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