Texas 2011 - 82nd Regular

Texas Senate Bill SB1169 Compare Versions

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1	1	82R24993 MAW-F
2	2	By: Carona S.B. No. 1169
3	3	(Hamilton)
4	4	Substitute the following for S.B. No. 1169: No.
5	5
6	6
7	7	A BILL TO BE ENTITLED
8	8	AN ACT
9	9	relating to the regulation of providers, administrators, and
10	10	sellers of service contracts and identity recovery service
11	11	contracts; providing penalties.
12	12	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
13	13	ARTICLE 1. SERVICE CONTRACTS
14	14	SECTION 1.01. Section 1304.002, Occupations Code, is
15	15	amended by adding Subdivision (8-a) to read as follows:
16	16	(8-a) "Seller" means a person, other than the provider
17	17	or administrator of a service contract, who markets, sells, offers
18	18	to sell, negotiates, or issues a service contract to a consumer on
19	19	behalf of a provider, but who is not contractually obligated to a
20	20	service contract holder under the terms of a service contract.
21	21	SECTION 1.02. Chapter 1304, Occupations Code, is amended by
22	22	adding Subchapter B to read as follows:
23	23	SUBCHAPTER B. POWERS AND DUTIES OF DEPARTMENT
24	24	AND COMMISSION
25	25	Sec. 1304.052. RULES. The commission shall adopt rules
26	26	necessary to implement and administer this chapter.
27	27	SECTION 1.03. Section 1304.007, Occupations Code, is
28	28	transferred to Subchapter B, Chapter 1304, Occupations Code, as
29	29	added by this Act, redesignated as Section 1304.051, Occupations
30	30	Code, and amended to read as follows:
31	31	Sec. 1304.051 [1304.007]. GENERAL INVESTIGATIVE POWER OF
32	32	EXECUTIVE DIRECTOR. (a) The executive director may investigate a
33	33	provider, administrator, seller, or other person as necessary to
34	34	enforce this chapter and protect service contract holders in this
35	35	state.
36	36	(b) On request of the executive director, a provider shall
37	37	make the records required by Section 1304.155 available to the
38	38	executive director as necessary to enable the executive director to
39	39	reasonably determine compliance with this chapter.
40	40	SECTION 1.04. Section 1304.101, Occupations Code, is
41	41	amended to read as follows:
42	42	Sec. 1304.101. REGISTRATION REQUIRED; EXEMPTION FROM OTHER
43	43	LICENSING REQUIREMENTS. (a) A person may not operate as a
44	44	provider or administrator of service contracts sold or issued in
45	45	this state unless the person is registered with the department.
46	46	(b) Except for the registration requirement of this chapter
47	47	[subchapter], a provider, [service contract] seller,
48	48	administrator, or other person who markets, sells, issues, or
49	49	offers to sell service contracts is exempt from any licensing
50	50	requirement of this state that relates to an activity regulated
51	51	under this chapter.
52	52	(c) A provider or administrator may not contract with or use
53	53	the services of a person to perform an activity that requires
54	54	registration with the department as a provider or administrator
55	55	unless that person is appropriately registered.
56	56	SECTION 1.05. Section 1304.102(c), Occupations Code, is
57	57	amended to read as follows:
58	58	(c) The department may refuse to issue or renew a
59	59	registration, suspend or revoke a registration, or take any other
60	60	disciplinary action under Subchapter E if the applicant or a
61	61	controlling person of the applicant:
62	62	(1) has violated this chapter or a rule adopted or
63	63	order issued by the commission or executive director under this
64	64	chapter;
65	65	(2) has made a material misrepresentation or false
66	66	statement in an application or in any document accompanying an
67	67	application;
68	68	(3) has had a license issued under Title 13, Insurance
69	69	Code, revoked as provided by that code; or
70	70	(4) has had a license or registration as a provider,
71	71	administrator, or seller revoked in this state or another state.
72	72	SECTION 1.06. Section 1304.1025(a), Occupations Code, is
73	73	amended to read as follows:
74	74	(a) In addition to the requirements of Section 1304.102, an
75	75	applicant for issuance or renewal of a provider registration must
76	76	file with the application:
77	77	(1) the reimbursement insurance policy, if the
78	78	provider is using a reimbursement insurance policy to meet the
79	79	financial security requirements of Section 1304.151; [and]
80	80	(2) the financial security deposit and the
81	81	documentation required by the department demonstrating adequate
82	82	funding of the reserve account, if the provider is using a funded
83	83	reserve account and financial security deposit to meet the
84	84	financial security requirements of Section 1304.151;
85	85	(3) the proof necessary to demonstrate the applicant
86	86	or its parent company maintains at least $100 million net worth, if
87	87	the applicant is using net worth to meet the financial security
88	88	requirements of Section 1304.151; and
89	89	(4) information about each controlling person of the
90	90	applicant [a biographical affidavit,] in a form prescribed by the
91	91	executive director[, for each controlling person of the provider].
92	92	SECTION 1.07. Sections 1304.103(a) and (b), Occupations
93	93	Code, are amended to read as follows:
94	94	(a) The executive director shall develop a tiered schedule
95	95	of registration and renewal fees under which a provider's fee is
96	96	based on the number of service contracts the provider sold or issued
97	97	in this state during the preceding 12-month period.
98	98	(b) The commission shall set [the amounts of] fees to cover
99	99	the costs of administering this chapter, including registration and
100	100	renewal fees for administrators.
101	101	SECTION 1.08. Section 1304.104, Occupations Code, is
102	102	amended to read as follows:
103	103	Sec. 1304.104. INFORMATION CONCERNING NUMBER OF SERVICE
104	104	CONTRACTS SOLD OR ISSUED. Information concerning the number of
105	105	service contracts sold or issued by a provider that is submitted
106	106	under Section 1304.103[:
107	107	[(1)] is a trade secret to which Section 552.110,
108	108	Government Code, applies[; and
109	109	[(2) may be used only by the executive director and the
110	110	department in developing the tiered fee schedule under Section
111	111	1304.103].
