82R24993 MAW-F
By: Carona S.B. No. 1169
(Hamilton)
Substitute the following for S.B. No. 1169: No.
A BILL TO BE ENTITLED
AN ACT
relating to the regulation of providers, administrators, and
sellers of service contracts and identity recovery service
contracts; providing penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
ARTICLE 1. SERVICE CONTRACTS
SECTION 1.01. Section 1304.002, Occupations Code, is
amended by adding Subdivision (8-a) to read as follows:
(8-a) "Seller" means a person, other than the provider
or administrator of a service contract, who markets, sells, offers
to sell, negotiates, or issues a service contract to a consumer on
behalf of a provider, but who is not contractually obligated to a
service contract holder under the terms of a service contract.
SECTION 1.02. Chapter 1304, Occupations Code, is amended by
adding Subchapter B to read as follows:
SUBCHAPTER B. POWERS AND DUTIES OF DEPARTMENT
AND COMMISSION
Sec. 1304.052. RULES. The commission shall adopt rules
necessary to implement and administer this chapter.
SECTION 1.03. Section 1304.007, Occupations Code, is
transferred to Subchapter B, Chapter 1304, Occupations Code, as
added by this Act, redesignated as Section 1304.051, Occupations
Code, and amended to read as follows:
Sec. 1304.051 [1304.007]. GENERAL INVESTIGATIVE POWER OF
EXECUTIVE DIRECTOR. (a) The executive director may investigate a
provider, administrator, seller, or other person as necessary to
enforce this chapter and protect service contract holders in this
state.
(b) On request of the executive director, a provider shall
make the records required by Section 1304.155 available to the
executive director as necessary to enable the executive director to
reasonably determine compliance with this chapter.
SECTION 1.04. Section 1304.101, Occupations Code, is
amended to read as follows:
Sec. 1304.101. REGISTRATION REQUIRED; EXEMPTION FROM OTHER
LICENSING REQUIREMENTS. (a) A person may not operate as a
provider or administrator of service contracts sold or issued in
this state unless the person is registered with the department.
(b) Except for the registration requirement of this chapter
[subchapter], a provider, [service contract] seller,
administrator, or other person who markets, sells, issues, or
offers to sell service contracts is exempt from any licensing
requirement of this state that relates to an activity regulated
under this chapter.
(c) A provider or administrator may not contract with or use
the services of a person to perform an activity that requires
registration with the department as a provider or administrator
unless that person is appropriately registered.
SECTION 1.05. Section 1304.102(c), Occupations Code, is
amended to read as follows:
(c) The department may refuse to issue or renew a
registration, suspend or revoke a registration, or take any other
disciplinary action under Subchapter E if the applicant or a
controlling person of the applicant:
(1) has violated this chapter or a rule adopted or
order issued by the commission or executive director under this
chapter;
(2) has made a material misrepresentation or false
statement in an application or in any document accompanying an
application;
(3) has had a license issued under Title 13, Insurance
Code, revoked as provided by that code; or
(4) has had a license or registration as a provider,
administrator, or seller revoked in this state or another state.
SECTION 1.06. Section 1304.1025(a), Occupations Code, is
amended to read as follows:
(a) In addition to the requirements of Section 1304.102, an
applicant for issuance or renewal of a provider registration must
file with the application:
(1) the reimbursement insurance policy, if the
provider is using a reimbursement insurance policy to meet the
financial security requirements of Section 1304.151; [and]
(2) the financial security deposit and the
documentation required by the department demonstrating adequate
funding of the reserve account, if the provider is using a funded
reserve account and financial security deposit to meet the
financial security requirements of Section 1304.151;
(3) the proof necessary to demonstrate the applicant
or its parent company maintains at least $100 million net worth, if
the applicant is using net worth to meet the financial security
requirements of Section 1304.151; and
(4) information about each controlling person of the
applicant [a biographical affidavit,] in a form prescribed by the
executive director[, for each controlling person of the provider].
SECTION 1.07. Sections 1304.103(a) and (b), Occupations
Code, are amended to read as follows:
(a) The executive director shall develop a tiered schedule
of registration and renewal fees under which a provider's fee is
based on the number of service contracts the provider sold or issued
in this state during the preceding 12-month period.
(b) The commission shall set [the amounts of] fees to cover
the costs of administering this chapter, including registration and
renewal fees for administrators.
SECTION 1.08. Section 1304.104, Occupations Code, is
amended to read as follows:
Sec. 1304.104. INFORMATION CONCERNING NUMBER OF SERVICE
CONTRACTS SOLD OR ISSUED. Information concerning the number of
service contracts sold or issued by a provider that is submitted
under Section 1304.103[:
[(1)] is a trade secret to which Section 552.110,
Government Code, applies[; and
[(2) may be used only by the executive director and the
department in developing the tiered fee schedule under Section
1304.103].
