BILL ANALYSIS
C.S.H.B. 1896
By: Glaze
04-27-95
Committee Report (Substituted)
BACKGROUND
Under present law a person is required to obtain a surety bond in
the amount of $25,000 in order to receive or renew a dealer's
license. Due to the increase in the price of automobiles and the
experience of persons who have made claims against a dealer's bond,
there is a strong feeling that the $25,000 of surety is
insufficient. Last session an attempt was made to raise the face
value of the bond from $25,000 to $50,000. If this change would
have passed, the premium for the bond would have more than doubled.
Many marginal dealers could not afford the premium and others would
be unable to meet underwriting requirements of the bond company.
The alternative is to enact legislation to create a Motor Vehicle
Recovery Fund, which is patterned after a similar fund currently in
operation in Virginia.
While it is true that the Virginia fund has had major problems, the
legislation contemplated at this time for consideration by the
Texas Legislature will address the problem areas prior to
introduction. The weakness in the Virginia fund is underfunding.
This was caused by too few dealers investing too few dollars.
Adequate funding will not be a problem with the Texas recovery
fund.
PURPOSE
This bill will create a Motor Vehicle Recovery Fund, a special fund
designed to serve as an alternative to the requirement of surety
bonding for motor vehicle dealers.
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: Amends Article 6686, [(Subdivision (vii), Subsection (1-A), Section (a),)], Revised Statutes, by stating that general
distinguishing numbers will only be issued or renewed to motor
vehicle dealers who comply with Article 6686-2, Revised Statutes.
SECTION 2: Amends Revised Statutes, Article 6686-2, Title 116,
Chapter 1 as follows:
Sec. 1 defines the terms Applicant, Department, Executive Director,
Fund, Judgment Creditor, License, License Holder, and Person under
this Act.
Sec. 2 (a) Amends Title 116, Revised Statutes, by adding Article
6686-2 which requires all applicants or dealers to pay an
assessment fee of $350 for four consecutive years, unless as
provided in Section 2 (c), the balance of the fund falls below
$10,000,000. Fees collected will be used to establish the Motor
Vehicle Recovery Fund
(b) States that all assessments for the fund shall be deposited as
a special fund in the State Treasury to be expended to pay claims
against the fund and the cost directly related to the
administration of the fund. All interest accrues to the fund. The
executive director shall administer the fund and maintain accurate
records.
(c) If after four years the fund falls below $10,000,000, each
applicant or licensee must pay an assessment fee of $350 upon
issuance or renewal of a general distinguishing number until the
fund reaches a balance of $10,000,000.
(d) is added to indicate that a person licensed by the Motor
Vehicle Board is not required to pay an assessment as provided
under this Article.
Sec. 3 (a) Recovery from the fund may be made by a person who
obtains a final judgment that is enforceable in the courts of this
state against an applicant or licensee assessing damages for an act
or omission arising from the applicant or licensee's failure to pay
a draft, including checks, drawn for the purchase of a motor
vehicle or the applicant's or licensee's failure to deliver good
title. The fund covers reasonable attorney's fees, but does not
cover punitive or exemplary damages.
(b) A judgment creditor may file a verified claim with the
executive director requesting payment from the fund of the amount
of the unpaid judgment.
(c) The claim shall be filed with the executive director no sooner
than thirty days and no later than twelve months after the final
judgment.
(d) is added to indicate that a judgment creditor may file a claim
with the executive director requesting payment from the fund of the
amount of the unpaid judgment. Such a claim must be filed at least
30 days after the final judgment and before one year after that
date.
(e) is added to indicate that a claim filed pursuant to this
section must be submitted on a form prescribed by TxDOT and a
certifying document from the trial clerk that the judgment is
final.
Sec. 4 (a) The maximum allowable claim of one judgment creditor
against the fund for an unpaid final judgment involving a single
transaction is $50,000.
(b) The maximum aggregate of claims on one judgment creditor in a
twelve month period is $100,000.
(c) If the executive director has reasons to believe that an
additional claim may be made against the fund involving the same
applicant or licensee, the executive director may for a period not
to exceed one year after receipt of the claim, withhold any payment
from the fund with respect to a transaction involving an applicant
or licensee. After this period the executive director shall pay
all claims in full up to $200,000. If the aggregate of the claims
exceed $200,000, the executive director shall prorate the total of
$200,000 among the claimants and pay from the fund each claimant's
pro rate share in proportion to the amounts of the unpaid final
judgments against the applicants or licensees.