112	112	SECTION 1.09. The heading to Subchapter D, Chapter 1304,
113	113	Occupations Code, is amended to read as follows:
114	114	SUBCHAPTER D. PRACTICE BY SERVICE CONTRACT PROVIDERS,
115	115	[AND] ADMINISTRATORS, AND SELLERS
116	116	SECTION 1.10. The heading to Section 1304.151, Occupations
117	117	Code, is amended to read as follows:
118	118	Sec. 1304.151. FINANCIAL SECURITY REQUIREMENTS;
119	119	DISTRIBUTION OF FUNDS HELD IN TRUST.
120	120	SECTION 1.11. Section 1304.151, Occupations Code, is
121	121	amended by amending Subsections (a) and (b) and adding Subsection
122	122	(f) to read as follows:
123	123	(a) To ensure the faithful performance of a provider's
124	124	obligations to its service contract holders, each provider must:
125	125	(1) insure the provider's service contracts under a
126	126	reimbursement insurance policy issued by an insurer authorized to
127	127	transact insurance in this state or by a surplus lines insurer
128	128	eligible to place coverage in this state under Chapter 981,
129	129	Insurance Code;
130	130	(2) maintain a funded reserve account covering the
131	131	provider's obligations under its service contracts that are issued
132	132	and outstanding in this state and place in trust with the executive
133	133	director a financial security deposit consisting of:
134	134	(A) [a surety bond issued by an authorized
135	135	surety;
136	136	[(B) securities of the type eligible for deposit
137	137	by an authorized insurer in this state;
138	138	[(C)] a statutory deposit of cash [or cash
139	139	equivalents];
140	140	(B) [(D)] a letter of credit issued by a
141	141	qualified financial institution; or
142	142	(C) a certificate of deposit issued by a
143	143	qualified financial institution
144	144	[(E) another form of security prescribed by rules
145	145	adopted by the commission]; or
146	146	(3) maintain, or have a parent company that maintains,
147	147	a net worth or stockholders' equity of at least $100 million.
148	148	(b) If the provider ensures its obligations under
149	149	Subsection (a)(2), the amount maintained in the reserve account may
150	150	not be less than an amount equal to 40 percent of the gross
151	151	consideration the provider received from consumers from the sale of
152	152	all service contracts issued and outstanding in this state, minus
153	153	any claims paid. The executive director may review and examine the
154	154	reserve account. The amount of the security deposit may not be less
155	155	than $250,000. The provider must submit to the executive director
156	156	on request a copy of the provider's financial statements that must
157	157	be prepared in accordance with generally accepted accounting
158	158	principles, be without qualification as to the going concern status
159	159	of the provider, and be audited by an independent certified public
160	160	accountant. The commission by rule may require the provider to
161	161	submit additional financial reports [the greater of:
162	162	[(1) $25,000; or
163	163	[(2) an amount equal to five percent of the gross
164	164	consideration the provider received from consumers from the sale of
165	165	all service contracts issued and outstanding in this state, minus
166	166	any claims paid].
167	167	(f) In the event of a provider's bankruptcy or a similar
168	168	event affecting the ability of the provider to faithfully perform
169	169	its obligations to its service contract holders, the executive
170	170	director may distribute any funds held in trust as financial
171	171	security for the provider under this section to eligible service
172	172	contract holders as payment for claims. The executive director
173	173	must distribute the funds in an equitable and cost-effective manner
174	174	as determined by the executive director.
175	175	SECTION 1.12. Subchapter D, Chapter 1304, Occupations Code,
176	176	is amended by adding Sections 1304.1521 and 1304.1531 to read as
177	177	follows:
178	178	Sec. 1304.1521. FINANCIAL SECURITY TRANSITION. (a) In
179	179	this section, "provider that maintained a funded reserve account"
180	180	means a provider that, in order to ensure the faithful performance
181	181	of the provider's obligations to service contract holders,
182	182	maintained a funded reserve account covering the provider's
183	183	obligations under service contracts that were issued and
184	184	outstanding in this state and placed in trust with the executive
185	185	director a financial security deposit consisting of:
186	186	(1) a surety bond issued by an authorized surety;
187	187	(2) securities of the type eligible for deposit by an
188	188	authorized insurer in this state;
189	189	(3) a statutory deposit of cash or cash equivalents;
190	190	(4) a letter of credit issued by a qualified financial
191	191	institution; or
192	192	(5) another form of security prescribed by commission
193	193	rules.
194	194	(b) This section applies only to a provider that maintained
195	195	a funded reserve account on August 31, 2011.
196	196	(c) Not later than September 1, 2012, a provider that
197	197	maintained a funded reserve account shall submit to the executive
198	198	director documentation that the provider is in compliance with the
199	199	financial security requirements provided by Section 1304.151 for
200	200	service contracts sold or issued in this state on or after September
201	201	1, 2012. A provider that maintained a funded reserve account may
202	202	not sell or issue a service contract on or after September 1, 2012,
203	203	unless the provider is in compliance with this subsection.
204	204	(d) A provider that maintained a funded reserve account
205	205	shall:
206	206	(1) continue to maintain the funded reserve account
207	207	and security deposit at appropriate levels for service contracts
208	208	that were sold or issued in this state before September 1, 2012,
209	209	until the contracts are no longer in effect; or
210	210	(2) provide financial security for service contracts
211	211	sold or issued before September 1, 2012, by complying with the
212	212	financial security requirements of Section 1304.151.
213	213	(e) If a provider provides financial security for service
214	214	contracts sold or issued before September 1, 2012, by complying
215	215	with the financial security requirements of Section 1304.151, the
216	216	provider shall give to the executive director satisfactory
217	217	documentation that the reimbursement insurance policy, funded
218	218	reserve account and security deposit, or net worth covers all
219	219	outstanding service contracts issued before September 1, 2012.
220	220	(f) A service contract that is sold or issued before
221	221	September 1, 2012, and is covered under a funded reserve account and
222	222	security deposit may not be extended or renewed at the end of the
223	223	service contract term unless the provider provides financial
224	224	security for those service contracts by complying with the
225	225	financial security requirements of Section 1304.151 before the
226	226	extension or renewal.
