85R5228 EES-F
By: Hughes S.B. No. 1052
A BILL TO BE ENTITLED
AN ACT
relating to debt cancellation agreements offered in connection with
certain loans and retail installment contracts and to amounts
charged for certain agreements offered in connection with certain
loans and retail installment contracts.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Sections 342.4021(a) and (e), Finance Code, are
amended to read as follows:
(a) In connection with a loan made under this chapter that
is subject to Section 342.201(d) or 342.301(c), a lender may offer
to the borrower:
(1) a debt suspension agreement or debt cancellation
agreement under similar terms and conditions as such an agreement
may be offered by a bank or savings association; or
(2) a debt cancellation agreement under Chapter 354.
(e) The amount charged for a product authorized by
Subsection (a) or (b) may not exceed five percent of the amount
financed pursuant to the loan made under this chapter [must be
reasonable].
SECTION 2. Subchapter H, Chapter 345, Finance Code, is
amended by adding Section 345.358 to read as follows:
Sec. 345.358. DEBT CANCELLATION AGREEMENT. A debt
cancellation agreement under Chapter 354 may be offered in
connection with a retail installment contract or retail charge
agreement.
SECTION 3. Section 348.124(a), Finance Code, is amended to
read as follows:
(a) In connection with a retail installment transaction
under this chapter, a retail seller may offer to the retail buyer a
debt cancellation agreement under Chapter 354, including a
guaranteed asset protection waiver or similarly named agreement.
The retail seller may not require that the purchase of a debt
cancellation agreement by the retail buyer be made in order to enter
into a retail installment transaction.
SECTION 4. Subchapter G, Chapter 348, Finance Code, is
redesignated as Chapter 354, Finance Code, and amended to read as
follows:
CHAPTER 354 [SUBCHAPTER G]. CERTAIN DEBT CANCELLATION AGREEMENTS
Sec. 354.001. DEFINITIONS. In this chapter:
(1) "Contract" means a retail installment contract
made under Chapter 345 or 348.
(2) "Covered item" includes a motor vehicle.
(3) "Loan" means:
(A) a loan made under Chapter 342; or
(B) a loan to which Chapter 342 does not apply
solely because the loan provides for a rate of interest that is 10
percent a year or less.
(4) "Motor vehicle" includes a self-propelled or towed
vehicle designed for personal use, including an automobile, truck,
motorcycle, recreational vehicle, all-terrain vehicle, snowmobile,
camper, boat, personal watercraft, and personal watercraft
trailer.
Sec. 354.002 [348.601]. LIMITATION ON CERTAIN DEBT
CANCELLATION AGREEMENTS. (a) This chapter [subchapter] applies
only to a debt cancellation agreement that includes insurance
coverage as part of the borrower's or retail buyer's responsibility
to the lender or holder.
(b) The amount charged for a debt cancellation agreement
made in connection with a loan or [retail installment] contract may
not exceed five percent of the amount financed pursuant to the loan
or [retail installment] contract. [Section 348.124(c) does not
apply to a debt cancellation agreement regulated under this
subchapter.]
(c) The debt cancellation agreement becomes a part of or a
separate addendum to the loan or [retail installment] contract and
remains a term of the loan or [retail installment] contract on the
assignment, sale, or transfer by the lender or holder.
Sec. 354.003 [348.602]. DEBT CANCELLATION AGREEMENTS
EXCLUSION LANGUAGE. (a) In addition to the provisions required by
Section 354.004 [348.603], a debt cancellation agreement must fully
disclose all provisions permitting the exclusion of loss or damage
including, if applicable:
(1) an act occurring after the original maturity date
or date of the lender's or holder's acceleration of the loan or
[retail installment] contract;
(2) if the covered item is a motor vehicle, any
dishonest, fraudulent, illegal, or intentional act of any
authorized driver that directly results in the total loss of the
motor vehicle;
(3) if the covered item is a motor vehicle, any act of
gross negligence by an authorized driver that directly results in
the total loss of the motor vehicle;
(4) conversion, embezzlement, or concealment by any
person in lawful possession of the covered item [motor vehicle];
(5) lawful confiscation by an authorized public
official;
(6) if the covered item is a motor vehicle, the
operation, use, or maintenance of the motor vehicle in any race or
speed contest;
(7) war, whether or not declared, invasion,
insurrection, rebellion, revolution, or an act of terrorism;
(8) normal wear and tear, freezing, or mechanical or
electrical breakdown or failure;
(9) use of the covered item [motor vehicle] for
primarily commercial purposes;
(10) damage that occurs after the covered item [motor
vehicle] has been repossessed;
(11) damage to the covered item [motor vehicle] before
the purchase of the debt cancellation agreement;
(12) if the covered item is a motor vehicle, unpaid
insurance premiums and salvage, towing, and storage charges
relating to the motor vehicle;
(13) damage related to any personal property attached
to or within the covered item [motor vehicle];
(14) damages associated with falsification of
documents by any person not associated with the lender or retail
seller or other person canceling the borrower's or retail buyer's
obligation;
(15) any unpaid debt resulting from exclusions in the
borrower's or retail buyer's primary physical damage coverage not
included in the debt cancellation agreement;
(16) abandonment of the covered item [motor vehicle]
by the borrower or retail buyer only if the borrower or retail buyer
voluntarily discards, leaves behind, or otherwise relinquishes
possession of the covered item [motor vehicle] to the extent that
the relinquishment shows intent to forsake and desert the covered
item [motor vehicle] so that the covered item [motor vehicle] may be
appropriated by any other person;
(17) any amounts deducted from the primary insurance
carrier's settlement due to prior damages; and
(18) any loss occurring outside the United States or
outside the United States and Canada.
