By Carona H.B. No. 3071
Substitute the following for H.B. No. 3071:
By Marchant C.S.H.B. No. 3071
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the amounts that may be charged and collected in
1-3 connection with a loan or other extension of credit.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Article 1.01, Title 79, Revised Statutes (Article
1-6 5069-1.01, Vernon's Texas Civil Statutes), is amended to read as
1-7 follows:
1-8 Art. 1.01. Definitions. In this Subtitle: (a) "Interest"
1-9 means <is the> compensation <allowed by law> for the use, <or>
1-10 forbearance, or detention of money; provided, however, that this
1-11 definition is subject to Articles 1.13, 1.14, and 1.15 of this
1-12 Subtitle <this term shall not include any time price differential
1-13 however denominated arising out of a credit sale>.
1-14 (b) "Legal interest <Interest>" means <is that> interest
1-15 <which is allowed by law> when an obligor has not agreed to pay to
1-16 a creditor any compensation that constitutes <the parties to a
1-17 contract have not agreed on any particular rate of> interest. The
1-18 term does not include judgment interest.
1-19 (c) "Conventional interest <Interest>" means <is that>
1-20 interest when an obligor has agreed to pay to a creditor any
1-21 compensation that constitutes interest, regardless of whether the
1-22 agreement is unenforceable by the creditor. The term does not
1-23 include judgment interest <which is agreed upon and fixed by the
1-24 parties to a written contract>. If an obligor has agreed to pay to
2-1 a creditor any compensation that constitutes interest, the obligor
2-2 is considered to have agreed on the rate produced by the amount of
2-3 that interest, whether or not that rate is stated in the agreement.
2-4 (d) "Creditor" means a person that loans money or otherwise
2-5 extends credit. <"Usury" is interest in excess of the amount
2-6 allowed by law.>
2-7 (e) "Person" means an individual, partnership, corporation,
2-8 joint venture, limited liability company, trust, association, or
2-9 other <any> legal entity, however organized.
2-10 (f) "Open-end account <Account>" means any account created
2-11 pursuant to<, under> a written contract under which a <the>
2-12 creditor may permit an <the> obligor to make purchases or borrow
2-13 money from time to time, and under which interest or time price
2-14 differential may from time to time be computed on an outstanding
2-15 unpaid balance. The term includes, but is not limited to, accounts
2-16 under agreements described by Section (4), Article 3.15; Section
2-17 (4), Article 4.01; and Chapters 6 and 15 of this Title.
2-18 (g) "Credit card transaction <Card Transaction>" means a
2-19 transaction in which a card is or may be used to debit an open-end
2-20 account in connection with the purchase or lease of goods or
2-21 services or the lending of money, which card is or may be used for
2-22 personal, family, or household use.
2-23 (h) "Merchant discount <Discount>" means any charge, fee,
2-24 discount, compensating balance, or other consideration imposed by a
2-25 creditor on or received directly or indirectly by the creditor from
2-26 any seller or lessor of goods or services in connection with a
2-27 credit card transaction under a lender credit card agreement
3-1 between an obligor <the customer> and the creditor. The term
3-2 includes any consideration whatsoever received by the <a> creditor
3-3 from any person other than the obligor in connection with a credit
3-4 card transaction under a lender credit card agreement between the
3-5 obligor and the creditor. Any such consideration received by a
3-6 subsidiary of the creditor or parent company of the creditor or any
3-7 subsidiary of the creditor's parent company shall be deemed to have
3-8 been received by the creditor <in determining if any such
3-9 consideration has been received by the creditor>.
3-10 (i) "Lender credit card agreement <Credit Card Agreement>"
3-11 means an agreement between a creditor (other than the seller or
3-12 lessor) and an obligor under which credit is or may be extended for
3-13 personal, family, or household use and under which: (1) by means
3-14 of a credit card, the obligor may obtain loans from the creditor,
3-15 which may be advanced by other participating persons, and may lease
3-16 or purchase goods or services from more than one participating
3-17 lessor or seller who honor the creditor's card, and the creditor or
3-18 some other person acting in cooperation with the creditor will
3-19 reimburse the other participating persons, lessors, or sellers for
3-20 the goods or services purchased or leased, and the obligor is
3-21 obligated under his or her agreement with the creditor to pay the
3-22 creditor the amount of such loans or the costs of such leases or
3-23 purchases; (2) the unpaid balance of such loans, leases, and
3-24 purchases and any interest thereon are debited to the obligor's
3-25 account with the creditor under the obligor's agreement with the
3-26 creditor; (3) interest is not precomputed but may be computed on
3-27 the balances of the obligor's account outstanding with the creditor
4-1 from time to time; and (4) the obligor may defer payment of any
4-2 part of the balance. The term includes all agreements for open-end
4-3 accounts authorized or defined under Articles 3.15(4), 4.01(4),
4-4 15.01(k), and 15.01(l) of this Title pursuant to which credit card
4-5 transactions <as defined in Article 1.01(g) of this Title> may be
4-6 made or in connection with which a merchant discount <as defined in
4-7 Article 1.01(h) of this Title> is imposed or received by the
4-8 creditor. The term does not include an open-end account credit
4-9 agreement between a seller or lessor and its own buyer or lessee.
