| 1 | 1 | | 88R928 JES-D |
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| 2 | 2 | | By: Harris of Anderson H.B. No. 709 |
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| 3 | 3 | | |
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| 4 | 4 | | |
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| 5 | 5 | | A BILL TO BE ENTITLED |
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| 6 | 6 | | AN ACT |
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| 7 | 7 | | relating to prohibiting the use of certain credit scores, including |
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| 8 | 8 | | environmental, social, or governance scores and social credit |
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| 9 | 9 | | scores, by certain financial institutions and other lenders in this |
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| 10 | 10 | | state; providing a civil penalty. |
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| 11 | 11 | | BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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| 12 | 12 | | SECTION 1. Subtitle A, Title 5, Business & Commerce Code, is |
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| 13 | 13 | | amended by adding Chapter 74 to read as follows: |
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| 14 | 14 | | CHAPTER 74. PROHIBITED USE OF CERTAIN CREDIT SCORES IN LENDING |
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| 15 | 15 | | Sec. 74.0001. DEFINITIONS. In this chapter: |
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| 16 | 16 | | (1) "Credit score" means a number or rating derived |
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| 17 | 17 | | from an algorithm, computer application, model, or other process |
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| 18 | 18 | | that is based on information related to a customer and used to |
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| 19 | 19 | | determine a customer's creditworthiness or credit capacity. |
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| 20 | 20 | | (2) "Environmental, social, or governance score" |
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| 21 | 21 | | means a credit score that is based on measuring a customer's |
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| 22 | 22 | | exposure to long-term environmental, social, and governance risks. |
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| 23 | 23 | | (3) "Financial institution" means: |
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| 24 | 24 | | (A) a bank chartered under state law, including |
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| 25 | 25 | | Chapter 32, Finance Code; |
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| 26 | 26 | | (B) a savings and loan association chartered |
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| 27 | 27 | | under Chapter 62, Finance Code; |
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| 28 | 28 | | (C) a state savings bank chartered under Chapter |
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| 29 | 29 | | 92, Finance Code; |
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| 30 | 30 | | (D) a credit union chartered under Chapter 122, |
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| 31 | 31 | | Finance Code; or |
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| 32 | 32 | | (E) a trust company chartered under the laws of |
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| 33 | 33 | | this state. |
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| 34 | 34 | | (4) "Social credit score" means a credit score that is |
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| 35 | 35 | | based on measuring a complex combination of personal data such as a |
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| 36 | 36 | | person's demographic information, online or offline behaviors, or |
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| 37 | 37 | | social network activity. |
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| 38 | 38 | | Sec. 74.0002. APPLICABILITY. This chapter applies only to |
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| 39 | 39 | | a financial institution or other lender that: |
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| 40 | 40 | | (1) is formed or chartered under the laws of this |
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| 41 | 41 | | state; and |
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| 42 | 42 | | (2) makes loans or other extensions of credit only to |
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| 43 | 43 | | customers: |
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| 44 | 44 | | (A) who are residents of this state; or |
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| 45 | 45 | | (B) that are businesses organized under the laws |
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| 46 | 46 | | of this state. |
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| 47 | 47 | | Sec. 74.0003. DISCRIMINATION IN USE OF CERTAIN CREDIT |
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| 48 | 48 | | SCORES BY FINANCIAL INSTITUTIONS AND OTHER LENDERS PROHIBITED. (a) |
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| 49 | 49 | | A financial institution or other lender, either directly or through |
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| 50 | 50 | | the use of an outside contractor, may not discriminate against a |
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| 51 | 51 | | customer in the price or rate that the financial institution or |
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| 52 | 52 | | other lender charges for making a loan or other extension of credit |
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| 53 | 53 | | to the customer by basing the price or rate wholly or partly on a |
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| 54 | 54 | | credit score, including a social credit score or an environmental, |
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| 55 | 55 | | social, or governance score, that is derived from subjective or |
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| 56 | 56 | | arbitrary standards such as the customer's: |
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| 57 | 57 | | (1) social media posts; |
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| 58 | 58 | | (2) participation or membership in an organization; |
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| 59 | 59 | | (3) political affiliation; or |
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| 60 | 60 | | (4) employer. |
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| 61 | 61 | | (b) This section does not prohibit a financial institution |
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| 62 | 62 | | or other lender from: |
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| 63 | 63 | | (1) entering into a business transaction in which a |
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| 64 | 64 | | practice is fully disclosed and explained to the potential customer |
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| 65 | 65 | | before the customer agrees to enter into the transaction; or |
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| 66 | 66 | | (2) discontinuing or refusing to conduct a transaction |
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| 67 | 67 | | with a customer who is an individual account holder or with a |
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| 68 | 68 | | potential customer if the discontinuation or refusal is necessary |
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| 69 | 69 | | for the physical safety of the employees of the financial |
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| 70 | 70 | | institution or other lender. |
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| 71 | 71 | | Sec. 74.0004. CIVIL PENALTY; INJUNCTION. (a) A financial |
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| 72 | 72 | | institution or other lender that violates Section 74.0003 is liable |
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| 73 | 73 | | to this state for a civil penalty in an amount not to exceed: |
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| 74 | 74 | | (1) $50,000 for the first violation; and |
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| 75 | 75 | | (2) $250,000 for each subsequent violation. |
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| 76 | 76 | | (b) The attorney general may bring an action: |
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| 77 | 77 | | (1) to collect a civil penalty imposed under this |
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| 78 | 78 | | section; and |
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| 79 | 79 | | (2) in the name of this state to enjoin a violation of |
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| 80 | 80 | | this chapter. |
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| 81 | 81 | | (c) The attorney general is entitled to recover reasonable |
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| 82 | 82 | | expenses incurred in bringing an action under this section, |
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| 83 | 83 | | including reasonable attorney's fees and court costs. |
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| 84 | 84 | | SECTION 2. This Act takes effect September 1, 2023. |
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