
States military must comply with 10 U.S.C. Section 987 and any | ||
regulations adopted under that law, to the extent applicable. | ||
Sec. 342.654. AUTHORIZED FINANCE CHARGES. (a) As an | ||
alternative to the rate provided by Sections 342.201, 342.252, | ||
342.253, and 342.259, an auto title loan made under this subchapter | ||
may provide for a finance charge that does not exceed in the | ||
aggregate: | ||
(1) 20 percent a month on the portion of the cash | ||
advance that does not exceed $700; | ||
(2) 18 percent a month on the portion of the cash | ||
advance that is greater than $700 but does not exceed $1,400; and | ||
(3) 15 percent a month on the portion of the cash | ||
advance that is greater than $1,400. | ||
(b) On the prepayment of an auto title loan, the finance | ||
charge authorized under this section is considered to be earned at | ||
the time the loan is made and is not subject to refund. | ||
(c) A lender may not charge or receive in addition to the | ||
interest and charges provided for by this section any additional | ||
amount, whether in the form of broker fees, placement fees, or | ||
another fee or charge, except fees authorized under Section | ||
342.657(c) and costs and disbursements in connection with any suit | ||
to collect an auto title loan, including reasonable attorney's fees | ||
that are incurred by a lender as a result of the suit and to which | ||
the lender is entitled by law. | ||
Sec. 342.655. ACCEPTANCE OF PARTIAL PAYMENT. A lender must | ||
accept partial payment of the principal loan balance of an auto | ||
title loan at any time during regular business hours. | ||
Sec. 342.656. RENEWALS. (a) In this section: | ||
(1) "Consecutive loan" means a new auto title loan | ||
that a lender enters into with a borrower not later than the seventh | ||
day after the date a previous auto title loan made to the same | ||
borrower is paid in full. | ||
(2) "Renewal" means a transaction in which a borrower | ||
refinances or pays all or part of the finance charges and advance of | ||
an auto title loan with a new auto title loan. | ||
(b) Beginning with the first renewal and at each successive | ||
renewal after the first renewal, the minimum required payment or | ||
finance charge must reduce the principal balance by at least 10 | ||
percent of the original principal balance of the auto title loan. | ||
Alternatively, if the borrower fails to pay on the due date, the | ||
lender may declare the outstanding principal balance and any | ||
finance charge to be immediately due and payable. | ||
(c) After three renewals or consecutive loans of an auto | ||
title loan, if a borrower is unable to pay on the due date the amount | ||
owing, then the lender must automatically convert the loan at no | ||
additional cost under a written repayment plan as authorized by | ||
this section. A lender is not required to enter into a repayment | ||
plan with a borrower more frequently than once every 12 months. The | ||
borrower must repay the amount owed according to the following | ||
terms: | ||
(1) the borrower must be allowed to repay the loan in | ||
not less than four substantially equal installments; and | ||
(2) the lender may not charge a borrower any | ||
additional interest or fee for using the repayment plan. | ||
(d) A lender may not impose a default charge in connection | ||
with an auto title loan. | ||
Sec. 342.657. POSSESSION OF MOTOR VEHICLE OR CERTIFICATE OF | ||
TITLE. (a) In an auto title loan subject to this subchapter, the | ||
borrower shall agree to the lender's keeping possession of the | ||
certificate of title. | ||
(b) The borrower shall have the exclusive right to redeem | ||
the certificate of title by repaying the auto title loan in full and | ||
by complying with the auto title loan agreement. When the | ||
certificate of title is redeemed, the lender shall release the | ||
security interest in the motor vehicle and return the certificate | ||
of title to the borrower. | ||
(c) The auto title loan agreement must provide that, on | ||
failure by the borrower to redeem the certificate of title at the | ||
end of the original term or at the end of any renewal or renewals of | ||
the agreement period, the lender is allowed to take possession of | ||
the motor vehicle. If after taking possession of the vehicle under | ||
this subsection the lender sells the vehicle for an amount that | ||
exceeds the amount owed to the lender by the borrower, the borrower | ||
is entitled to the excess amount. A lender may assess and collect | ||
reasonable fees to recover the costs of taking possession of and | ||
selling a motor vehicle under this section. | ||
(d) The lender shall retain physical possession of the | ||
certificate of title for the entire term of the auto title loan | ||
agreement but is not required to retain physical possession of the | ||
motor vehicle at any time. | ||
(e) A lender may only hold unencumbered certificates of | ||
title for pledge. | ||
Sec. 342.658. NO CRIMINAL PROSECUTION. A person may not | ||
threaten or pursue criminal charges against a borrower simply | ||
because the borrower defaulted on the loan. This information must | ||
be disclosed in the contract with the borrower, immediately above | ||
the place where the borrower signs the contract, in at least | ||
12-point, bold, and underlined type as follows: | ||
"YOU CANNOT BE PROSECUTED IN ANY CRIMINAL ACTION SIMPLY FOR | ||
THE COLLECTION OF THIS TRANSACTION. IT IS NOT A CRIMINAL OFFENSE TO | ||
DEFAULT ON THIS AUTO TITLE LOAN." | ||
Sec. 342.659. CONSIDERATION OF BORROWER'S ABILITY TO REPAY. | ||
When making or negotiating an auto title loan, the lender must | ||
consider, in determining the size, duration, and schedule of | ||
installments of the loan, the financial ability of the borrower to | ||
repay the loan, and specifically evaluate whether the borrower will | ||
