BILL ANALYSIS
C.S.H.B. 3101
By: Pitts (Lucio)
Economic Development
5-24-95
Senate Committee Report (Substituted)
BACKGROUND
Advances in financial services have out-paced changes in the usury
statute (Article 5069-1.10, et seq., V.T.C.S.).
PURPOSE
As proposed, C.S.H.B. 3101 exempts the accounts receivable service
which is provided by an account service provider from the usury
statute, and establishes requirements for determining rates of
interest.
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 Article 5069-1.10 et seq., V.T.C.S., by adding
Article 1.14, as follows:
Art. 1.14. PURCHASES OF ACCOUNTS RECEIVABLE. (a) Defines
"account purchase transaction."
(b) Provides that the amount of any discount in, or charged
under, an account purchase transaction is not compensation
contracted for, charged, or received with respect to that
account purchase transaction.
(c) Requires the parties' characterization of an account
purchase transaction as a purchase to be conclusive that the
account purchase transaction is not a transaction for the
use, forbearance, or detention of money.
(d) Provides that this article applies to an account
purchase transaction entered before, on, or after the
effective date of this Act.
SECTION 2. Amends Article 5069-1.01, V.T.C.S., as follows:
Art. 1.01. DEFINITIONS. Defines "creditor," "affiliate of an
obligor," "business entity," "commercial loan," "contract
interest," "guaranty," "judgment interest," "loan," "obligor,"
"qualified commercial loan," and "time price differential."
Redefines "interest," "legal interest," "conventional
interest," "person," "open-end account," "merchant discount,"
and "lender credit card agreement."
SECTION 3. Amends Article 5069-1.02, V.T.C.S., as follows:
Art. 1.02. New heading: CONVENTIONAL INTEREST OF TIME PRICE
DIFFERENTIAL ALLOWED; MAXIMUM RATE OF CONVENTIONAL INTEREST
EXCEPT AS OTHERWISE FIXED BY LAW. (a) Authorizes a creditor
to contract for, charge, and receive from an obligor
conventional interest or a time price differential.
(b) Requires the maximum rate of conventional interest to be
10 percent a year. Deletes language regarding usury.
SECTION 4. Amends Article 5069-1.03, V.T.C.S., as follows:
Art. 1.03. New heading: LEGAL INTEREST ALLOWED; MAXIMUM RATE
OF LEGAL INTEREST. (a) Authorizes a creditor, unless the
creditor has agreed with an obligor not to charge the obligor
any interest, to charge and receive from the obligor legal
interest on the principal amount of the credit extended by the
creditor to the obligor.
(b) Fixes the maximum rate of legal interest at six percent
a year commencing on the 30th day after the date the
principal amount first became due and payable.
SECTION 5. Amends the heading to Article 5069-1.04, V.T.C.S., as
follows:
Art. 1.04. MAXIMUM RATE OF CONVENTIONAL INTEREST; MAXIMUM
RATE PRODUCED BY A TIME PRICE DIFFERENTIAL PURSUANT TO CERTAIN
AGREEMENTS.
SECTION 6. Amends Articles 5069-1.04(a)-(c) and (o), V.T.C.S., as
follows:
(a) Authorizes the parties to any contract to agree to a rate
or amount of conventional interest that does not exceed a
certain amount.
(b)(2) Prohibits the 24 percent limitation on ceilings in
Section (b)(1) that is applicable to certain computations from
applying in the case of any qualified commercial loan.
Deletes language regarding credit in an amount in excess of
$250,000.
(5) Deletes a reference to a definition of merchant discount
in Article 1.01(h) of this title.
(7) Provides that, if a creditor and an obligor agree that
contract interest in respect of any qualified commercial
loan shall be computed on the basis of a 360-day year of
twelve 30-day months, each rate per year referred to in this
article means a rate per year consisting of 360 days and of
twelve 30-day months.
(c) Makes nonsubstantive changes.
(o)(1) Deletes existing Subdivision (1) subjecting certain
contracts providing for a greater rate of interest to
penalties. Redesignates existing Subdivision (2). Makes
nonsubstantive changes.
(2)-(3) Redesignate existing Subdivisions (3)-(4).
SECTION 7. Amends Title 79, V.T.C.S., by adding Article 1.15, as
follows:
Art. 1.15. INTEREST ON CERTAIN NOTES. Provides that, in
determining the amount of rate of interest charged on a note
that was purchased from a federal agency, at a discount,
interest includes the amount computed by subtracting the
amount for which the note was purchased from the total amount
of the principal of the note paid by the maker or guarantor of
the note. Requires any collateral securing the payment of the
note to be deducted from the purchase price of the note before
calculating the rate of interest. Provides that this article
does not apply to a transaction if the seller or purchaser of
a note is a financial institution.
SECTION 8. Amends Article 5069-1.13, V.T.C.S., as follows:
Art. 1.13. (a) Redefines "pass-through entity."
(b) Deletes a provision regarding sums excluded from the
definition of interest. Makes nonsubstantive changes.
(c) Makes a nonsubstantive change.
SECTION 9. Amends Subtitle 1, Title 79, V.T.C.S., by adding
Articles 1.14 and 1.15, as follows:
Art. 1.14. CERTAIN ITEMS THAT DO NOT CONSTITUTE INTEREST.
(a) Provides that "interest" does not include any time price
differential.
(b) Excludes certain items from "interest" in the case of
any qualified commercial loan made to a business entity.
(c) Defines "security" and "equity security."
Art. 1.15. GUARANTIES. (a) Excludes certain items from the
term "interest."
(b) Provides that this subtitle does not apply to any loan
that is subject to Subtitle 2 or Chapter 15 of this title.
SECTION 10. Effective date: September 1, 1995.
SECTION 11. Emergency clause.