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.