SECTION 1.09. The heading to Subchapter D, Chapter 1304,
Occupations Code, is amended to read as follows:
SUBCHAPTER D. PRACTICE BY SERVICE CONTRACT PROVIDERS,
[AND] ADMINISTRATORS, AND SELLERS
SECTION 1.10. The heading to Section 1304.151, Occupations
Code, is amended to read as follows:
Sec. 1304.151. FINANCIAL SECURITY REQUIREMENTS;
DISTRIBUTION OF FUNDS HELD IN TRUST.
SECTION 1.11. Section 1304.151, Occupations Code, is
amended by amending Subsections (a) and (b) and adding Subsection
(f) to read as follows:
(a) To ensure the faithful performance of a provider's
obligations to its service contract holders, each provider must:
(1) insure the provider's service contracts under a
reimbursement insurance policy issued by an insurer authorized to
transact insurance in this state or by a surplus lines insurer
eligible to place coverage in this state under Chapter 981,
Insurance Code;
(2) maintain a funded reserve account covering the
provider's obligations under its service contracts that are issued
and outstanding in this state and place in trust with the executive
director a financial security deposit consisting of:
(A) [a surety bond issued by an authorized
surety;
[(B) securities of the type eligible for deposit
by an authorized insurer in this state;
[(C)] a statutory deposit of cash [or cash
equivalents];
(B) [(D)] a letter of credit issued by a
qualified financial institution; or
(C) a certificate of deposit issued by a
qualified financial institution
[(E) another form of security prescribed by rules
adopted by the commission]; or
(3) maintain, or have a parent company that maintains,
a net worth or stockholders' equity of at least $100 million.
(b) If the provider ensures its obligations under
Subsection (a)(2), the amount maintained in the reserve account may
not be less than an amount equal to 40 percent of the gross
consideration the provider received from consumers from the sale of
all service contracts issued and outstanding in this state, minus
any claims paid. The executive director may review and examine the
reserve account. The amount of the security deposit may not be less
than $250,000. The provider must submit to the executive director
on request a copy of the provider's financial statements that must
be prepared in accordance with generally accepted accounting
principles, be without qualification as to the going concern status
of the provider, and be audited by an independent certified public
accountant. The commission by rule may require the provider to
submit additional financial reports [the greater of:
[(1) $25,000; or
[(2) an amount equal to five percent of the gross
consideration the provider received from consumers from the sale of
all service contracts issued and outstanding in this state, minus
any claims paid].
(f) In the event of a provider's bankruptcy or a similar
event affecting the ability of the provider to faithfully perform
its obligations to its service contract holders, the executive
director may distribute any funds held in trust as financial
security for the provider under this section to eligible service
contract holders as payment for claims. The executive director
must distribute the funds in an equitable and cost-effective manner
as determined by the executive director.
SECTION 1.12. Subchapter D, Chapter 1304, Occupations Code,
is amended by adding Sections 1304.1521 and 1304.1531 to read as
follows:
Sec. 1304.1521. FINANCIAL SECURITY TRANSITION. (a) In
this section, "provider that maintained a funded reserve account"
means a provider that, in order to ensure the faithful performance
of the provider's obligations to service contract holders,
maintained a funded reserve account covering the provider's
obligations under service contracts that were issued and
outstanding in this state and placed in trust with the executive
director a financial security deposit consisting of:
(1) a surety bond issued by an authorized surety;
(2) securities of the type eligible for deposit by an
authorized insurer in this state;
(3) a statutory deposit of cash or cash equivalents;
(4) a letter of credit issued by a qualified financial
institution; or
(5) another form of security prescribed by commission
rules.
(b) This section applies only to a provider that maintained
a funded reserve account on August 31, 2011.
(c) Not later than September 1, 2012, a provider that
maintained a funded reserve account shall submit to the executive
director documentation that the provider is in compliance with the
financial security requirements provided by Section 1304.151 for
service contracts sold or issued in this state on or after September
1, 2012. A provider that maintained a funded reserve account may
not sell or issue a service contract on or after September 1, 2012,
unless the provider is in compliance with this subsection.
(d) A provider that maintained a funded reserve account
shall:
(1) continue to maintain the funded reserve account
and security deposit at appropriate levels for service contracts
that were sold or issued in this state before September 1, 2012,
until the contracts are no longer in effect; or
(2) provide financial security for service contracts
sold or issued before September 1, 2012, by complying with the
financial security requirements of Section 1304.151.
(e) If a provider provides financial security for service
contracts sold or issued before September 1, 2012, by complying
with the financial security requirements of Section 1304.151, the
provider shall give to the executive director satisfactory
documentation that the reimbursement insurance policy, funded
reserve account and security deposit, or net worth covers all
outstanding service contracts issued before September 1, 2012.
(f) A service contract that is sold or issued before
September 1, 2012, and is covered under a funded reserve account and
security deposit may not be extended or renewed at the end of the
service contract term unless the provider provides financial
security for those service contracts by complying with the
financial security requirements of Section 1304.151 before the
extension or renewal.