(d) On receipt of a verified claim against the fund, the executive
director shall notify the subject of the unpaid judgment. If the
fund is not fully satisfied in thirty days, the executive director
shall make payment from the fund.
(e) is added to indicate that before payment of a claim, the
claimant must assign the right to collect any judgment the right to
recover the amount he is to be compensated from the fund. Upon
that assignment, the executive director must pay the claimant from
the fund.
Sec. 5 Upon payment from the fund, the executive director shall
notify the applicant or licensee in writing of the fund's payment
to the claimant, requesting full reimbursement to the fund within
30 days. The executive director will revoke the license of the
subject who does not reimburse the fund in the allotted time
period. The applicant or licensee in violation may not apply for
a license as a dealer or wholesale motor vehicle auction until the
person has repaid the amount paid by the fund with 8% interest.
Sec. 6 The Department may promulgate forms and adopt rules to
implement this Article.
SECTION 3: Indicates that (a)the changes in law affect only the
issuance or renewal of a general distinguishing number as a dealer
on or after the effective date of this act. (b)indicates that the
bond requirement is continued in effect until the general
distinguishing number expires.
SECTION 4: Effective Date January 1, 1996
SECTION 5: Emergency Clause
COMPARISON OF ORIGINAL TO SUBSTITUTE
C.S.H.B. 1896, Section 1 changes the citing to Article 6686-2,
Revised Statutes. C.S.H.B. 1896, Section 2, Sec. 2(d), Sec. 3(d)
and 3(e), Sec. 4(e) are added. Sec. 4(e) replaces Sec. 5 from the
original bill. C.S.S.B. 1896 adds Sec. 5 to Article 6686-2 to
indicate that upon payment from the fund, the executive director
shall notify the applicant or licensee in writing of the fund's
payment to the claimant, requesting full reimbursement to the fund
within 30 days. The executive director will revoke the license of
the subject who does not reimburse the fund in the allotted time
period. The applicant or licensee in violation may not apply for
a license as a dealer or wholesale motor vehicle auction until the
person has repaid the amount paid by the fund with 8% interest.
C.S.H.B. 1896 adds Section 3(b) which indicates that the bond
requirement is continued in effect until the general distinguishing
number expires. C.S.H.B. 1896 changes Section 3 in the original to
Section 5 and adds Section 4, effective date.
SUMMARY OF COMMITTEE ACTION
Pursuant to a public notice posted on April 21, 1995, at 4:04 p.m.,
the House Committee on Transportation met in a public hearing on
Wednesday, April 26, 1995, at 2:00 p.m., or upon adjournment, in
Room E1.014 of the Capitol Extension and was called to order at
6:13 p.m. by the Chair, Representative Clyde Alexander. The Chair
laid out H.B. 1896 and recognized Representative Glaze to explain
H.B. 1896. The Chair recognized following persons who testified in
support of H.B. 1896. Allen Ray, Texas Independent Auto Dealers
Association and Texas Wholesale Auto Auction Association. George
Dodd, Texas Independent Automobile Dealers Association. The Chair
recognized the following persons who testified in opposition to
H.B. 1896. John Schuler, President Commercial Indemnity Insurance
Co. and Time Insurance Agency. Robert C. Bass, Texas Coalition of
Sureties. The Chair left H.B. 1896 pending before the Committee.
Pursuant to a public notice announced from the House Floor on April
27, 1995, in accordance with House Rules, the House Committee on
Transportation met in a formal meeting on the House Floor, at Desk
128, on Thursday, April 27, 1995, and was called to order by the
Vice-Chairman, Representative Fred Bosse at 6:35 p.m. The Chair
laid out H.B. 1896 by Glaze, which was pending before the
Committee. Representative Clemons laid out the Committee
substitute to H.B. 1896, and without objection, the substitute to
H.B. 1896 was adopted. Representative Clemons moved to report H.B.
1896, as substituted, to the full House with the recommendation
that it do pass. The motion prevailed by the following vote: Ayes
(6), Nayes (0), Absent (3), Present not voting (0).