4-10 The term does not include agreements under which the entire balance
4-11 is due and payable in full each month and no interest is charged
4-12 when the obligor pays in accordance with such terms.
4-13 (j) "Affiliate" of an obligor means a person that directly
4-14 or indirectly, through one or more intermediaries, controls, is
4-15 controlled by, or is under common control with the obligor. The
4-16 term "control" means the possession, directly or indirectly, of the
4-17 power to direct or cause the direction of the management and
4-18 policies of a person, whether through the ownership of voting
4-19 securities, by contract, or otherwise.
4-20 (k) "Business entity" means a partnership, corporation,
4-21 joint venture, limited liability company, or other business
4-22 organization or association, however organized.
4-23 (l) "Commercial loan" means a loan that is made primarily
4-24 for business, commercial, investment, or other similar purposes.
4-25 The term does not include a loan that is made primarily for
4-26 personal, family, or household use.
4-27 (m) "Contract interest" means conventional interest, whether
5-1 or not denominated as interest, that an obligor has agreed to pay
5-2 to a creditor.
5-3 (n) "Guaranty" means an agreement pursuant to which an
5-4 obligor:
5-5 (1) assumes, guarantees, or otherwise becomes
5-6 primarily or contingently liable for the payment or performance of
5-7 an obligation of another person;
5-8 (2) provides security for the payment or performance
5-9 of an obligation of another person, whether through the creation of
5-10 a lien or security interest or otherwise; or
5-11 (3) agrees to purchase, or to advance consideration to
5-12 purchase, the obligation or any property constituting security for
5-13 the payment or performance of the obligation.
5-14 (o) "Judgment interest" means interest on a money judgment,
5-15 whether the interest accrues before, on, or after the date the
5-16 judgment is rendered. For purposes of this Subtitle, the term
5-17 "money judgment" includes legal interest or conventional interest,
5-18 if any, that is payable pursuant to a judgment.
5-19 (p) "Loan" means a loan of money or other extension of
5-20 credit if the obligor has unconditionally agreed to pay to the
5-21 creditor the principal amount of the loan or other extension of
5-22 credit. The term does not include a judgment.
5-23 (q) "Obligor" means a person to whom money is loaned or
5-24 credit is otherwise extended. The term does not include a surety,
5-25 guarantor, or similar person.
5-26 (r) "Qualified commercial loan" means:
5-27 (1) a commercial loan in the original principal amount
6-1 of $5 million or more; or
6-2 (2) any renewal or extension of a commercial loan in
6-3 the original principal amount of $5 million or more, whether or not
6-4 the principal amount of the loan at the time of its renewal or
6-5 extension is $5 million or more.
6-6 (s) "Time price differential" means an amount, however
6-7 denominated, that is:
6-8 (1) added to the price at which a seller offers to
6-9 sell services or real or personal property to a purchaser for cash
6-10 payable at the time of sale; and
6-11 (2) paid or payable to the seller by the purchaser for
6-12 the privilege of paying the offered sales price after the time of
6-13 sale.
6-14 SECTION 2. Article 1.02, Title 79, Revised Statutes (Article
6-15 5069-1.02, Vernon's Texas Civil Statutes), is amended to read as
6-16 follows:
6-17 Art. 1.02. CONVENTIONAL INTEREST OR TIME PRICE DIFFERENTIAL
6-18 ALLOWED; MAXIMUM RATE <Maximum rates> of CONVENTIONAL interest
6-19 EXCEPT AS OTHERWISE FIXED BY LAW. (a) A creditor may contract
6-20 for, charge, and receive from an obligor conventional interest or a
6-21 time price differential.
6-22 (b) Except as otherwise fixed by law, the maximum rate of
6-23 conventional interest shall be ten percent a year <per annum>. <A
6-24 greater rate of interest than ten percent per annum unless
6-25 otherwise authorized by law shall be deemed usurious. All
6-26 contracts for usury are contrary to public policy and shall be
6-27 subject to the appropriate penalties prescribed in Article 1.06 of
7-1 this Subtitle.>
7-2 SECTION 3. Article 1.03, Title 79, Revised Statutes (Article
7-3 5069-1.03, Vernon's Texas Civil Statutes), is amended to read as
7-4 follows:
7-5 Art. 1.03. Legal INTEREST ALLOWED; MAXIMUM Rate OF LEGAL
7-6 INTEREST <applicable>. (a) Unless a creditor has agreed with an
7-7 obligor not to charge the obligor any interest, the creditor may
7-8 charge and receive from the obligor legal interest on the principal
7-9 amount of the credit extended by the creditor to the obligor.