be reasonably able to pay the loan in cash at the time and in the | ||
manner provided in the auto title loan agreement. | ||
Sec. 342.660. CONSUMER INFORMATION. The finance commission | ||
by rule may require a lender to provide to a borrower materials | ||
approved by the commissioner that are designed to: | ||
(1) inform the borrower of the duties, rights, and | ||
responsibilities of the parties to an auto title loan transaction; | ||
and | ||
(2) educate a borrower about matters of financial | ||
literacy. | ||
Sec. 342.661. INFORMATION REQUIRED FOR ANNUAL REPORT. | ||
(a) As part of the annual report required under Section 342.559, a | ||
lender that engages in auto title loans shall submit the following | ||
information to the commissioner covering the preceding calendar | ||
year: | ||
(1) the amount of cash advanced under each auto title | ||
loan made, serviced, or brokered by the lender; | ||
(2) the total number of auto title loans made, | ||
serviced, or brokered by the lender; | ||
(3) data regarding extended payment plans and | ||
alternative payment arrangements offered by the lender; | ||
(4) the gross monthly income reported by an individual | ||
to whom a cash advance was made under an auto title loan, if the | ||
lender collects that information from individuals; | ||
(5) the total amount of interest, fees, or charges | ||
collected by the lender for making, servicing, or brokering auto | ||
title loans; | ||
(6) the total number of vehicles repossessed by the | ||
lender; and | ||
(7) any other information required by the | ||
commissioner. | ||
(b) For purposes of Subsection (a)(4), a lender is not | ||
responsible for an individual borrower's failure to provide | ||
accurate information relating to the borrower's income. | ||
Sec. 342.662. ATTEMPT TO EVADE LAW. This subchapter | ||
applies to a person who offers, makes, or brokers an auto title | ||
loan, who assists a consumer in this state in obtaining an auto | ||
title loan, or who wholly or partly arranges an auto title loan for | ||
a third party, regardless of whether the third party is exempt from | ||
licensing under this subtitle or whether approval, acceptance, or | ||
ratification by the third party is necessary to create a legal | ||
obligation for the third party through any communication method, | ||
including mail, telephone, the Internet, or other electronic means. | ||
SECTION 6. Subdivision (3), Section 393.001, Finance Code, | ||
is amended to read as follows: | ||
(3) "Credit services organization" means a person who | ||
provides, or represents that the person can or will provide, for the | ||
payment of valuable consideration any of the following services | ||
with respect to the extension of consumer credit by others: | ||
(A) improving a consumer's credit history or | ||
rating; or | ||
(B) [ |
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consumer with regard to Paragraph (A) [ |
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SECTION 7. Subchapter D, Chapter 393, Finance Code, is | ||
amended by adding Section 393.308 to read as follows: | ||
Sec. 393.308. OBTAINING EXTENSIONS OF CONSUMER CREDIT | ||
PROHIBITED. A credit services organization may not obtain an | ||
extension of consumer credit for a consumer or assist a consumer in | ||
obtaining an extension of consumer credit. | ||
SECTION 8. (a) The consumer credit commissioner shall | ||
prepare and publish a report not later than December 1, 2012, | ||
regarding the use of deferred presentment transactions in this | ||
state. In preparing the report, the commissioner shall study the | ||
need for comprehensive data reporting and the value and feasibility | ||
of a real-time statewide database system to provide data for policy | ||
development and to enhance a lender's evaluation of a borrower's | ||
ability to repay a deferred presentment transaction. In reviewing | ||
the value and feasibility of a real-time statewide database system, | ||
as part of the study, the commissioner should consider the use of a | ||
database verification fee collected from the borrower to recover | ||
the actual costs of the system. The commissioner shall also study | ||
the appropriateness of the rate structure provided by Section | ||
342.606, Finance Code, as added by this Act, in regard to the manner | ||
in which the deferred presentment transactions are used, and assess | ||
whether the protections included in that section are effectively | ||
addressing the cycle of ongoing debt that can be caused by high-cost | ||
single-payment loans. | ||
(b) The consumer credit commissioner shall prepare and | ||
publish a report not later than December 1, 2012, regarding the use | ||
of auto title loans in this state. In preparing the report, the | ||
commissioner shall study the need for comprehensive data reporting | ||
and the value and feasibility of a real-time statewide database | ||
system to provide data for policy development and to enhance a | ||
lender's evaluation of a borrower's ability to repay an auto title | ||
loan. In reviewing the value and feasibility of a real-time | ||
statewide database system, as part of the study, the commissioner | ||
should consider the use of a database verification fee collected | ||
from the borrower to recover the actual costs of the system. The | ||
commissioner shall also study the appropriateness of the rate | ||
structure provided by Section 342.654, Finance Code, as added by | ||
this Act, in regard to the manner in which the auto title loans are | ||
used, and assess whether the protections included in that section | ||
are effectively addressing the cycle of ongoing debt that can be | ||
caused by high-cost single-payment transactions. | ||
SECTION 9. This Act takes effect September 1, 2011. | ||
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