Sec. 1304.1531. SERVICE CONTRACT SELLERS;
RESPONSIBILITIES. (a) A provider may employ or contract with a
seller to be responsible for:
(1) all or any part of the sale or marketing of service
contracts for the provider; and
(2) compliance with this chapter in connection with
the sale or marketing of service contracts.
(b) The hiring of or contracting with a seller under this
section does not affect a provider's responsibility to comply with
this chapter.
(c) Unless registered as a provider or administrator, a
seller is prohibited from engaging in activities that would require
registration as a provider or administrator.
(d) A seller shall process a service contract application
and a payment from a consumer in accordance with this chapter and
with any sales agreement or contract between the provider and the
seller.
SECTION 1.13. Sections 1304.156(a), (b), and (d),
Occupations Code, are amended to read as follows:
(a) A service contract marketed, sold, offered for sale,
issued, made, proposed to be made, or administered in this state
must:
(1) be written, printed, or typed in clear,
understandable language that is easy to read;
(2) state the name and address of the provider;
(3) state the purchase price of the contract and the
terms under which the contract is sold;
(4) state the terms and restrictions governing
cancellation of the contract by the provider or the service
contract holder before the expiration date of the contract;
(5) identify:
(A) any administrator and any registration
number issued to the administrator under this chapter;
(B) the [contract] seller; and
(C) the service contract holder, if the service
contract holder provides the holder's name;
(6) state the amount of any deductible;
(7) specify the products and services to be provided
under the contract and any limitation, exception, or exclusion;
(8) specify any restriction governing the
transferability of the contract;
(9) state the duties of the service contract holder,
including any duty to protect against any further damage and any
requirement to follow the instructions in the owner's manual; and
(10) state whether the contract provides for or
excludes consequential damages or preexisting conditions, if
applicable.
(b) The identity and, if applicable, registration number
issued under this chapter of a person described by Subsection
(a)(5) is not required to be preprinted on the service contract and
may be added to the contract at the time of sale.
(d) A service contract insured under a reimbursement
insurance policy under Section 1304.152 [1304.151(a)(1)] must:
(1) state the name and address of the insurer;
(2) state that the service contract holder may apply
for reimbursement directly to the insurer if:
(A) a covered service is not provided to the
service contract holder by the provider before the 61st [not later
than the 60th] day after the date of proof of loss; or
(B) a refund or credit is not paid before the 46th
day after the date on which the contract is canceled [returned to
the provider] under Section 1304.1581 [1304.158]; and
(3) contain a statement substantially similar to the
following: "Obligations of the provider under this service
contract are insured under a service contract reimbursement
insurance policy."
SECTION 1.14. Subchapter D, Chapter 1304, Occupations Code,
is amended by adding Section 1304.1581 to read as follows:
Sec. 1304.1581. CANCELLATION BY SERVICE CONTRACT HOLDER;
REFUND. (a) A service contract must allow the service contract
holder to cancel the service contract at any time.
(b) If a service contract holder cancels a service contract
before the 31st day after the date of purchase, the provider:
(1) shall refund to the service contract holder or
credit to the account of the service contract holder the full
purchase price of the contract, decreased by the amount of any
claims paid under the contract; and
(2) may not impose a cancellation fee.
(c) If a service contract holder cancels a service contract
on or after the 31st day after the date of purchase, the provider:
(1) shall refund to the service contract holder or
credit to the account of the service contract holder the prorated
purchase price of the contract reflecting the remaining term of the
contract, based on mileage, time, or another reasonably applicable
measure of the remaining term that must be disclosed in the
contract, decreased by the amount of any claims paid under the
contract; and
(2) may impose a reasonable cancellation fee not to
exceed $50.
(d) A provider may allow a service contract holder to cancel
a service contract on other terms included in the contract,
provided the terms do not conflict with this section.
(e) A provider who does not pay the refund or credit the
service contract holder's account before the 46th day after the
date notice of cancellation is received by the provider is liable to
the service contract holder for a penalty for each month an amount
remains outstanding equal to 10 percent of the amount outstanding.
The penalty is in addition to the full or prorated purchase price of
the contract that is owed to the service contract holder under this
section or the terms of the contract.
(f) The right to cancel a service contract is not
transferable to a subsequent holder of the contract.
SECTION 1.15. The heading to Section 1304.159, Occupations
Code, is amended to read as follows:
Sec. 1304.159. CANCELLATION BY PROVIDER; REFUND [CANCELING
A SERVICE CONTRACT].
SECTION 1.16. Section 1304.159, Occupations Code, is
amended by amending Subsection (b) and adding Subsection (c) to
read as follows:
(b) The provider is not required to provide prior notice of
cancellation if the service contract is canceled because of:
(1) nonpayment of the consideration for the contract;
(2) fraud or a material misrepresentation by the
service contract holder to the provider or the provider's
administrator; or
(3) a substantial breach of a duty by the service
contract holder relating to the covered product or its use.