227	227	Sec. 1304.1531. SERVICE CONTRACT SELLERS;
228	228	RESPONSIBILITIES. (a) A provider may employ or contract with a
229	229	seller to be responsible for:
230	230	(1) all or any part of the sale or marketing of service
231	231	contracts for the provider; and
232	232	(2) compliance with this chapter in connection with
233	233	the sale or marketing of service contracts.
234	234	(b) The hiring of or contracting with a seller under this
235	235	section does not affect a provider's responsibility to comply with
236	236	this chapter.
237	237	(c) Unless registered as a provider or administrator, a
238	238	seller is prohibited from engaging in activities that would require
239	239	registration as a provider or administrator.
240	240	(d) A seller shall process a service contract application
241	241	and a payment from a consumer in accordance with this chapter and
242	242	with any sales agreement or contract between the provider and the
243	243	seller.
244	244	SECTION 1.13. Sections 1304.156(a), (b), and (d),
245	245	Occupations Code, are amended to read as follows:
246	246	(a) A service contract marketed, sold, offered for sale,
247	247	issued, made, proposed to be made, or administered in this state
248	248	must:
249	249	(1) be written, printed, or typed in clear,
250	250	understandable language that is easy to read;
251	251	(2) state the name and address of the provider;
252	252	(3) state the purchase price of the contract and the
253	253	terms under which the contract is sold;
254	254	(4) state the terms and restrictions governing
255	255	cancellation of the contract by the provider or the service
256	256	contract holder before the expiration date of the contract;
257	257	(5) identify:
258	258	(A) any administrator and any registration
259	259	number issued to the administrator under this chapter;
260	260	(B) the [contract] seller; and
261	261	(C) the service contract holder, if the service
262	262	contract holder provides the holder's name;
263	263	(6) state the amount of any deductible;
264	264	(7) specify the products and services to be provided
265	265	under the contract and any limitation, exception, or exclusion;
266	266	(8) specify any restriction governing the
267	267	transferability of the contract;
268	268	(9) state the duties of the service contract holder,
269	269	including any duty to protect against any further damage and any
270	270	requirement to follow the instructions in the owner's manual; and
271	271	(10) state whether the contract provides for or
272	272	excludes consequential damages or preexisting conditions, if
273	273	applicable.
274	274	(b) The identity and, if applicable, registration number
275	275	issued under this chapter of a person described by Subsection
276	276	(a)(5) is not required to be preprinted on the service contract and
277	277	may be added to the contract at the time of sale.
278	278	(d) A service contract insured under a reimbursement
279	279	insurance policy under Section 1304.152 [1304.151(a)(1)] must:
280	280	(1) state the name and address of the insurer;
281	281	(2) state that the service contract holder may apply
282	282	for reimbursement directly to the insurer if:
283	283	(A) a covered service is not provided to the
284	284	service contract holder by the provider before the 61st [not later
285	285	than the 60th] day after the date of proof of loss; or
286	286	(B) a refund or credit is not paid before the 46th
287	287	day after the date on which the contract is canceled [returned to
288	288	the provider] under Section 1304.1581 [1304.158]; and
289	289	(3) contain a statement substantially similar to the
290	290	following: "Obligations of the provider under this service
291	291	contract are insured under a service contract reimbursement
292	292	insurance policy."
293	293	SECTION 1.14. Subchapter D, Chapter 1304, Occupations Code,
294	294	is amended by adding Section 1304.1581 to read as follows:
295	295	Sec. 1304.1581. CANCELLATION BY SERVICE CONTRACT HOLDER;
296	296	REFUND. (a) A service contract must allow the service contract
297	297	holder to cancel the service contract at any time.
298	298	(b) If a service contract holder cancels a service contract
299	299	before the 31st day after the date of purchase, the provider:
300	300	(1) shall refund to the service contract holder or
301	301	credit to the account of the service contract holder the full
302	302	purchase price of the contract, decreased by the amount of any
303	303	claims paid under the contract; and
304	304	(2) may not impose a cancellation fee.
305	305	(c) If a service contract holder cancels a service contract
306	306	on or after the 31st day after the date of purchase, the provider:
307	307	(1) shall refund to the service contract holder or
308	308	credit to the account of the service contract holder the prorated
309	309	purchase price of the contract reflecting the remaining term of the
310	310	contract, based on mileage, time, or another reasonably applicable
311	311	measure of the remaining term that must be disclosed in the
312	312	contract, decreased by the amount of any claims paid under the
313	313	contract; and
314	314	(2) may impose a reasonable cancellation fee not to
315	315	exceed $50.
316	316	(d) A provider may allow a service contract holder to cancel
317	317	a service contract on other terms included in the contract,
318	318	provided the terms do not conflict with this section.
319	319	(e) A provider who does not pay the refund or credit the
320	320	service contract holder's account before the 46th day after the
321	321	date notice of cancellation is received by the provider is liable to
322	322	the service contract holder for a penalty for each month an amount
323	323	remains outstanding equal to 10 percent of the amount outstanding.
324	324	The penalty is in addition to the full or prorated purchase price of
325	325	the contract that is owed to the service contract holder under this
326	326	section or the terms of the contract.
327	327	(f) The right to cancel a service contract is not
328	328	transferable to a subsequent holder of the contract.
329	329	SECTION 1.15. The heading to Section 1304.159, Occupations
330	330	Code, is amended to read as follows:
331	331	Sec. 1304.159. CANCELLATION BY PROVIDER; REFUND [CANCELING
332	332	A SERVICE CONTRACT].
333	333	SECTION 1.16. Section 1304.159, Occupations Code, is
334	334	amended by amending Subsection (b) and adding Subsection (c) to
335	335	read as follows:
336	336	(b) The provider is not required to provide prior notice of
337	337	cancellation if the service contract is canceled because of:
338	338	(1) nonpayment of the consideration for the contract;
339	339	(2) fraud or a material misrepresentation by the
340	340	service contract holder to the provider or the provider's
341	341	administrator; or
342	342	(3) a substantial breach of a duty by the service
343	343	contract holder relating to the covered product or its use.