(b) An exclusion of loss or damage not listed in Subsection
(a) may be included in a debt cancellation agreement only if the
exclusion is disclosed in plain, easy to read language.
Sec. 354.004 [348.603]. REQUIRED DEBT CANCELLATION
AGREEMENT LANGUAGE. A debt cancellation agreement must state:
(1) the contact information of the lender or the
retail seller and [, the] holder, and any administrator of the
agreement;
(2) the name and address of the borrower or retail
buyer;
(3) the cost and term of the debt cancellation
agreement;
(4) the procedure the borrower or retail buyer must
follow to obtain benefits under the terms of the debt cancellation
agreement, including a telephone number and address where the
borrower or retail buyer may provide notice under the debt
cancellation agreement;
(5) the period during which the borrower or retail
buyer is required to notify the lender or the retail seller or [,
the] holder, or any administrator of the agreement, of any
potential loss under the debt cancellation agreement for total loss
or theft of the covered item [motor vehicle];
(6) if the covered item is a motor vehicle, that in
order to make a claim, the borrower or retail buyer must provide or
complete some or all of the following documents and provide those
documents to the lender or the retail seller or [, the] holder, or
any administrator of the agreement:
(A) a debt cancellation request form;
(B) proof of loss and settlement payment from the
borrower's or retail buyer's primary comprehensive, collision, or
uninsured or underinsured motorist policy or other parties'
liability insurance policy for the settlement of the insured total
loss of the motor vehicle;
(C) verification of the borrower's or retail
buyer's primary insurance deductible;
(D) a copy of any police report filed in
connection with the total loss or theft of the motor vehicle; and
(E) a copy of the damage estimate;
(7) that documentation not described by Subdivision
(6) but [or] required by the lender or the retail seller or [, the]
holder, or any administrator of the agreement, is [not] required to
substantiate the loss or determine the amount of debt to be
canceled;
(8) that notwithstanding the collection of the
documents under Subdivision (6), on reasonable advance notice the
lender or the retail seller or [, the] holder, or any administrator
of the agreement, may inspect the borrower's or retail buyer's
covered item [motor vehicle];
(9) that the lender or the retail seller or holder will
cancel all or part of the borrower's or retail buyer's obligation as
provided in the debt cancellation agreement on the occurrence of
total loss or theft of the covered item [motor vehicle];
(10) the method to be used to calculate refunds;
(11) the method for calculating the amount to be
canceled under the debt cancellation agreement on the occurrence of
total loss or theft of a covered item [motor vehicle];
(12) that purchase of a debt cancellation agreement is
not required for the borrower or retail buyer to obtain an extension
of credit and will not be a factor in the credit approval process;
(13) that in order to cancel the debt cancellation
agreement and receive a refund, the borrower or retail buyer must
provide a written request to cancel to the lender or the retail
seller or [, the] holder, or any administrator of the agreement;
(14) that if total loss or theft of the covered item
[motor vehicle] has not occurred, the borrower or retail buyer has
30 days from the date of the loan or [retail installment] contract
or the issuance of the debt cancellation agreement, whichever is
later, or a longer period as provided under the debt cancellation
agreement, to cancel the debt cancellation agreement and receive a
full refund;
(15) that the borrower or retail buyer may file a
complaint with the commissioner, and include the address, phone
number, and Internet website of the Office of Consumer Credit
Commissioner; and
(16) that the lender or holder will cancel certain
amounts under the debt cancellation agreement for total loss or
theft of a covered item [motor vehicle], in the following or
substantially similar language: "YOU WILL CANCEL CERTAIN AMOUNTS I
OWE UNDER THIS LOAN OR CONTRACT IN THE CASE OF A TOTAL LOSS OR THEFT
OF THE COVERED ITEM [VEHICLE] AS STATED IN THE DEBT CANCELLATION
AGREEMENT."
[Sec. 348.604. APPROVAL OF FORMS FOR DEBT CANCELLATION
AGREEMENTS. (a) Debt cancellation agreement forms must be
submitted to the commissioner for approval. Debt cancellation
agreement forms may include additional language to supplement the
terms of the debt cancellation agreement as required by this
subchapter.
