BILL ANALYSIS H.B. 1259 By: Carona (Rosson) Economic Development 5-24-95 Senate Committee Report (Unamended) BACKGROUND Current law 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 U.S., 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. PURPOSE As proposed, H.B. 1259 provides security obligations of a licensed seller of checks. 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, Article 489d, V.T.C.S. (Sale of Checks Act), as follows: Sec. 9. OBLIGATIONS OF LICENSEE. Requires each person holding a license under this Act to at all times when the license is in effect: (a) if the licensee does not have on file or deposit a bond or securities in the undiminished principal sum of at least $500,000, file quarterly reports with the commissioner setting forth the locations at which the licensee sells checks in this state not later than the 45th day after the date of the last day of each quarter of the licensee's fiscal year, rather than as of January 1, April 1, July 1, and October 1 in each year, the report for each such date being due on or before the 15th day thereafter. Makes nonsubstantive changes. (b) Redesignates existing Subsection (c). (c) if the licensee has a net worth of less than $5 million, maintain a surety bond or letter of credit, or have on hand permissible investments, in an amount equal to the aggregate face amount of all outstanding checks, without exception, sold in the U.S. for which the licensee is liable for payment, less the amount of the surety bond or deposit maintained under Section 7(c) of this Act; and (d) if the licensee has a net worth of $5 million or more, 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 U.S. for which the licensee is liable for payment, less the amount of the surety bond or deposit maintained under Section 7(c) of this Act. (e) if the licensee maintains a surety bond or letter of credit under Subsection (c) or (d) of this section, the surety bond or letter of credit must meet certain provisions. Deletes the provision that this subsection does not apply to any licensee with a net worth of not less than $5 million and that statements filed under Section 9B of this Act may be used to satisfy this requirement. SECTION 2. Sets forth amount that, notwithstanding Section 9d, 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, is required to maintain for the license permissible investments or a bond under that section. SECTION 3. Effective date: September 1, 1995. SECTION 4. Emergency clause.