(c) A service contract holder whose contract is canceled by
the provider in accordance with this section is entitled to a
prorated refund of the purchase price of the contract reflecting
the remaining term of the contract, based on mileage, time, or
another reasonably applicable measure of the remaining term that
must be disclosed in the contract, decreased by the amount of any
claims paid under the contract. A provider who cancels a contract
under this section may not impose a cancellation fee.
SECTION 1.17. Section 1304.161, Occupations Code, is
amended to read as follows:
Sec. 1304.161. [MISLEADING STATEMENTS] PROHIBITED ACTS.
(a) A provider, administrator, seller, or other [or the
provider's] representative of the provider may not, in the
provider's service contracts or literature or in any written
communication:
(1) make, permit, or cause to be made any false,
deceptive, or misleading statement; or
(2) deliberately omit a material statement if the
omission would be considered misleading.
(b) A person, including a bank, a savings and loan
association, a lending institution, or the manufacturer or seller
of a product, may not require the purchase of a service contract as
a condition of a loan or the sale of property.
(c) A provider, administrator, seller, or other
representative of the provider may not make a telemarketing call to
a consumer as provided by Sections 304.002 and 304.003, Business &
Commerce Code, unless the provider, administrator, seller, or
representative has an established business relationship, as
defined by Section 304.002, Business & Commerce Code, with the
consumer.
SECTION 1.18. Section 1304.201, Occupations Code, is
amended to read as follows:
Sec. 1304.201. DISCIPLINARY ACTION. [(a)] On a finding
that a ground for disciplinary action exists under this chapter,
the commission or executive director may impose an administrative
sanction or[, including an] administrative penalty or seek a civil
penalty or any other remedy as provided by this chapter and
[Subchapter F,] Chapter 51.
SECTION 1.19. Subchapter E, Chapter 1304, Occupations Code,
is amended by adding Section 1304.205 to read as follows:
Sec. 1304.205. REMEDY FOR SERVICE CONTRACT HOLDERS.
(a) If the commission by order, including an agreed order,
determines that a person has operated as a provider or
administrator in this state without holding the appropriate
registration under this chapter, the person shall offer to a
service contract holder who holds a service contract sold or issued
by the person during the period that the person was not registered
under this chapter the right to:
(1) cancel the contract and obtain a refund of the full
purchase price of the contract; or
(2) retain the contract.
(b) If a seller fails to process a service contract
application or a payment from a consumer in accordance with this
chapter and any sales agreement or contract between the provider
and the seller, the commission or executive director may, by
commission order, including an agreed order, require the seller to
refund the full purchase price of the contract to the consumer.
(c) The remedies described in this section are in addition
to any administrative penalty, administrative sanction, civil
penalty, or other disciplinary or enforcement action sought under
this chapter or Chapter 51.
SECTION 1.20. (a) On the effective date of this Act, the
following provisions of the Occupations Code are repealed:
(1) Section 1304.006; and
(2) Section 1304.102(d).
(b) On January 1, 2012, the following provisions of the
Occupations Code are repealed:
(1) Section 1304.157; and
(2) Section 1304.158.
SECTION 1.21. (a) Not later than April 1, 2012, the Texas
Commission of Licensing and Regulation shall adopt rules necessary
to implement Chapter 1304, Occupations Code, as amended by this
Act.
(b) Sections 1304.102 and 1304.1025, Occupations Code, as
amended by this Act, apply only to an application for a registration
or renewal of a registration filed with the Texas Department of
Licensing and Regulation on or after the effective date of this Act.
An application filed before that date is governed by the law in
effect on the date the application was filed, and the former law is
continued in effect for that purpose.
(c) Sections 1304.156 and 1304.159, Occupations Code, as
amended by this Act, and Section 1304.1581, Occupations Code, as
added by this Act, apply only to a service contract sold or issued
on or after January 1, 2012. A service contract sold or issued
before that date is governed by the law in effect on the date the
contract was sold or issued, and the former law is continued in
effect for that purpose.
(d) Notwithstanding Subsection (c) of this section, a
service contract sold or issued before January 1, 2012, may not be
extended or renewed at the end of the service contract term unless
the contract complies with Sections 1304.156 and 1304.159,
Occupations Code, as amended by this Act, and Section 1304.1581,
Occupations Code, as added by this Act.
(e) Section 1304.201, Occupations Code, as amended by this
Act, applies only to a disciplinary action initiated by the Texas
Department of Licensing and Regulation on or after the effective
date of this Act. An action initiated before the effective date of
this Act is governed by the law in effect on the date the action was
initiated, and the former law is continued in effect for that
purpose.
(f) Section 1304.205, Occupations Code, as added by this
Act, applies only to an act or omission of a person operating as a
provider, administrator, or seller of a service contract that
occurs on or after the effective date of this Act. An act or
omission that occurs before that date is governed by the law in
effect on the date the act or omission occurred, and the former law
is continued in effect for that purpose.