344	344	(c) A service contract holder whose contract is canceled by
345	345	the provider in accordance with this section is entitled to a
346	346	prorated refund of the purchase price of the contract reflecting
347	347	the remaining term of the contract, based on mileage, time, or
348	348	another reasonably applicable measure of the remaining term that
349	349	must be disclosed in the contract, decreased by the amount of any
350	350	claims paid under the contract. A provider who cancels a contract
351	351	under this section may not impose a cancellation fee.
352	352	SECTION 1.17. Section 1304.161, Occupations Code, is
353	353	amended to read as follows:
354	354	Sec. 1304.161. [MISLEADING STATEMENTS] PROHIBITED ACTS.
355	355	(a) A provider, administrator, seller, or other [or the
356	356	provider's] representative of the provider may not, in the
357	357	provider's service contracts or literature or in any written
358	358	communication:
359	359	(1) make, permit, or cause to be made any false,
360	360	deceptive, or misleading statement; or
361	361	(2) deliberately omit a material statement if the
362	362	omission would be considered misleading.
363	363	(b) A person, including a bank, a savings and loan
364	364	association, a lending institution, or the manufacturer or seller
365	365	of a product, may not require the purchase of a service contract as
366	366	a condition of a loan or the sale of property.
367	367	(c) A provider, administrator, seller, or other
368	368	representative of the provider may not make a telemarketing call to
369	369	a consumer as provided by Sections 304.002 and 304.003, Business &
370	370	Commerce Code, unless the provider, administrator, seller, or
371	371	representative has an established business relationship, as
372	372	defined by Section 304.002, Business & Commerce Code, with the
373	373	consumer.
374	374	SECTION 1.18. Section 1304.201, Occupations Code, is
375	375	amended to read as follows:
376	376	Sec. 1304.201. DISCIPLINARY ACTION. [(a)] On a finding
377	377	that a ground for disciplinary action exists under this chapter,
378	378	the commission or executive director may impose an administrative
379	379	sanction or[, including an] administrative penalty or seek a civil
380	380	penalty or any other remedy as provided by this chapter and
381	381	[Subchapter F,] Chapter 51.
382	382	SECTION 1.19. Subchapter E, Chapter 1304, Occupations Code,
383	383	is amended by adding Section 1304.205 to read as follows:
384	384	Sec. 1304.205. REMEDY FOR SERVICE CONTRACT HOLDERS.
385	385	(a) If the commission by order, including an agreed order,
386	386	determines that a person has operated as a provider or
387	387	administrator in this state without holding the appropriate
388	388	registration under this chapter, the person shall offer to a
389	389	service contract holder who holds a service contract sold or issued
390	390	by the person during the period that the person was not registered
391	391	under this chapter the right to:
392	392	(1) cancel the contract and obtain a refund of the full
393	393	purchase price of the contract; or
394	394	(2) retain the contract.
395	395	(b) If a seller fails to process a service contract
396	396	application or a payment from a consumer in accordance with this
397	397	chapter and any sales agreement or contract between the provider
398	398	and the seller, the commission or executive director may, by
399	399	commission order, including an agreed order, require the seller to
400	400	refund the full purchase price of the contract to the consumer.
401	401	(c) The remedies described in this section are in addition
402	402	to any administrative penalty, administrative sanction, civil
403	403	penalty, or other disciplinary or enforcement action sought under
404	404	this chapter or Chapter 51.
405	405	SECTION 1.20. (a) On the effective date of this Act, the
406	406	following provisions of the Occupations Code are repealed:
407	407	(1) Section 1304.006; and
408	408	(2) Section 1304.102(d).
409	409	(b) On January 1, 2012, the following provisions of the
410	410	Occupations Code are repealed:
411	411	(1) Section 1304.157; and
412	412	(2) Section 1304.158.
413	413	SECTION 1.21. (a) Not later than April 1, 2012, the Texas
414	414	Commission of Licensing and Regulation shall adopt rules necessary
415	415	to implement Chapter 1304, Occupations Code, as amended by this
416	416	Act.
417	417	(b) Sections 1304.102 and 1304.1025, Occupations Code, as
418	418	amended by this Act, apply only to an application for a registration
419	419	or renewal of a registration filed with the Texas Department of
420	420	Licensing and Regulation on or after the effective date of this Act.
421	421	An application filed before that date is governed by the law in
422	422	effect on the date the application was filed, and the former law is
423	423	continued in effect for that purpose.
424	424	(c) Sections 1304.156 and 1304.159, Occupations Code, as
425	425	amended by this Act, and Section 1304.1581, Occupations Code, as
426	426	added by this Act, apply only to a service contract sold or issued
427	427	on or after January 1, 2012. A service contract sold or issued
428	428	before that date is governed by the law in effect on the date the
429	429	contract was sold or issued, and the former law is continued in
430	430	effect for that purpose.
431	431	(d) Notwithstanding Subsection (c) of this section, a
432	432	service contract sold or issued before January 1, 2012, may not be
433	433	extended or renewed at the end of the service contract term unless
434	434	the contract complies with Sections 1304.156 and 1304.159,
435	435	Occupations Code, as amended by this Act, and Section 1304.1581,
436	436	Occupations Code, as added by this Act.
437	437	(e) Section 1304.201, Occupations Code, as amended by this
438	438	Act, applies only to a disciplinary action initiated by the Texas
439	439	Department of Licensing and Regulation on or after the effective
440	440	date of this Act. An action initiated before the effective date of
441	441	this Act is governed by the law in effect on the date the action was
442	442	initiated, and the former law is continued in effect for that
443	443	purpose.
444	444	(f) Section 1304.205, Occupations Code, as added by this
445	445	Act, applies only to an act or omission of a person operating as a
446	446	provider, administrator, or seller of a service contract that
447	447	occurs on or after the effective date of this Act. An act or
448	448	omission that occurs before that date is governed by the law in
449	449	effect on the date the act or omission occurred, and the former law
450	450	is continued in effect for that purpose.
