Texas 2011 - 82nd Regular

Texas Senate Bill SB1862 Compare Versions

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1	1	By: Davis, West S.B. No. 1862
2	2	(In the Senate - Filed March 11, 2011; March 24, 2011, read
3	3	first time and referred to Committee on Business and Commerce;
4	4	April 11, 2011, reported adversely, with favorable Committee
5	5	Substitute by the following vote: Yeas 5, Nays 1; April 11, 2011,
6	6	sent to printer.)
7	7	COMMITTEE SUBSTITUTE FOR S.B. No. 1862 By: Watson
8	8
9	9
10	10	A BILL TO BE ENTITLED
11	11	AN ACT
12	12	relating to certain extensions of credit to consumers.
13	13	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
14	14	SECTION 1. Subchapter A, Chapter 302, Finance Code, is
15	15	amended by adding Section 302.003 to read as follows:
16	16	Sec. 302.003. PROHIBITION ON THIRD-PARTY FEES TO ARRANGE OR
17	17	GUARANTEE CERTAIN EXTENSIONS OF CONSUMER CREDIT. (a) A fee paid
18	18	or to be paid to a third party to assist a consumer in the
19	19	transacting, arranging, guaranteeing, or negotiating of an
20	20	extension of credit may not be contracted for, charged, or received
21	21	by a creditor or third party in connection with the extension of
22	22	credit if:
23	23	(1) the extension of credit is secured by a
24	24	non-purchase money security interest in personal property or is
25	25	unsecured; and
26	26	(2) the proceeds of the extension of credit are used
27	27	for personal, family, or household purposes.
28	28	(b) The amount of a fee contracted for, charged, or received
29	29	in violation of Subsection (a) is considered interest for usury
30	30	purposes under state law.
31	31	SECTION 2. Section 342.604, Finance Code, is amended by
32	32	adding Subsection (c) to read as follows:
33	33	(c) A creditor who extends consumer credit to a member of
34	34	the United States military or a dependent of a member of the United
35	35	States military must comply with 10 U.S.C. Section 987 and any
36	36	regulations adopted under that law, to the extent applicable.
37	37	SECTION 3. Subchapter M, Chapter 342, Finance Code, is
38	38	amended by adding Sections 342.606 and 342.607 to read as follows:
39	39	Sec. 342.606. REQUIREMENTS FOR DEFERRED PRESENTMENT
40	40	TRANSACTIONS. (a) The provisions of Subchapter F apply to a
41	41	deferred presentment transaction made under this subchapter.
42	42	(b) As an alternative to the rate provided by Sections
43	43	342.252, 342.253, and 342.259, the combined interest and fees for a
44	44	deferred presentment transaction made under this subchapter with a
45	45	maximum cash advance computed under Subchapter C, Chapter 341,
46	46	using a reference base amount that is not more than $200, may not
47	47	exceed 15 percent of the amount advanced.
48	48	(c) A lender may not enter into a deferred presentment
49	49	transaction in which the amount of cash advanced exceeds 35 percent
50	50	of the borrower's gross monthly income.
51	51	(d) On the prepayment of a deferred presentment
52	52	transaction, the finance charge authorized under this section is
53	53	considered to be earned at the time the transaction is made and is
54	54	not subject to refund.
55	55	(e) A lender must accept partial payment of the outstanding
56	56	principal balance at any time during regular business hours.
57	57	(f) A lender may not for a fee renew, roll over, or otherwise
58	58	consolidate a deferred presentment transaction. For purposes of
59	59	this subsection, "roll over" means the refinancing or paying of all
60	60	or part of the finance charges and advance of a deferred presentment
61	61	transaction with a new deferred presentment transaction.
62	62	(g) In this subsection, "consecutive loan" means a new
63	63	deferred presentment transaction that a lender enters into with a
64	64	borrower not later than the seventh day after the date a previous
65	65	deferred presentment transaction made to the same borrower is paid
66	66	in full. If a borrower enters into a third consecutive loan, a
67	67	lender must automatically convert the loan at no additional cost
68	68	under a written repayment plan as authorized by this subsection
69	69	under which the borrower must be allowed to repay the loan in not
70	70	less than four substantially equal installments. A lender is not
71	71	required to enter into a repayment plan with a borrower more
72	72	frequently than once every 12 months. The borrower must agree not
73	73	to enter into an additional deferred presentment transaction during
74	74	the repayment plan term.