ARTICLE 2. IDENTITY RECOVERY SERVICE CONTRACTS
SECTION 2.01. Section 1306.002, Occupations Code, is
amended by adding Subdivision (11) to read as follows:
(11) "Seller" means a person, other than the provider
or administrator of an identity recovery service contract, who
markets, sells, offers to sell, negotiates, or issues an identity
recovery service contract to a consumer on behalf of a provider, but
who is not contractually obligated to a service contract holder
under the terms of an identity recovery service contract.
SECTION 2.02. Chapter 1306, Occupations Code, is amended by
adding Subchapter A-1 to read as follows:
SUBCHAPTER A-1. POWERS AND DUTIES OF DEPARTMENT
AND COMMISSION
Sec. 1306.022. RULES. The commission shall adopt rules
necessary to implement and administer this chapter.
SECTION 2.03. Section 1306.008, Occupations Code, is
transferred to Subchapter A-1, Chapter 1306, Occupations Code, as
added by this Act, redesignated as Section 1306.021, Occupations
Code, and amended to read as follows:
Sec. 1306.021 [1306.008]. GENERAL INVESTIGATIVE POWER OF
EXECUTIVE DIRECTOR. (a) The executive director may investigate a
provider, administrator, seller, or other person as necessary to
enforce this chapter and protect identity recovery service contract
holders in this state.
(b) On request of the executive director, a provider shall
make the records required by Section 1306.105 available to the
executive director as necessary to enable the executive director to
reasonably determine compliance with this chapter.
SECTION 2.04. Section 1306.051, Occupations Code, is
amended by amending Subsections (a) and (b) and adding Subsection
(d) to read as follows:
(a) A person may not operate as a provider or administrator
of identity recovery service contracts sold or issued in this state
unless the person is registered with the department.
(b) Except for the registration requirement of this chapter
[subchapter], a provider, [identity recovery service contract]
seller, administrator, or other person who markets, sells, issues,
or offers to sell identity recovery service contracts is exempt
from any licensing requirement of this state that relates to an
activity regulated under this chapter.
(d) A provider or administrator may not contract with or use
the services of a person to perform an activity that requires
registration with the department as a provider or administrator
unless that person is appropriately registered.
SECTION 2.05. Section 1306.052(c), Occupations Code, is
amended to read as follows:
(c) The department may refuse to issue or renew a
registration, suspend or revoke a registration, or take any other
disciplinary action under Subchapter D if the applicant or a
controlling person of the applicant:
(1) has violated this chapter or a rule adopted or
order issued by the commission or executive director under this
chapter;
(2) has made a material misrepresentation or false
statement in an application or in any document accompanying an
application;
(3) has had a license issued under Title 13, Insurance
Code, revoked as provided by that code; or
(4) has had a license or registration as a provider,
administrator, or seller revoked in this state or another state.
SECTION 2.06. Section 1306.053(a), Occupations Code, is
amended to read as follows:
(a) In addition to the requirements of Section 1306.052, an
applicant for issuance or renewal of a provider registration must
file with the application:
(1) the reimbursement insurance policy required by
Section 1306.102, if the provider is using a reimbursement
insurance policy to meet the financial security requirements of
Section 1306.101; [and]
(2) the financial security deposit and the
documentation required by the department demonstrating adequate
funding of the reserve account, if the provider is using a funded
reserve account and financial security deposit to meet the
financial security requirements of Section 1306.101;
(3) the proof necessary to demonstrate the applicant
or its parent company maintains at least $100 million net worth, if
the applicant is using net worth to meet the financial security
requirements of Section 1306.101; and
(4) information about each controlling person of the
applicant [a biographical affidavit,] in a form prescribed by the
executive director[, for each controlling person of the provider].
SECTION 2.07. Sections 1306.054(b) and (d), Occupations
Code, are amended to read as follows:
(b) To register or renew a registration, a provider or
administrator must pay the appropriate fee. The commission shall
set by rule the [amounts of the registration and renewal] fees
required to cover the costs of administering this chapter.
(d) The information concerning the number of identity
recovery service contracts sold or issued by a provider that is
submitted under Subsection (c)[:
[(1)] is a trade secret to which Section 552.110,
Government Code, applies[; and
[(2) may be used only by the executive director and the
department for the purposes of this section].
SECTION 2.08. The heading to Subchapter C, Chapter 1306,
Occupations Code, is amended to read as follows:
SUBCHAPTER C. PRACTICE BY IDENTITY RECOVERY SERVICE CONTRACT
PROVIDERS, [AND] ADMINISTRATORS, AND SELLERS
SECTION 2.09. The heading to Section 1306.101, Occupations
Code, is amended to read as follows:
Sec. 1306.101. FINANCIAL SECURITY REQUIREMENTS;
DISTRIBUTION OF FUNDS HELD IN TRUST.