451	451	ARTICLE 2. IDENTITY RECOVERY SERVICE CONTRACTS
452	452	SECTION 2.01. Section 1306.002, Occupations Code, is
453	453	amended by adding Subdivision (11) to read as follows:
454	454	(11) "Seller" means a person, other than the provider
455	455	or administrator of an identity recovery service contract, who
456	456	markets, sells, offers to sell, negotiates, or issues an identity
457	457	recovery service contract to a consumer on behalf of a provider, but
458	458	who is not contractually obligated to a service contract holder
459	459	under the terms of an identity recovery service contract.
460	460	SECTION 2.02. Chapter 1306, Occupations Code, is amended by
461	461	adding Subchapter A-1 to read as follows:
462	462	SUBCHAPTER A-1. POWERS AND DUTIES OF DEPARTMENT
463	463	AND COMMISSION
464	464	Sec. 1306.022. RULES. The commission shall adopt rules
465	465	necessary to implement and administer this chapter.
466	466	SECTION 2.03. Section 1306.008, Occupations Code, is
467	467	transferred to Subchapter A-1, Chapter 1306, Occupations Code, as
468	468	added by this Act, redesignated as Section 1306.021, Occupations
469	469	Code, and amended to read as follows:
470	470	Sec. 1306.021 [1306.008]. GENERAL INVESTIGATIVE POWER OF
471	471	EXECUTIVE DIRECTOR. (a) The executive director may investigate a
472	472	provider, administrator, seller, or other person as necessary to
473	473	enforce this chapter and protect identity recovery service contract
474	474	holders in this state.
475	475	(b) On request of the executive director, a provider shall
476	476	make the records required by Section 1306.105 available to the
477	477	executive director as necessary to enable the executive director to
478	478	reasonably determine compliance with this chapter.
479	479	SECTION 2.04. Section 1306.051, Occupations Code, is
480	480	amended by amending Subsections (a) and (b) and adding Subsection
481	481	(d) to read as follows:
482	482	(a) A person may not operate as a provider or administrator
483	483	of identity recovery service contracts sold or issued in this state
484	484	unless the person is registered with the department.
485	485	(b) Except for the registration requirement of this chapter
486	486	[subchapter], a provider, [identity recovery service contract]
487	487	seller, administrator, or other person who markets, sells, issues,
488	488	or offers to sell identity recovery service contracts is exempt
489	489	from any licensing requirement of this state that relates to an
490	490	activity regulated under this chapter.
491	491	(d) A provider or administrator may not contract with or use
492	492	the services of a person to perform an activity that requires
493	493	registration with the department as a provider or administrator
494	494	unless that person is appropriately registered.
495	495	SECTION 2.05. Section 1306.052(c), Occupations Code, is
496	496	amended to read as follows:
497	497	(c) The department may refuse to issue or renew a
498	498	registration, suspend or revoke a registration, or take any other
499	499	disciplinary action under Subchapter D if the applicant or a
500	500	controlling person of the applicant:
501	501	(1) has violated this chapter or a rule adopted or
502	502	order issued by the commission or executive director under this
503	503	chapter;
504	504	(2) has made a material misrepresentation or false
505	505	statement in an application or in any document accompanying an
506	506	application;
507	507	(3) has had a license issued under Title 13, Insurance
508	508	Code, revoked as provided by that code; or
509	509	(4) has had a license or registration as a provider,
510	510	administrator, or seller revoked in this state or another state.
511	511	SECTION 2.06. Section 1306.053(a), Occupations Code, is
512	512	amended to read as follows:
513	513	(a) In addition to the requirements of Section 1306.052, an
514	514	applicant for issuance or renewal of a provider registration must
515	515	file with the application:
516	516	(1) the reimbursement insurance policy required by
517	517	Section 1306.102, if the provider is using a reimbursement
518	518	insurance policy to meet the financial security requirements of
519	519	Section 1306.101; [and]
520	520	(2) the financial security deposit and the
521	521	documentation required by the department demonstrating adequate
522	522	funding of the reserve account, if the provider is using a funded
523	523	reserve account and financial security deposit to meet the
524	524	financial security requirements of Section 1306.101;
525	525	(3) the proof necessary to demonstrate the applicant
526	526	or its parent company maintains at least $100 million net worth, if
527	527	the applicant is using net worth to meet the financial security
528	528	requirements of Section 1306.101; and
529	529	(4) information about each controlling person of the
530	530	applicant [a biographical affidavit,] in a form prescribed by the
531	531	executive director[, for each controlling person of the provider].
532	532	SECTION 2.07. Sections 1306.054(b) and (d), Occupations
533	533	Code, are amended to read as follows:
534	534	(b) To register or renew a registration, a provider or
535	535	administrator must pay the appropriate fee. The commission shall
536	536	set by rule the [amounts of the registration and renewal] fees
537	537	required to cover the costs of administering this chapter.
538	538	(d) The information concerning the number of identity
539	539	recovery service contracts sold or issued by a provider that is
540	540	submitted under Subsection (c)[:
541	541	[(1)] is a trade secret to which Section 552.110,
542	542	Government Code, applies[; and
543	543	[(2) may be used only by the executive director and the
544	544	department for the purposes of this section].
545	545	SECTION 2.08. The heading to Subchapter C, Chapter 1306,
546	546	Occupations Code, is amended to read as follows:
547	547	SUBCHAPTER C. PRACTICE BY IDENTITY RECOVERY SERVICE CONTRACT
548	548	PROVIDERS, [AND] ADMINISTRATORS, AND SELLERS
549	549	SECTION 2.09. The heading to Section 1306.101, Occupations
550	550	Code, is amended to read as follows:
551	551	Sec. 1306.101. FINANCIAL SECURITY REQUIREMENTS;
552	552	DISTRIBUTION OF FUNDS HELD IN TRUST.