75	75	(h) A lender may not impose a default charge in connection
76	76	with a deferred presentment transaction.
77	77	(i) The finance commission by rule may require a lender to
78	78	provide to a borrower materials approved by the commissioner that
79	79	are designed to:
80	80	(1) inform the borrower of the duties, rights, and
81	81	responsibilities of the parties to a deferred presentment
82	82	transaction; and
83	83	(2) educate a borrower about matters of financial
84	84	literacy.
85	85	(j) A lender may not charge or receive in addition to the
86	86	interest and charges provided for by this section any additional
87	87	amount, whether in the form of broker fees, placement fees, or
88	88	another fee or charge, except costs and disbursements in connection
89	89	with any suit to collect a deferred presentment transaction,
90	90	including reasonable attorney's fees that are incurred by a lender
91	91	as a result of the suit and to which the lender is entitled by law.
92	92	(k) As part of the annual report required under Section
93	93	342.559, a lender that engages in deferred presentment transactions
94	94	shall submit the following information to the commissioner covering
95	95	the preceding calendar year:
96	96	(1) the amount of cash advanced under each deferred
97	97	presentment transaction made, serviced, or brokered by the lender;
98	98	(2) the total number of deferred presentment
99	99	transactions made, serviced, or brokered by the lender;
100	100	(3) data regarding extended payment plans and
101	101	alternative payment arrangements offered by the lender;
102	102	(4) the gross monthly income reported by an individual
103	103	to whom a cash advance was made under a deferred presentment
104	104	transaction, if the lender collects that information from
105	105	individuals;
106	106	(5) the total amount of interest, fees, or charges
107	107	collected by the lender for making, servicing, or brokering
108	108	deferred presentment transactions; and
109	109	(6) any other information required by the
110	110	commissioner.
111	111	(l) For purposes of Subsections (c) and (k)(4), a lender is
112	112	not responsible for an individual borrower's failure to provide
113	113	accurate information relating to the borrower's income.
114	114	(m) A person may not threaten or pursue criminal charges
115	115	against a borrower related to a check or other debit authorization
116	116	provided by the borrower as part of a deferred presentment
117	117	transaction. This information must be disclosed in the contract
118	118	with the borrower, immediately above the place where the borrower
119	119	signs the contract, in at least 12-point, bold, and underlined type
120	120	as follows:
121	121	"YOU CANNOT BE PROSECUTED IN ANY CRIMINAL ACTION SIMPLY FOR
122	122	THE COLLECTION OF THIS TRANSACTION. IT IS NOT A CRIMINAL OFFENSE TO
123	123	DEFAULT ON THIS PAYDAY LOAN."
124	124	Sec. 342.607. ATTEMPT TO EVADE LAW. This subchapter
125	125	applies to a person who offers, makes, or brokers a deferred
126	126	presentment transaction, who assists a consumer in this state in
127	127	obtaining a deferred presentment transaction, or who wholly or
128	128	partly arranges a deferred presentment transaction for a third
129	129	party, regardless of whether the third party is exempt from
130	130	licensing under this subtitle or whether approval, acceptance, or
131	131	ratification by the third party is necessary to create a legal
132	132	obligation for the third party through any communication method,
133	133	including mail, telephone, the Internet, or other electronic means.
134	134	SECTION 4. Subsection (a), Section 342.501, Finance Code,
135	135	is amended to read as follows:
136	136	(a) An authorized lender may not induce or permit a person
137	137	or a husband and wife to be directly or indirectly obligated under
138	138	more than one loan contract at any time for the purpose or with the
139	139	effect of obtaining an amount of interest greater than the amount of
140	140	interest otherwise authorized under this chapter for a loan of that
141	141	aggregate amount with a maximum interest charge computed under
142	142	Section 342.201(a), Section 342.201(e), Section 342.252, Section
143	143	342.259, Section 342.606, Section 342.654, or any combination of
144	144	those sections.