SECTION 2.10. Section 1306.101, Occupations Code, is
amended by amending Subsections (a) and (b) and adding Subsection
(f) to read as follows:
(a) To ensure the faithful performance of a provider's
obligations to its identity recovery service contract holders, each
provider must:
(1) insure the provider's identity recovery service
contracts under a reimbursement insurance policy issued by an
insurer authorized to transact insurance in this state or by a
surplus lines insurer eligible to place coverage in this state
under Chapter 981, Insurance Code;
(2) maintain a funded reserve account covering the
provider's obligations under its identity recovery service
contracts that are issued and outstanding in this state and place in
trust with the executive director a financial security deposit
consisting of:
(A) [a surety bond issued by an authorized
surety;
[(B) securities of the type eligible for deposit
by an authorized insurer in this state;
[(C)] a statutory deposit of cash [or cash
equivalents];
(B) [(D)] a letter of credit issued by a
qualified financial institution; or
(C) a certificate of deposit issued by a
qualified financial institution
[(E) another form of security prescribed by rules
adopted by the commission]; or
(3) maintain, or have a parent company that maintains,
a net worth or stockholders' equity of at least $100 million.
(b) If the provider ensures its obligations under
Subsection (a)(2), the amount maintained in the reserve account may
not be less than an amount equal to 40 percent of the gross
consideration the provider received from consumers from the sale of
all identity recovery service contracts issued and outstanding in
this state, minus any claims paid. The executive director may
review and examine the reserve account. The amount of the security
deposit may not be less than $250,000. The provider must submit to
the executive director on request a copy of the provider's
financial statements that must be prepared in accordance with
generally accepted accounting principles, be without qualification
as to the going concern status of the provider, and be audited by an
independent certified public accountant. The commission by rule
may require the provider to submit additional financial reports
[the greater of:
[(1) $25,000; or
[(2) an amount equal to five percent of the gross
consideration the provider received from consumers from the sale of
all identity recovery service contracts issued and outstanding in
this state, minus any claims paid].
(f) In the event of a provider's bankruptcy or a similar
event affecting the ability of the provider to faithfully perform
its obligations to its identity recovery service contract holders,
the executive director may distribute any funds held in trust as
financial security for the provider under this section to eligible
identity recovery service contract holders as payment for claims.
The executive director must distribute the funds in an equitable
and cost-effective manner as determined by the executive director.
SECTION 2.11. Subchapter C, Chapter 1306, Occupations Code,
is amended by adding Sections 1306.1021 and 1306.1031 to read as
follows:
Sec. 1306.1021. FINANCIAL SECURITY TRANSITION. (a) In
this section, "provider that maintained a funded reserve account"
means a provider that, in order to ensure the faithful performance
of the provider's obligations to identity recovery service contract
holders, maintained a funded reserve account covering the
provider's obligations under identity recovery service contracts
that were issued and outstanding in this state and placed in trust
with the executive director a financial security deposit consisting
of:
(1) a surety bond issued by an authorized surety;
(2) securities of the type eligible for deposit by an
authorized insurer in this state;
(3) a statutory deposit of cash or cash equivalents;
(4) a letter of credit issued by a qualified financial
institution; or
(5) another form of security prescribed by commission
rules.
(b) This section applies only to a provider that maintained
a funded reserve account on August 31, 2011.
(c) Not later than September 1, 2012, a provider that
maintained a funded reserve account shall submit to the executive
director documentation that the provider is in compliance with the
financial security requirements provided by Section 1306.101 for
identity recovery service contracts sold or issued in this state on
or after September 1, 2012. A provider that maintained a funded
reserve account may not sell or issue an identity recovery service
contract on or after September 1, 2012, unless the provider is in
compliance with this subsection.
(d) A provider that maintained a funded reserve account
shall:
(1) continue to maintain the funded reserve account
and security deposit at appropriate levels for identity recovery
service contracts that were sold or issued in this state before
September 1, 2012, until the contracts are no longer in effect; or
(2) provide financial security for identity recovery
service contracts sold or issued before September 1, 2012, by
complying with the financial security requirements of Section
1306.101.
(e) If a provider provides financial security for identity
recovery service contracts sold or issued before September 1, 2012,
by complying with the financial security requirements of Section
1306.101, the provider shall give to the executive director
satisfactory documentation that the reimbursement insurance
policy, funded reserve account and security deposit, or net worth
covers all outstanding identity recovery service contracts issued
before September 1, 2012.
(f) An identity recovery service contract that is sold or
issued before September 1, 2012, and is covered under a funded
reserve account and security deposit may not be extended or renewed
at the end of the identity recovery service contract term unless the
provider provides financial security for those service contracts by
complying with the financial security requirements of Section
1306.101 before the extension or renewal.
Sec. 1306.1031. IDENTITY RECOVERY SERVICE CONTRACT
SELLERS; RESPONSIBILITIES. (a) A provider may employ or contract
with a seller to be responsible for:
(1) all or any part of the sale or marketing of
identity recovery service contracts for the provider; and
(2) compliance with this chapter in connection with
the sale or marketing of identity recovery service contracts.
(b) The hiring of or contracting with a seller under this
section does not affect a provider's responsibility to comply with
this chapter.