553	553	SECTION 2.10. Section 1306.101, Occupations Code, is
554	554	amended by amending Subsections (a) and (b) and adding Subsection
555	555	(f) to read as follows:
556	556	(a) To ensure the faithful performance of a provider's
557	557	obligations to its identity recovery service contract holders, each
558	558	provider must:
559	559	(1) insure the provider's identity recovery service
560	560	contracts under a reimbursement insurance policy issued by an
561	561	insurer authorized to transact insurance in this state or by a
562	562	surplus lines insurer eligible to place coverage in this state
563	563	under Chapter 981, Insurance Code;
564	564	(2) maintain a funded reserve account covering the
565	565	provider's obligations under its identity recovery service
566	566	contracts that are issued and outstanding in this state and place in
567	567	trust with the executive director a financial security deposit
568	568	consisting of:
569	569	(A) [a surety bond issued by an authorized
570	570	surety;
571	571	[(B) securities of the type eligible for deposit
572	572	by an authorized insurer in this state;
573	573	[(C)] a statutory deposit of cash [or cash
574	574	equivalents];
575	575	(B) [(D)] a letter of credit issued by a
576	576	qualified financial institution; or
577	577	(C) a certificate of deposit issued by a
578	578	qualified financial institution
579	579	[(E) another form of security prescribed by rules
580	580	adopted by the commission]; or
581	581	(3) maintain, or have a parent company that maintains,
582	582	a net worth or stockholders' equity of at least $100 million.
583	583	(b) If the provider ensures its obligations under
584	584	Subsection (a)(2), the amount maintained in the reserve account may
585	585	not be less than an amount equal to 40 percent of the gross
586	586	consideration the provider received from consumers from the sale of
587	587	all identity recovery service contracts issued and outstanding in
588	588	this state, minus any claims paid. The executive director may
589	589	review and examine the reserve account. The amount of the security
590	590	deposit may not be less than $250,000. The provider must submit to
591	591	the executive director on request a copy of the provider's
592	592	financial statements that must be prepared in accordance with
593	593	generally accepted accounting principles, be without qualification
594	594	as to the going concern status of the provider, and be audited by an
595	595	independent certified public accountant. The commission by rule
596	596	may require the provider to submit additional financial reports
597	597	[the greater of:
598	598	[(1) $25,000; or
599	599	[(2) an amount equal to five percent of the gross
600	600	consideration the provider received from consumers from the sale of
601	601	all identity recovery service contracts issued and outstanding in
602	602	this state, minus any claims paid].
603	603	(f) In the event of a provider's bankruptcy or a similar
604	604	event affecting the ability of the provider to faithfully perform
605	605	its obligations to its identity recovery service contract holders,
606	606	the executive director may distribute any funds held in trust as
607	607	financial security for the provider under this section to eligible
608	608	identity recovery service contract holders as payment for claims.
609	609	The executive director must distribute the funds in an equitable
610	610	and cost-effective manner as determined by the executive director.
611	611	SECTION 2.11. Subchapter C, Chapter 1306, Occupations Code,
612	612	is amended by adding Sections 1306.1021 and 1306.1031 to read as
613	613	follows:
614	614	Sec. 1306.1021. FINANCIAL SECURITY TRANSITION. (a) In
615	615	this section, "provider that maintained a funded reserve account"
616	616	means a provider that, in order to ensure the faithful performance
617	617	of the provider's obligations to identity recovery service contract
618	618	holders, maintained a funded reserve account covering the
619	619	provider's obligations under identity recovery service contracts
620	620	that were issued and outstanding in this state and placed in trust
621	621	with the executive director a financial security deposit consisting
622	622	of:
623	623	(1) a surety bond issued by an authorized surety;
624	624	(2) securities of the type eligible for deposit by an
625	625	authorized insurer in this state;
626	626	(3) a statutory deposit of cash or cash equivalents;
627	627	(4) a letter of credit issued by a qualified financial
628	628	institution; or
629	629	(5) another form of security prescribed by commission
630	630	rules.
631	631	(b) This section applies only to a provider that maintained
632	632	a funded reserve account on August 31, 2011.
633	633	(c) Not later than September 1, 2012, a provider that
634	634	maintained a funded reserve account shall submit to the executive
635	635	director documentation that the provider is in compliance with the
636	636	financial security requirements provided by Section 1306.101 for
637	637	identity recovery service contracts sold or issued in this state on
638	638	or after September 1, 2012. A provider that maintained a funded
639	639	reserve account may not sell or issue an identity recovery service
640	640	contract on or after September 1, 2012, unless the provider is in
641	641	compliance with this subsection.
642	642	(d) A provider that maintained a funded reserve account
643	643	shall:
644	644	(1) continue to maintain the funded reserve account
645	645	and security deposit at appropriate levels for identity recovery
646	646	service contracts that were sold or issued in this state before
647	647	September 1, 2012, until the contracts are no longer in effect; or
648	648	(2) provide financial security for identity recovery
649	649	service contracts sold or issued before September 1, 2012, by
650	650	complying with the financial security requirements of Section
651	651	1306.101.
652	652	(e) If a provider provides financial security for identity
653	653	recovery service contracts sold or issued before September 1, 2012,
654	654	by complying with the financial security requirements of Section
655	655	1306.101, the provider shall give to the executive director
656	656	satisfactory documentation that the reimbursement insurance
657	657	policy, funded reserve account and security deposit, or net worth
658	658	covers all outstanding identity recovery service contracts issued
659	659	before September 1, 2012.
660	660	(f) An identity recovery service contract that is sold or
661	661	issued before September 1, 2012, and is covered under a funded
662	662	reserve account and security deposit may not be extended or renewed
663	663	at the end of the identity recovery service contract term unless the
664	664	provider provides financial security for those service contracts by
665	665	complying with the financial security requirements of Section
666	666	1306.101 before the extension or renewal.
667	667	Sec. 1306.1031. IDENTITY RECOVERY SERVICE CONTRACT
668	668	SELLERS; RESPONSIBILITIES. (a) A provider may employ or contract
669	669	with a seller to be responsible for:
670	670	(1) all or any part of the sale or marketing of
671	671	identity recovery service contracts for the provider; and
672	672	(2) compliance with this chapter in connection with
673	673	the sale or marketing of identity recovery service contracts.
674	674	(b) The hiring of or contracting with a seller under this
675	675	section does not affect a provider's responsibility to comply with
676	676	this chapter.
