BILL ANALYSIS



C.S.H.B. 2406
By: Elkins
04-03-95
Committee Report (Substituted)


BACKGROUND

Federal law permits a national bank to enter into a debt
cancellation contract with a borrower; whereby, for a fee the bank
will cancel or waive all or a portion of the indebtedness in the
event of the death or disability of the borrower.  While it has
been determined that state-chartered banks have similar authority;
presently, several obstacles exist which prevent the successful
establishment of a debt cancellation contract program.

PURPOSE

CSHB 2406 would allow a borrower and a bank to enter into a debt
cancellation contract.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill grants additional
rulemaking authority to the Finance Commission of Texas in Section
1 of this bill.

SECTION BY SECTION ANALYSIS

SECTION 1. Article 4.01, Title 79, Revised Statutes amended by
           adding Section (10).  A bank and a borrower may agree
           to include in a consumer loan transaction a separate
           charge, which must be reasonable, for a debt
           cancellation contract or waiver; by which, the bank
           agrees to waive, reduce or cancel the remaining balance
           on a consumer loan in the event of the death or
           disability of the borrower.  A bank may not be the
           beneficiary of a credit life or disability insurance
           policy that provides coverage for any part of the
           balance of a loan that is subject to a debt cancellation
           contract.  A charge for a debt cancellation contract or
           waiver under this section may not be considered
           interest.

           (b)  A charge for a debt cancellation contract must
comply with applicable        regulations established by the OCC.

           (c)  Grants rulemaking authority to the Finance
Commission to adopt rules and           rates consistent with
regulations set forth by the OCC and requiring the          prominent disclosure of the following to the borrower:  the charge,
a description       of the coverage, notification of the right to
cancel in 21 days, any possible         federal tax consequences,
and other related contract terms.

SECTION 2. Emergency clause.

COMPARISON OF ORIGINAL TO SUBSTITUTE

The substitute removes the regulatory oversight of the banking
commissioner.  The substitute also states that the bank may not be
the beneficiary of a credit life insurance policy that provides
coverage for any part of the balance of a loan that is subject to
a debt cancellation contract.  

The substitute states that a charge for a debt cancellation
contract is not considered interest.

The substitute requires the Finance Commission to adopt rules and
rates consistent with applicable guidelines set by the OCC
including the requirement of prominent disclosure to the borrower
of the charge, a description of the coverage, notification of the
right to cancel in 21 days, any possible federal tax consequences,
and other related contract terms.

The substitute removes the appeals process to the Finance
Commission.

SUMMARY OF COMMITTEE ACTION

The committee considered HB 2406 in a public hearing on April 3,
1995.

The committee considered a complete committee substitute for the
bill which was withdrawn.

The following people testified in favor of the bill:
Don Strong representing himself and Century Management Company;
Joseph C. Boggins representing himself and Century Management
Company;
R.E. Gene Mann representing himself and Century Management Company;
Kelly Rodgers representing Texas Bankers Association; and
Karen Neeley representing Independent Bankers Association of Texas.

The following people testified against the bill:
Robert Schneider representing Consumers Union;
Kathleen Wharton representing Consumer Credit Insurance
Association; and
Gary Tolman representing American National Insurance Company.

The bill was left pending.

The committee considered HB 2406 in a public hearing on April 19,
1995.

The following person testified in favor of the bill:
Don S. Strong representing Century Management Co. & Century Life
Insurance Corporation.

The following person testified neutrally on the bill:
Leslie Pettijohn representing the Office of the Consumer Credit
Commissioner.

The bill was left pending.

The committee considered HB 2406 in a public hearing on April 24,
1995.

The committee considered a complete committee substitute for the
bill.  Three amendments were offered to the substitute which were
adopted without objection.

The following person testified against the bill:
Robert Schneider representing Consumers Union.

The following person testified in favor of the bill:
R. E. (Gene) Mann representing Century Management Company.

The committee substitute as amended was adopted and the bill was
reported favorably as substituted, with the recommendation that it
do pass and be printed, by a record vote of:  6 Ayes, 0 Nays, 0
PNV, 3 Absent.