BILL ANALYSIS C.S.H.B. 1259 By: Carona April 10, 1995 Committee Report (Substituted) BACKGROUND Section 9(d) of Article 489d (V.T.C.S.) requires that all Sale of Checks Act licensees have on hand permissible investments in an amount equal to the aggregate face amount of all checks sold in the United States, except travelers checks. Licensees with a net worth of $5,000,000 or more are specifically exempted from compliance with this section. The theory behind the exemption for companies with a substantial net worth is that purchasers of checks from these licensees are adequately protected without a permissible investment requirement. Experience has shown that economic downturns and other marketplace factors which can affect net worth occur very rapidly. A licensee with a net worth in excess of $5,000,000 today may show a negative net worth of an equally significant amount tomorrow. When that occurs, it is too late to subject them to the permissible investment requirement because they no longer have sufficient liquid, unencumbered resources available to meet the statutory requirements. In order to protect check purchasers, it is necessary that the travelers check exception be deleted and the exemption for licensees with a net worth in excess of $5,000,000 be partially eliminated. PURPOSE CSHB 1259 would require a licensee with a net worth of $5 million or more to maintain a surety bond or letter of credit or have on hand permissible investments, in an amount equal to at least 50 percent of the aggregate face amount of all outstanding checks sold in the United States for which the licensee is liable for payment, less the amount of the surety bond or a deposit maintained in this Act. Licensees with a net worth of less than $5 million must maintain a surety bond or letter of credit or have permissible investments, in an amount equal to the aggregate face of all outstanding checks sold in the United States for which the licensee is liable for payment, less the amount of the surety bond or deposit maintained under this Act. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 9, The Sale of Checks Act (Article 489d, V.T.C.S.) by changing the due dates of quarterly reports from 15 days after January 1, April, July 1, and October 1, to "not later than the 45th day after the date of the last day of each quarter of the licensee's fiscal year." Amends this section to allow licensees to maintain a surety bond or letter of credit. SECTION 2. Provides that notwithstanding Subsection (d), Section 9, The Sale of Checks Act (Article 489d, V.T.C.S.), as added by this Act, a person who is subject to that subsection and who held a license under that Act on January 1, 1995: (1) beginning September 1, 1995, these licensees would be required to maintain permissible investments equal to 10% of the aggregate face amount of all checks sold in the United States for which the licensee is liable for payment, and (2) beginning September 1, 1996, these licensees would be required to maintain permissible investments equal to 20% of the aggregate face amount of all checks sold in the United States for which the licensee is liable for payment. (3) beginning September 1, 1997, these licensees would be required to maintain permissible investments equal to 30% of the aggregate face amount of all checks sold in the United States for which the licensee is liable for payment. (4) beginning September 1, 1998, these licensees would be required to maintain permissible investments equal to 40% of the aggregate face amount of all checks sold in the United States for which the licensee is liable for payment. (5) on or after September 1, 1999 the total amount required by this Act. SECTION 3. Effective date: September 1, 1995. SECTION 4. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE The original bill did not allow a licensee to maintain a surety bond or letter of credit in lieu of permissible investments. The substitute allows a longer phase-in period of the new requirement to 1999 rather than 1996. SUMMARY OF COMMITTEE ACTION The committee considered HB 1259 in a public hearing on February 20, 1995. The following people testified neutrally on the bill: Catherine A. Ghiglieri; and Brian Herrick. The bill was referred to subcommittee with Representatives: Marchant, Chair; Carona, Gutierrez. The committee considered HB 1259 in a public hearing on April 3, 1995. The bill was recalled from subcommittee. The committee considered a complete committee substitute for the bill. The following person testified neutrally on the bill: Catherine A. Ghiglieri. The motion to adopt the complete committee substitute for the bill and report HB 1259, with the recommendation that it do pass and be printed, prevailed by the following record vote: 9 Ayes, 0 Nays, 0 PNV, 0 Absent.