[(b) If a debt cancellation agreement form is provided to
the commissioner for approval, the commissioner has 45 days to
approve the form or deny approval of the form. If after the 45th day
the commissioner does not deny the form, the form is considered
approved.
[(c) If the debt cancellation agreement form is approved by
the commissioner or considered approved as provided by Subsection
(b), the terms of the debt cancellation agreement are considered to
be in compliance with this subchapter.
[(d) The commissioner may deny approval of a form only if
the form excludes the language required by Sections 348.602 and
348.603 or contains any inconsistent or misleading provisions. All
form denials may be appealed to the finance commission.
[(e) If after approval of a form the Office of Consumer
Credit Commissioner discovers that approval could have been denied
under Subsection (d), the commissioner may order a retail seller,
any administrator of the debt cancellation agreement, or a holder
to submit a corrected form for approval. Beginning as soon as
reasonably practicable after approval of the corrected form, the
retail seller, administrator, or holder shall use the corrected
form for all sales.
[(f) A debt cancellation agreement form that has been
approved by the commissioner is public information subject to
disclosure under Chapter 552, Government Code. Section 552.110,
Government Code, does not apply to a form approved under this
subchapter.]
Sec. 354.005 [348.605]. ADDITIONAL REQUIREMENTS FOR DEBT
CANCELLATION AGREEMENTS. (a) If a borrower or retail buyer
purchases a debt cancellation agreement, the lender or retail
seller must provide to the borrower or retail buyer a true and
correct copy of the agreement not later than the 10th day after the
date of the loan or [retail installment] contract.
(b) A lender or holder must comply with the terms of a debt
cancellation agreement not later than the 60th day after the date of
receipt of all necessary information required by the lender,
holder, or administrator of the agreement to process the request.
(c) A debt cancellation agreement may not knowingly be
offered by a lender or retail seller if:
(1) the loan or [retail installment] contract is
already protected by gap insurance; or
(2) the purchase of the debt cancellation agreement is
required for the borrower or retail buyer to obtain the extension of
credit.
(d) This section does not apply to a debt cancellation
agreement offered in connection with the purchase of a commercial
vehicle.
(e) The sale of a debt cancellation agreement must be for a
single payment.
(f) A lender or holder that offers a debt cancellation
agreement must report the sale of and forward money received on all
such agreements to any designated party as prescribed in any
applicable administrative services agreement, contractual
liability policy, other insurance policy, or other specified
program documents.
(g) Money received or held by a lender or holder or any
administrator of a debt cancellation agreement and belonging to an
insurance company, lender or holder, or administrator under the
terms of a written agreement must be held by the lender, holder, or
administrator in a fiduciary capacity.
(h) A lender or retail seller that negotiates a debt
cancellation agreement and subsequently assigns the loan or
contract shall:
(1) maintain documents relating to the agreement that
come into the lender's or retail seller's possession; and
(2) on request of the Office of Consumer Credit
Commissioner, cooperate in requesting and obtaining access to
documents relating to the agreement not in the lender's or retail
seller's possession.
Sec. 354.006 [348.606]. REFUND FOR DEBT CANCELLATION
AGREEMENTS. (a) A refund or credit of the debt cancellation
agreement fee must be based on the earliest date of:
(1) the prepayment of the loan or [retail installment]
contract in full before the original maturity date;
(2) a demand by the lender or holder for payment in
full of the unpaid balance or acceleration;
(3) a request by the borrower or retail buyer for
cancellation of the debt cancellation agreement; or
(4) the total denial of a debt cancellation request
based on one of the exclusions listed in Section 354.003 [348.602],
except in the case of a partial loss of the covered item [motor
vehicle].
(b) The refund or credit for the debt cancellation agreement
can be rounded to the nearest whole dollar. A refund or credit is
not required if the amount of the refund or credit calculated is
less than $5.
(c) If total loss or theft has not occurred, the borrower or
retail buyer may cancel the debt cancellation agreement not later
than the 30th day after the date of the loan or [retail installment]
contract or the issuance of the debt cancellation agreement,
whichever is later, or a later date as provided under the debt
cancellation agreement. On cancellation, the lender or holder, or
any administrator of the agreement, shall refund or credit the
entire debt cancellation agreement fee. A borrower or retail buyer
may not cancel the debt cancellation agreement and subsequently
receive any benefits under the agreement.
(d) A lender or holder may in good faith rely on a
computation by any administrator of the agreement of the balance
waived, unless the lender or holder has knowledge that the
computation is not correct. If a computation by the administrator
of the balance waived is not correct, the lender or holder must
within a reasonable time of learning that the computation is
incorrect make the necessary corrections or cause the corrections
to be made to the borrower's or retail buyer's account. This
subsection does not prevent the lender or holder from obtaining
reimbursement from the administrator or another responsible for the
debt cancellation agreement or computation.
SECTION 5. Section 348.124(c), Finance Code, is repealed.
SECTION 6. This Act takes effect September 1, 2017.