7-10 (b) The maximum rate of legal <When no specified rate of
7-11 interest is agreed upon by the parties,> interest is fixed at <at
7-12 the rate of> six percent a year <per annum shall be allowed on all
7-13 accounts and contracts ascertaining the sum payable,> commencing on
7-14 the 30th <thirtieth (30th)> day <from and> after the date the
7-15 principal amount first became <time when the sum is> due and
7-16 payable.
7-17 SECTION 4. Article 1.04, Title 79, Revised Statutes (Article
7-18 5069-1.04, Vernon's Texas Civil Statutes), is amended by amending
7-19 the article heading to read as follows:
7-20 Art. 1.04. MAXIMUM <Limit on> RATE OF CONVENTIONAL INTEREST;
7-21 RATE PRODUCED BY A TIME PRICE DIFFERENTIAL PURSUANT TO CERTAIN
7-22 AGREEMENTS.
7-23 SECTION 5. Articles 1.04(a), (b), (c), and (o), Title 79,
7-24 Revised Statutes (Article 5069-1.04, Vernon's Texas Civil
7-25 Statutes), are amended to read as follows:
7-26 (a) The parties to any <written> contract may agree to a
7-27 <and stipulate for any> rate or amount of conventional interest, or
8-1 in an agreement described in Chapter 6, 6A, or 7 of this Title, a
8-2 <any> rate or amount of time price differential producing a rate,
8-3 that does not exceed:
8-4 (1) an indicated rate ceiling that is the auction
8-5 average rate quoted on a bank discount basis for 26-week treasury
8-6 bills issued by the United States government, as published by the
8-7 Federal Reserve Board, for the week preceding the week in which the
8-8 rate is contracted for, multiplied by two, and rounded to the
8-9 nearest one-quarter of one percent; or, as an alternative,
8-10 (2) an annualized or quarterly ceiling that is the
8-11 average of the computations under Subsection (1) of this section
8-12 and is computed pursuant to Section (d) of this Article.
8-13 (b)(1) If a computation under Section (a)(1), (a)(2), or (c)
8-14 of this Article is less than 18 percent a year, the ceiling under
8-15 that provision is 18 percent a year. If a computation under
8-16 Section (a)(1), (a)(2), or (c) of this Article is more than 24
8-17 percent a year, the ceiling under that provision is 24 percent a
8-18 year.
8-19 (2) Notwithstanding the provisions of Subsection (1)
8-20 of this Section (b), in the case of any qualified commercial loan
8-21 <on any contract under which credit in an amount in excess of
8-22 $250,000 is or is to be extended, or any extension or renewal of
8-23 such a contract, and under which the credit is extended for
8-24 business, commercial, investment, or other similar purpose, but
8-25 excluding any contract that is not for any of those purposes and is
8-26 primarily for personal, family, household, or agricultural use>,
8-27 the 24 percent limitation on the ceilings in Section (b)(1) above
9-1 that is applicable to the computations under Section (a)(1),
9-2 (a)(2), or (c) of this Article shall not apply, and the limitation
9-3 on the ceilings determined by those computations shall be 28
9-4 percent a year.
9-5 (3) References in this Article to the indicated rate
9-6 ceiling, annualized ceiling, quarterly ceiling, or monthly ceiling
9-7 mean such a ceiling as modified by this Section (b).
9-8 (4) Any credit agreement described in Section (a),
9-9 Article 1.11, of this Title is subject to the terms, ceilings, and
9-10 other provisions of that Article and, except as limited by Article
9-11 1.11, to the terms, ceilings, and other provisions of this Article.
9-12 (5) Notwithstanding any other provision of law, on any
9-13 lender credit card agreement in connection with which a merchant
9-14 discount <as defined in Article 1.01(h) of this Title> is imposed
9-15 or received by the creditor, the creditor may not contract for,
9-16 charge, or receive, on any amount owed for any credit card
9-17 transaction, a rate in excess of the ceiling allowed under Article
9-18 15.02(d) of this Title (which ceiling shall be adjusted in
9-19 accordance with Article 15.02(d)) or any other fees or charges
9-20 which are not authorized under Chapter 15 of this Title or which
9-21 are in excess of the amounts authorized under Chapter 15.
9-22 (6) Notwithstanding Article 15.10 of this Title, any
9-23 lender credit card agreement in which the creditor is a bank,
9-24 savings and loan association, or authorized lender under Chapter 3
9-25 of this Title is subject to Chapter 15 of this Title and Article
9-26 15.02(d) thereof.