677	677	(c) Unless registered as a provider or administrator, a
678	678	seller is prohibited from engaging in activities that would require
679	679	registration as a provider or administrator.
680	680	(d) A seller shall process an identity recovery service
681	681	contract application and a payment from a consumer in accordance
682	682	with this chapter and with any sales agreement or contract between
683	683	the provider and the seller.
684	684	SECTION 2.12. Sections 1306.106(a), (b), and (d),
685	685	Occupations Code, are amended to read as follows:
686	686	(a) An identity recovery service contract marketed, sold,
687	687	offered for sale, issued, made, proposed to be made, or
688	688	administered in this state must:
689	689	(1) be written, printed, or typed in clear,
690	690	understandable language that is easy to read;
691	691	(2) state the name and address of the provider;
692	692	(3) state the purchase price of the contract and the
693	693	terms under which the contract is sold;
694	694	(4) state the terms and restrictions governing
695	695	cancellation of the contract by the provider or the identity
696	696	recovery service contract holder before the expiration date of the
697	697	contract;
698	698	(5) identify:
699	699	(A) any administrator and any registration
700	700	number issued to the administrator under this chapter;
701	701	(B) the [contract] seller; and
702	702	(C) the identity recovery service contract
703	703	holder, if the identity recovery service contract holder provides
704	704	the holder's name;
705	705	(6) state the amount of any deductible;
706	706	(7) specify the services to be provided under the
707	707	contract and any limitation, exception, or exclusion;
708	708	(8) specify any restriction governing the
709	709	transferability of the contract; and
710	710	(9) state the duties of the identity recovery service
711	711	contract holder, including any duty to protect against any further
712	712	damage and any requirement to follow the instructions in the
713	713	identity recovery service contract.
714	714	(b) The identity and, if applicable, registration number
715	715	issued under this chapter of a person described by Subsection
716	716	(a)(5) is not required to be preprinted on the identity recovery
717	717	service contract and may be added to the contract at the time of
718	718	sale.
719	719	(d) An identity recovery service contract insured under a
720	720	reimbursement insurance policy under Section 1306.102 must:
721	721	(1) state the name and address of the insurer;
722	722	(2) state that the identity recovery service contract
723	723	holder may apply for reimbursement directly to the insurer if:
724	724	(A) a covered service is not provided to the
725	725	identity recovery service contract holder by the provider before
726	726	the 61st day after the date of proof of loss; or
727	727	(B) a refund or credit is not paid before the 46th
728	728	day after the date on which the contract is canceled [returned to
729	729	the provider] under Section 1306.1081 [1306.107]; and
730	730	(3) contain a statement substantially similar to the
731	731	following: "Obligations of the provider under this identity
732	732	recovery service contract are insured under an identity recovery
733	733	service contract reimbursement insurance policy."
734	734	SECTION 2.13. Subchapter C, Chapter 1306, Occupations Code,
735	735	is amended by adding Section 1306.1081 to read as follows:
736	736	Sec. 1306.1081. CANCELLATION BY IDENTITY RECOVERY SERVICE
737	737	CONTRACT HOLDER; REFUND. (a) An identity recovery service
738	738	contract must allow the identity recovery service contract holder
739	739	to cancel the identity recovery service contract at any time.
740	740	(b) If an identity recovery service contract holder cancels
741	741	an identity recovery service contract before the 31st day after the
742	742	date of purchase, the provider:
743	743	(1) shall refund to the identity recovery service
744	744	contract holder or credit to the account of the identity recovery
745	745	service contract holder the full purchase price of the contract,
746	746	decreased by the amount of any claims paid under the contract; and
747	747	(2) may not impose a cancellation fee.
748	748	(c) If an identity recovery service contract holder cancels
749	749	an identity recovery service contract on or after the 31st day after
750	750	the date of purchase, the provider:
751	751	(1) shall refund to the identity recovery service
752	752	contract holder or credit to the account of the identity recovery
753	753	service contract holder the prorated purchase price of the contract
754	754	reflecting the remaining term of the contract, based on mileage,
755	755	time, or another reasonably applicable measure of the remaining
756	756	term that must be disclosed in the contract, decreased by the amount
757	757	of any claims paid under the contract; and
758	758	(2) may impose a reasonable cancellation fee not to
759	759	exceed $50.
760	760	(d) A provider may allow an identity recovery service
761	761	contract holder to cancel an identity recovery service contract on
762	762	other terms included in the contract, provided the terms do not
763	763	conflict with this section.
764	764	(e) A provider who does not pay the refund or credit the
765	765	identity recovery service contract holder's account before the 46th
766	766	day after the date notice of cancellation is received by the
767	767	provider is liable to the identity recovery service contract holder
768	768	for a penalty for each month an amount remains outstanding equal to
769	769	10 percent of the amount outstanding. The penalty is in addition to
770	770	the full or prorated purchase price of the contract that is owed to
771	771	the identity recovery service contract holder under this section or
772	772	the terms of the contract.
773	773	(f) The right to cancel an identity recovery service
774	774	contract is not transferable to a subsequent holder of the
775	775	contract.
776	776	SECTION 2.14. The heading to Section 1306.109, Occupations
777	777	Code, is amended to read as follows:
778	778	Sec. 1306.109. CANCELLATION BY A PROVIDER; REFUND
779	779	[CANCELING AN IDENTITY RECOVERY SERVICE CONTRACT].
780	780	SECTION 2.15. Section 1306.109, Occupations Code, is
781	781	amended by amending Subsection (b) and adding Subsection (c) to
782	782	read as follows:
783	783	(b) The provider is not required to provide prior notice of
784	784	cancellation if the identity recovery service contract is canceled
785	785	because of:
786	786	(1) nonpayment of the consideration for the contract;
787	787	(2) fraud or a material misrepresentation by the
788	788	identity recovery service contract holder to the provider or the
789	789	provider's administrator; or
790	790	(3) a substantial breach of a duty by the identity
791	791	recovery service contract holder.
