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.