145	145	SECTION 5. Chapter 342, Finance Code, is amended by adding
146	146	Subchapter N to read as follows:
147	147	SUBCHAPTER N. AUTO TITLE LOANS
148	148	Sec. 342.651. DEFINITIONS. In this subchapter:
149	149	(1) "Auto title loan" means an agreement in which a
150	150	lender agrees to make a loan of money to a borrower, and the
151	151	borrower agrees to give the lender a non-purchase money security
152	152	interest in an unencumbered motor vehicle owned by the borrower.
153	153	(2) "Lender" means a lender licensed under this
154	154	chapter.
155	155	Sec. 342.652. GENERAL REQUIREMENTS. An auto title loan
156	156	must be in writing and have a loan term of at least one month.
157	157	Sec. 342.653. APPLICABILITY OF OTHER LAW. (a) The
158	158	provisions of Subchapters E and F apply to an auto title loan made
159	159	under this subchapter.
160	160	(b) A lender that extends consumer credit to a member of the
161	161	United States military or a dependent of a member of the United
162	162	States military must comply with 10 U.S.C. Section 987 and any
163	163	regulations adopted under that law, to the extent applicable.
164	164	Sec. 342.654. AUTHORIZED FINANCE CHARGES. (a) As an
165	165	alternative to the rate provided by Sections 342.201, 342.252,
166	166	342.253, and 342.259, an auto title loan made under this subchapter
167	167	may provide for a finance charge that does not exceed in the
168	168	aggregate:
169	169	(1) 20 percent a month on the portion of the cash
170	170	advance that does not exceed $700;
171	171	(2) 18 percent a month on the portion of the cash
172	172	advance that is greater than $700 but does not exceed $1,400; and
173	173	(3) 15 percent a month on the portion of the cash
174	174	advance that is greater than $1,400.
175	175	(b) On the prepayment of an auto title loan, the finance
176	176	charge authorized under this section is considered to be earned at
177	177	the time the loan is made and is not subject to refund.
178	178	(c) A lender may not charge or receive in addition to the
179	179	interest and charges provided for by this section any additional
180	180	amount, whether in the form of broker fees, placement fees, or
181	181	another fee or charge, except fees authorized under Section
182	182	342.657(c) and costs and disbursements in connection with any suit
183	183	to collect an auto title loan, including reasonable attorney's fees
184	184	that are incurred by a lender as a result of the suit and to which
185	185	the lender is entitled by law.
186	186	Sec. 342.655. ACCEPTANCE OF PARTIAL PAYMENT. A lender must
187	187	accept partial payment of the principal loan balance of an auto
188	188	title loan at any time during regular business hours.
189	189	Sec. 342.656. RENEWALS. (a) In this section:
190	190	(1) "Consecutive loan" means a new auto title loan
191	191	that a lender enters into with a borrower not later than the seventh
192	192	day after the date a previous auto title loan made to the same
193	193	borrower is paid in full.
194	194	(2) "Renewal" means a transaction in which a borrower
195	195	refinances or pays all or part of the finance charges and advance of
196	196	an auto title loan with a new auto title loan.
197	197	(b) Beginning with the first renewal and at each successive
198	198	renewal after the first renewal, the minimum required payment or
199	199	finance charge must reduce the principal balance by at least 10
200	200	percent of the original principal balance of the auto title loan.
201	201	Alternatively, if the borrower fails to pay on the due date, the
202	202	lender may declare the outstanding principal balance and any
203	203	finance charge to be immediately due and payable.
204	204	(c) After three renewals or consecutive loans of an auto
205	205	title loan, if a borrower is unable to pay on the due date the amount
206	206	owing, then the lender must automatically convert the loan at no
207	207	additional cost under a written repayment plan as authorized by
208	208	this section. A lender is not required to enter into a repayment
209	209	plan with a borrower more frequently than once every 12 months. The
210	210	borrower must repay the amount owed according to the following
211	211	terms:
212	212	(1) the borrower must be allowed to repay the loan in
213	213	not less than four substantially equal installments; and
214	214	(2) the lender may not charge a borrower any
215	215	additional interest or fee for using the repayment plan.