792	792	(c) An identity recovery service contract holder whose
793	793	contract is canceled by the provider in accordance with this
794	794	section is entitled to a prorated refund of the purchase price of
795	795	the contract reflecting the remaining term of the contract, based
796	796	on mileage, time, or another reasonably applicable measure of the
797	797	remaining term that must be disclosed in the contract, decreased by
798	798	the amount of any claims paid under the contract. A provider who
799	799	cancels a contract under this section may not impose a cancellation
800	800	fee.
801	801	SECTION 2.16. Section 1306.111, Occupations Code, is
802	802	amended to read as follows:
803	803	Sec. 1306.111. [MISLEADING STATEMENTS] PROHIBITED ACTS.
804	804	(a) A provider, administrator, seller, or other [or the
805	805	provider's] representative of the provider may not, in the
806	806	provider's identity recovery service contracts or literature or in
807	807	any written communication:
808	808	(1) make, permit, or cause to be made any false,
809	809	deceptive, or misleading statement; or
810	810	(2) deliberately omit a material statement if the
811	811	omission would be considered misleading.
812	812	(b) A person regulated by Chapter 2301 may not require the
813	813	purchase of an identity recovery service contract as a condition of
814	814	a loan or the sale of a vehicle.
815	815	(c) A provider, administrator, seller, or other
816	816	representative of the provider may not make a telemarketing call to
817	817	a consumer as provided by Sections 304.002 and 304.003, Business &
818	818	Commerce Code, unless the provider, administrator, seller, or
819	819	representative has an established business relationship, as
820	820	defined by Section 304.002, Business & Commerce Code, with the
821	821	consumer.
822	822	SECTION 2.17. Section 1306.151, Occupations Code, is
823	823	amended to read as follows:
824	824	Sec. 1306.151. DISCIPLINARY ACTION. On a finding that a
825	825	ground for disciplinary action exists under this chapter, the
826	826	commission or executive director may impose an administrative
827	827	sanction or [, including an] administrative penalty or seek a civil
828	828	penalty or any other remedy as provided by this chapter and
829	829	[Subchapter F,] Chapter 51.
830	830	SECTION 2.18. Subchapter D, Chapter 1306, Occupations Code,
831	831	is amended by adding Section 1306.155 to read as follows:
832	832	Sec. 1306.155. REMEDY FOR IDENTITY RECOVERY SERVICE
833	833	CONTRACT HOLDERS. (a) If the commission by order, including an
834	834	agreed order, determines that a person has operated as a provider or
835	835	administrator in this state without holding the appropriate
836	836	registration under this chapter, the person shall offer to an
837	837	identity recovery service contract holder who holds an identity
838	838	recovery service contract sold or issued by the person during the
839	839	period that the person was not registered under this chapter the
840	840	right to:
841	841	(1) cancel the contract and obtain a refund of the full
842	842	purchase price of the contract; or
843	843	(2) retain the contract.
844	844	(b) If a seller fails to process an identity recovery
845	845	service contract application or a payment from a consumer in
846	846	accordance with this chapter and any sales agreement or contract
847	847	between the provider and the seller, the commission or executive
848	848	director may, by commission order, including an agreed order,
849	849	require the seller to refund the full purchase price of the contract
850	850	to the consumer.
851	851	(c) The remedies described in this section are in addition
852	852	to any administrative penalty, administrative sanction, civil
853	853	penalty, or other disciplinary or enforcement action sought under
854	854	this chapter or Chapter 51.
855	855	SECTION 2.19. (a) On the effective date of this Act, the
856	856	following provisions of the Occupations Code are repealed:
857	857	(1) Section 1306.007; and
858	858	(2) Section 1306.052(d).
859	859	(b) On January 1, 2012, the following provisions of the
860	860	Occupations Code are repealed:
861	861	(1) Section 1306.107; and
862	862	(2) Section 1306.108.
863	863	SECTION 2.20. (a) Not later than April 1, 2012, the Texas
864	864	Commission of Licensing and Regulation shall adopt rules necessary
865	865	to implement Chapter 1306, Occupations Code, as amended by this
866	866	Act.
867	867	(b) Sections 1306.052 and 1306.053, Occupations Code, as
868	868	amended by this Act, apply only to an application for a registration
869	869	or renewal of a registration filed with the Texas Department of
870	870	Licensing and Regulation on or after the effective date of this Act.
871	871	An application filed before that date is governed by the law in
872	872	effect on the date the application was filed, and the former law is
873	873	continued in effect for that purpose.
874	874	(c) Sections 1306.106 and 1306.109, Occupations Code, as
875	875	amended by this Act, and Section 1306.1081, Occupations Code, as
876	876	added by this Act, apply only to an identity recovery service
877	877	contract sold or issued on or after January 1, 2012. An identity
878	878	recovery service contract sold or issued before that date is
879	879	governed by the law in effect on the date the contract was sold or
880	880	issued, and the former law is continued in effect for that purpose.
881	881	(d) Notwithstanding Subsection (c) of this section, an
882	882	identity recovery service contract sold or issued before January 1,
883	883	2012, may not be extended or renewed at the end of the contract term
884	884	unless the contract complies with Sections 1306.106 and 1306.109,
885	885	Occupations Code, as amended by this Act, and Section 1306.1081,
886	886	Occupations Code, as added by this Act.
887	887	(e) Section 1306.151, Occupations Code, as amended by this
888	888	Act, applies only to a disciplinary action initiated by the Texas
889	889	Department of Licensing and Regulation on or after the effective
890	890	date of this Act. An action initiated before the effective date of
891	891	this Act is governed by the law in effect on the date the action was
892	892	initiated, and the former law is continued in effect for that
893	893	purpose.
894	894	(f) Section 1306.155, Occupations Code, as added by this
895	895	Act, applies only to an act or omission of a person operating as a
896	896	provider, administrator, or seller of an identity recovery service
897	897	contract that occurs on or after the effective date of this Act. An
898	898	act or omission that occurs before that date is governed by the law
899	899	in effect on the date the act or omission occurred, and the former
900	900	law is continued in effect for that purpose.
901	901	ARTICLE 3. EFFECTIVE DATE
902	902	SECTION 3.01. This Act takes effect September 1, 2011.