BILL ANALYSIS



H.B. 1586
By: Marchant
04-07-95
Committee Report (Unamended)


BACKGROUND

The bill addresses a problem triggered by the recent trend toward
lengthening the term of retail installment contracts for the sale
of motor vehicle.  Only a few short years ago the typical retail
installment agreement for the sale of a motor vehicle had a term of
24 months.  Today 60 month agreements are not at all uncommon.

While the availability of longer term loans is important for both
buyer and seller, it creates a distinct problem:  for a substantial
portion of the life of the contract the amount owed against the
vehicle may exceed its market value.  Because an owner's basic
insurance coverage is tied to the vehicle's market value, if the
vehicle is  rendered a total loss while the debt exceeds the market
value, the owner is forced to pay an additional amount over an
above the insurance proceeds.  This is know as the "gap", and
represents a cash outlay on the part of the purchaser that may be
substantial.

In 1993 the Legislature took a step toward solving the problem by
enacting an amendment to Consumer Credit Code Article 7.06, Section
9 to allow for the sale of a collateral insurance product to insure
the purchaser against have to pay the "gap" if his vehicle is
rendered a total loss while the debt exceeds the market value. 
However, that law does not go far enough because it does not
provide for a contract waiver option.


PURPOSE

The purpose of H.B. 1586 is to provide the mechanism by which buyer
and seller may agree to fund the buyer's loss through a contractual
waiver contained in the retail installment agreement itself.


RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency, or institution.

SECTION BY SECTION ANALYSIS

SECTION 1. Beginning on Page  1, line 5, would amend Article 7.06, 
           Section 9 of the Consumer Credit Code simply to add an
           option by which, in the context of the retail
           installment sale of a motor vehicle, the buyer and
           seller may agree to include a waiver of the debt in the
           event the vehicle is rendered a total loss while the
           debt exceeds the market value of the vehicle.  The
           amendment clearly provides that the addition of this
           type of contractual provision is voluntary and that it
           is not insurance.

SECTION 2. Emergency Clause.






SUMMARY OF COMMITTEE ACTION

The committee considered HB 1586 in a public hearing on April 10,
1995.

The following people testified in favor of the bill:
Sam Kelley; and
Alice K. Rawlings.

The bill was reported favorably without amendments, with the
recommendation that it do pass and be printed, by a record vote of: 
7 Ayes, 0 Nays, 0 PNV, 2 Absent.