216	216	(d) A lender may not impose a default charge in connection
217	217	with an auto title loan.
218	218	Sec. 342.657. POSSESSION OF MOTOR VEHICLE OR CERTIFICATE OF
219	219	TITLE. (a) In an auto title loan subject to this subchapter, the
220	220	borrower shall agree to the lender's keeping possession of the
221	221	certificate of title.
222	222	(b) The borrower shall have the exclusive right to redeem
223	223	the certificate of title by repaying the auto title loan in full and
224	224	by complying with the auto title loan agreement. When the
225	225	certificate of title is redeemed, the lender shall release the
226	226	security interest in the motor vehicle and return the certificate
227	227	of title to the borrower.
228	228	(c) The auto title loan agreement must provide that, on
229	229	failure by the borrower to redeem the certificate of title at the
230	230	end of the original term or at the end of any renewal or renewals of
231	231	the agreement period, the lender is allowed to take possession of
232	232	the motor vehicle. If after taking possession of the vehicle under
233	233	this subsection the lender sells the vehicle for an amount that
234	234	exceeds the amount owed to the lender by the borrower, the borrower
235	235	is entitled to the excess amount. A lender may assess and collect
236	236	reasonable fees to recover the costs of taking possession of and
237	237	selling a motor vehicle under this section.
238	238	(d) The lender shall retain physical possession of the
239	239	certificate of title for the entire term of the auto title loan
240	240	agreement but is not required to retain physical possession of the
241	241	motor vehicle at any time.
242	242	(e) A lender may only hold unencumbered certificates of
243	243	title for pledge.
244	244	Sec. 342.658. NO CRIMINAL PROSECUTION. A person may not
245	245	threaten or pursue criminal charges against a borrower simply
246	246	because the borrower defaulted on the loan. This information must
247	247	be disclosed in the contract with the borrower, immediately above
248	248	the place where the borrower signs the contract, in at least
249	249	12-point, bold, and underlined type as follows:
250	250	"YOU CANNOT BE PROSECUTED IN ANY CRIMINAL ACTION SIMPLY FOR
251	251	THE COLLECTION OF THIS TRANSACTION. IT IS NOT A CRIMINAL OFFENSE TO
252	252	DEFAULT ON THIS AUTO TITLE LOAN."
253	253	Sec. 342.659. CONSIDERATION OF BORROWER'S ABILITY TO REPAY.
254	254	When making or negotiating an auto title loan, the lender must
255	255	consider, in determining the size, duration, and schedule of
256	256	installments of the loan, the financial ability of the borrower to
257	257	repay the loan, and specifically evaluate whether the borrower will
258	258	be reasonably able to pay the loan in cash at the time and in the
259	259	manner provided in the auto title loan agreement.
260	260	Sec. 342.660. CONSUMER INFORMATION. The finance commission
261	261	by rule may require a lender to provide to a borrower materials
262	262	approved by the commissioner that are designed to:
263	263	(1) inform the borrower of the duties, rights, and
264	264	responsibilities of the parties to an auto title loan transaction;
265	265	and
266	266	(2) educate a borrower about matters of financial
267	267	literacy.
268	268	Sec. 342.661. INFORMATION REQUIRED FOR ANNUAL REPORT.
269	269	(a) As part of the annual report required under Section 342.559, a
270	270	lender that engages in auto title loans shall submit the following
271	271	information to the commissioner covering the preceding calendar
272	272	year:
273	273	(1) the amount of cash advanced under each auto title
274	274	loan made, serviced, or brokered by the lender;
275	275	(2) the total number of auto title loans made,
276	276	serviced, or brokered by the lender;
277	277	(3) data regarding extended payment plans and
278	278	alternative payment arrangements offered by the lender;
279	279	(4) the gross monthly income reported by an individual
280	280	to whom a cash advance was made under an auto title loan, if the
281	281	lender collects that information from individuals;
282	282	(5) the total amount of interest, fees, or charges
283	283	collected by the lender for making, servicing, or brokering auto
284	284	title loans;
285	285	(6) the total number of vehicles repossessed by the
286	286	lender; and
287	287	(7) any other information required by the
288	288	commissioner.