(c) Unless registered as a provider or administrator, a
seller is prohibited from engaging in activities that would require
registration as a provider or administrator.
(d) A seller shall process an identity recovery service
contract application and a payment from a consumer in accordance
with this chapter and with any sales agreement or contract between
the provider and the seller.
SECTION 2.12. Sections 1306.106(a), (b), and (d),
Occupations Code, are amended to read as follows:
(a) An identity recovery service contract marketed, sold,
offered for sale, issued, made, proposed to be made, or
administered in this state must:
(1) be written, printed, or typed in clear,
understandable language that is easy to read;
(2) state the name and address of the provider;
(3) state the purchase price of the contract and the
terms under which the contract is sold;
(4) state the terms and restrictions governing
cancellation of the contract by the provider or the identity
recovery service contract holder before the expiration date of the
contract;
(5) identify:
(A) any administrator and any registration
number issued to the administrator under this chapter;
(B) the [contract] seller; and
(C) the identity recovery service contract
holder, if the identity recovery service contract holder provides
the holder's name;
(6) state the amount of any deductible;
(7) specify the services to be provided under the
contract and any limitation, exception, or exclusion;
(8) specify any restriction governing the
transferability of the contract; and
(9) state the duties of the identity recovery service
contract holder, including any duty to protect against any further
damage and any requirement to follow the instructions in the
identity recovery service contract.
(b) The identity and, if applicable, registration number
issued under this chapter of a person described by Subsection
(a)(5) is not required to be preprinted on the identity recovery
service contract and may be added to the contract at the time of
sale.
(d) An identity recovery service contract insured under a
reimbursement insurance policy under Section 1306.102 must:
(1) state the name and address of the insurer;
(2) state that the identity recovery service contract
holder may apply for reimbursement directly to the insurer if:
(A) a covered service is not provided to the
identity recovery service contract holder by the provider before
the 61st day after the date of proof of loss; or
(B) a refund or credit is not paid before the 46th
day after the date on which the contract is canceled [returned to
the provider] under Section 1306.1081 [1306.107]; and
(3) contain a statement substantially similar to the
following: "Obligations of the provider under this identity
recovery service contract are insured under an identity recovery
service contract reimbursement insurance policy."
SECTION 2.13. Subchapter C, Chapter 1306, Occupations Code,
is amended by adding Section 1306.1081 to read as follows:
Sec. 1306.1081. CANCELLATION BY IDENTITY RECOVERY SERVICE
CONTRACT HOLDER; REFUND. (a) An identity recovery service
contract must allow the identity recovery service contract holder
to cancel the identity recovery service contract at any time.
(b) If an identity recovery service contract holder cancels
an identity recovery service contract before the 31st day after the
date of purchase, the provider:
(1) shall refund to the identity recovery service
contract holder or credit to the account of the identity recovery
service contract holder the full purchase price of the contract,
decreased by the amount of any claims paid under the contract; and
(2) may not impose a cancellation fee.
(c) If an identity recovery service contract holder cancels
an identity recovery service contract on or after the 31st day after
the date of purchase, the provider:
(1) shall refund to the identity recovery service
contract holder or credit to the account of the identity recovery
service contract holder the prorated purchase price of the contract
reflecting the remaining term of the contract, based on mileage,
time, or another reasonably applicable measure of the remaining
term that must be disclosed in the contract, decreased by the amount
of any claims paid under the contract; and
(2) may impose a reasonable cancellation fee not to
exceed $50.
(d) A provider may allow an identity recovery service
contract holder to cancel an identity recovery service contract on
other terms included in the contract, provided the terms do not
conflict with this section.
(e) A provider who does not pay the refund or credit the
identity recovery service contract holder's account before the 46th
day after the date notice of cancellation is received by the
provider is liable to the identity recovery service contract holder
for a penalty for each month an amount remains outstanding equal to
10 percent of the amount outstanding. The penalty is in addition to
the full or prorated purchase price of the contract that is owed to
the identity recovery service contract holder under this section or
the terms of the contract.
(f) The right to cancel an identity recovery service
contract is not transferable to a subsequent holder of the
contract.
SECTION 2.14. The heading to Section 1306.109, Occupations
Code, is amended to read as follows:
Sec. 1306.109. CANCELLATION BY A PROVIDER; REFUND
[CANCELING AN IDENTITY RECOVERY SERVICE CONTRACT].
SECTION 2.15. Section 1306.109, Occupations Code, is
amended by amending Subsection (b) and adding Subsection (c) to
read as follows:
(b) The provider is not required to provide prior notice of
cancellation if the identity recovery service contract is canceled
because of:
(1) nonpayment of the consideration for the contract;
(2) fraud or a material misrepresentation by the
identity recovery service contract holder to the provider or the
provider's administrator; or
(3) a substantial breach of a duty by the identity
recovery service contract holder.