289	289	(b) For purposes of Subsection (a)(4), a lender is not
290	290	responsible for an individual borrower's failure to provide
291	291	accurate information relating to the borrower's income.
292	292	Sec. 342.662. ATTEMPT TO EVADE LAW. This subchapter
293	293	applies to a person who offers, makes, or brokers an auto title
294	294	loan, who assists a consumer in this state in obtaining an auto
295	295	title loan, or who wholly or partly arranges an auto title loan for
296	296	a third party, regardless of whether the third party is exempt from
297	297	licensing under this subtitle or whether approval, acceptance, or
298	298	ratification by the third party is necessary to create a legal
299	299	obligation for the third party through any communication method,
300	300	including mail, telephone, the Internet, or other electronic means.
301	301	SECTION 6. Subdivision (3), Section 393.001, Finance Code,
302	302	is amended to read as follows:
303	303	(3) "Credit services organization" means a person who
304	304	provides, or represents that the person can or will provide, for the
305	305	payment of valuable consideration any of the following services
306	306	with respect to the extension of consumer credit by others:
307	307	(A) improving a consumer's credit history or
308	308	rating; or
309	309	(B) [obtaining an extension of consumer credit
310	310	for a consumer; or
311	311	[(C)] providing advice or assistance to a
312	312	consumer with regard to Paragraph (A) [or (B)].
313	313	SECTION 7. Subchapter D, Chapter 393, Finance Code, is
314	314	amended by adding Section 393.308 to read as follows:
315	315	Sec. 393.308. OBTAINING EXTENSIONS OF CONSUMER CREDIT
316	316	PROHIBITED. A credit services organization may not obtain an
317	317	extension of consumer credit for a consumer or assist a consumer in
318	318	obtaining an extension of consumer credit.
319	319	SECTION 8. (a) The consumer credit commissioner shall
320	320	prepare and publish a report not later than December 1, 2012,
321	321	regarding the use of deferred presentment transactions in this
322	322	state. In preparing the report, the commissioner shall study the
323	323	need for comprehensive data reporting and the value and feasibility
324	324	of a real-time statewide database system to provide data for policy
325	325	development and to enhance a lender's evaluation of a borrower's
326	326	ability to repay a deferred presentment transaction. In reviewing
327	327	the value and feasibility of a real-time statewide database system,
328	328	as part of the study, the commissioner should consider the use of a
329	329	database verification fee collected from the borrower to recover
330	330	the actual costs of the system. The commissioner shall also study
331	331	the appropriateness of the rate structure provided by Section
332	332	342.606, Finance Code, as added by this Act, in regard to the manner
333	333	in which the deferred presentment transactions are used, and assess
334	334	whether the protections included in that section are effectively
335	335	addressing the cycle of ongoing debt that can be caused by high-cost
336	336	single-payment loans.
337	337	(b) The consumer credit commissioner shall prepare and
338	338	publish a report not later than December 1, 2012, regarding the use
339	339	of auto title loans in this state. In preparing the report, the
340	340	commissioner shall study the need for comprehensive data reporting
341	341	and the value and feasibility of a real-time statewide database
342	342	system to provide data for policy development and to enhance a
343	343	lender's evaluation of a borrower's ability to repay an auto title
344	344	loan. In reviewing the value and feasibility of a real-time
345	345	statewide database system, as part of the study, the commissioner
346	346	should consider the use of a database verification fee collected
347	347	from the borrower to recover the actual costs of the system. The
348	348	commissioner shall also study the appropriateness of the rate
349	349	structure provided by Section 342.654, Finance Code, as added by
350	350	this Act, in regard to the manner in which the auto title loans are
351	351	used, and assess whether the protections included in that section
352	352	are effectively addressing the cycle of ongoing debt that can be
353	353	caused by high-cost single-payment transactions.
354	354	SECTION 9. This Act takes effect September 1, 2011.
355	355	* * * * *