(c) An identity recovery service contract holder whose
contract is canceled by the provider in accordance with this
section is entitled to a prorated refund of the purchase price of
the contract reflecting the remaining term of the contract, based
on mileage, time, or another reasonably applicable measure of the
remaining term that must be disclosed in the contract, decreased by
the amount of any claims paid under the contract. A provider who
cancels a contract under this section may not impose a cancellation
fee.
SECTION 2.16. Section 1306.111, Occupations Code, is
amended to read as follows:
Sec. 1306.111. [MISLEADING STATEMENTS] PROHIBITED ACTS.
(a) A provider, administrator, seller, or other [or the
provider's] representative of the provider may not, in the
provider's identity recovery service contracts or literature or in
any written communication:
(1) make, permit, or cause to be made any false,
deceptive, or misleading statement; or
(2) deliberately omit a material statement if the
omission would be considered misleading.
(b) A person regulated by Chapter 2301 may not require the
purchase of an identity recovery service contract as a condition of
a loan or the sale of a vehicle.
(c) A provider, administrator, seller, or other
representative of the provider may not make a telemarketing call to
a consumer as provided by Sections 304.002 and 304.003, Business &
Commerce Code, unless the provider, administrator, seller, or
representative has an established business relationship, as
defined by Section 304.002, Business & Commerce Code, with the
consumer.
SECTION 2.17. Section 1306.151, Occupations Code, is
amended to read as follows:
Sec. 1306.151. DISCIPLINARY ACTION. On a finding that a
ground for disciplinary action exists under this chapter, the
commission or executive director may impose an administrative
sanction or [, including an] administrative penalty or seek a civil
penalty or any other remedy as provided by this chapter and
[Subchapter F,] Chapter 51.
SECTION 2.18. Subchapter D, Chapter 1306, Occupations Code,
is amended by adding Section 1306.155 to read as follows:
Sec. 1306.155. REMEDY FOR IDENTITY RECOVERY SERVICE
CONTRACT HOLDERS. (a) If the commission by order, including an
agreed order, determines that a person has operated as a provider or
administrator in this state without holding the appropriate
registration under this chapter, the person shall offer to an
identity recovery service contract holder who holds an identity
recovery service contract sold or issued by the person during the
period that the person was not registered under this chapter the
right to:
(1) cancel the contract and obtain a refund of the full
purchase price of the contract; or
(2) retain the contract.
(b) If a seller fails to process an identity recovery
service contract application or a payment from a consumer in
accordance with this chapter and any sales agreement or contract
between the provider and the seller, the commission or executive
director may, by commission order, including an agreed order,
require the seller to refund the full purchase price of the contract
to the consumer.
(c) The remedies described in this section are in addition
to any administrative penalty, administrative sanction, civil
penalty, or other disciplinary or enforcement action sought under
this chapter or Chapter 51.
SECTION 2.19. (a) On the effective date of this Act, the
following provisions of the Occupations Code are repealed:
(1) Section 1306.007; and
(2) Section 1306.052(d).
(b) On January 1, 2012, the following provisions of the
Occupations Code are repealed:
(1) Section 1306.107; and
(2) Section 1306.108.
SECTION 2.20. (a) Not later than April 1, 2012, the Texas
Commission of Licensing and Regulation shall adopt rules necessary
to implement Chapter 1306, Occupations Code, as amended by this
Act.
(b) Sections 1306.052 and 1306.053, Occupations Code, as
amended by this Act, apply only to an application for a registration
or renewal of a registration filed with the Texas Department of
Licensing and Regulation on or after the effective date of this Act.
An application filed before that date is governed by the law in
effect on the date the application was filed, and the former law is
continued in effect for that purpose.
(c) Sections 1306.106 and 1306.109, Occupations Code, as
amended by this Act, and Section 1306.1081, Occupations Code, as
added by this Act, apply only to an identity recovery service
contract sold or issued on or after January 1, 2012. An identity
recovery service contract sold or issued before that date is
governed by the law in effect on the date the contract was sold or
issued, and the former law is continued in effect for that purpose.
(d) Notwithstanding Subsection (c) of this section, an
identity recovery service contract sold or issued before January 1,
2012, may not be extended or renewed at the end of the contract term
unless the contract complies with Sections 1306.106 and 1306.109,
Occupations Code, as amended by this Act, and Section 1306.1081,
Occupations Code, as added by this Act.
(e) Section 1306.151, Occupations Code, as amended by this
Act, applies only to a disciplinary action initiated by the Texas
Department of Licensing and Regulation on or after the effective
date of this Act. An action initiated before the effective date of
this Act is governed by the law in effect on the date the action was
initiated, and the former law is continued in effect for that
purpose.
(f) Section 1306.155, Occupations Code, as added by this
Act, applies only to an act or omission of a person operating as a
provider, administrator, or seller of an identity recovery service
contract that occurs on or after the effective date of this Act. An
act or omission that occurs before that date is governed by the law
in effect on the date the act or omission occurred, and the former
law is continued in effect for that purpose.
ARTICLE 3. EFFECTIVE DATE
SECTION 3.01. This Act takes effect September 1, 2011.