9-27 (7) If a creditor and an obligor agree that contract
10-1 interest in respect of any qualified commercial loan shall be
10-2 computed on the basis of a 360-day year of twelve 30-day months,
10-3 each rate per year referred to in this Article, in the case of such
10-4 a loan, means a rate per year consisting of 360 days and of twelve
10-5 30-day months.
10-6 (c) A monthly ceiling is available only in variable rate
10-7 contracts, including contracts for open-end accounts, that are not
10-8 made for personal, family, or household use. Subject to Section
10-9 (b) of this Article, the monthly ceiling is the average of all the
10-10 computations under Section (a)(1) of this Article for auctions
10-11 occurring during the preceding calendar month and shall be computed
10-12 by the consumer credit commissioner on the first business day of
10-13 the calendar month in which the rate applies. In contracts for
10-14 which the monthly ceiling is available under this section, if the
10-15 parties agree that the rate is subject to being adjusted on a
10-16 monthly basis in accordance with Section (f) of this Article, they
10-17 may further contract that the rate from time to time in effect may
10-18 not exceed the monthly ceiling from time to time in effect under
10-19 this section, in which event <and> the monthly ceiling from time to
10-20 time in effect is the ceiling on those contracts, instead of any
10-21 ceiling under Section (a) <Article 1.04(a)> of this Article
10-22 <Title>.
10-23 (o)(1) <All other written contracts whatsoever, except those
10-24 otherwise authorized by law, which may in any way, directly or
10-25 indirectly, provide for a greater rate of interest shall be subject
10-26 to the appropriate penalties prescribed in this Subtitle.>
10-27 <(2)> If, in any contract, including one for an
11-1 open-end account, subject to Chapter 4, 5, 6, 6A, 7, or 15 of this
11-2 Title, any person contracts for, charges, or receives a rate or
11-3 amount of interest or time price differential that exceeds the rate
11-4 allowed by that Chapter and the rate allowed by this Article, the
11-5 amount of the penalty for that overcharge shall be determined under
11-6 Chapter 8 of this Title rather than under this Subtitle, and all of
11-7 the provisions of Articles 8.01, 8.02, 8.03, 8.04, 8.05, and 8.06
11-8 of this Title are in effect as to that contract and are applicable
11-9 to this Article as if it were a part of Subtitle 2 of this Title.
11-10 The failure to perform any duty or comply with any prohibition
11-11 required by this Article <1.04>, in a contract entered under
11-12 authority of this Article <1.04>, shall be subject to the penalties
11-13 set out in Article 8.01(b) and shall be subject to such of the
11-14 other provisions of Articles 8.01 through 8.06 which apply to
11-15 failures to perform duties or comply with prohibitions to the same
11-16 extent as if the duties and prohibitions in this Article <1.04>
11-17 were contained in Subtitle 2.
11-18 (2) <(3)> The consumer credit commissioner, subject to
11-19 Section (l), Article 2.01, of this Title, shall enforce Chapters 2,
11-20 3, 4, 5, 6, 6A, 7, 8, 15, and 51 of this Title, as modified by this
11-21 Article and Article 2.08 of this Title, and shall enforce this
11-22 Article as applicable to contracts subject to those Chapters.
11-23 Article 3.08 of this Title is applicable to transactions made by
11-24 licensees pursuant to this Article that otherwise are subject to
11-25 Chapters 4, 5, or 15 of this Title. The provisions of Article 3.12
11-26 of this Title will apply to loans made under authority of this
11-27 Article which are subject to Chapter 4 of this Title. In any
12-1 contracts subject to the Texas Credit Union Act, as amended
12-2 (Article 2461-1.01 et seq., Vernon's Texas Civil Statutes), the
12-3 credit union commissioner shall enforce this Article.
12-4 (3) <(4)> In any contract subject to Chapter 24 of the
12-5 Insurance Code, the State Board of Insurance shall enforce this
12-6 Article.
12-7 SECTION 6. Article 1.13, Title 79, Revised Statutes (Article
12-8 5069-1.13, Vernon's Texas Civil Statutes), is amended to read as
12-9 follows:
12-10 Art. 1.13. Certain sums excluded from definition of interest
12-11 with respect to asset-backed securities. (a) In this Article
12-12 <article>:
12-13 (1) "Asset-backed securities" means debt obligations
12-14 or certificates of beneficial ownership that are:
12-15 (A) part of a single issue or single series of
12-16 securities aggregating $1,000,000 or more issuable in one or more
12-17 classes;
12-18 (B) secured by a pledge of or represent an
12-19 undivided ownership interest in one or more financial assets,
12-20 either fixed or revolving, that by their terms convert into cash
12-21 within a finite time period plus any rights or other assets
12-22 designed to assure the servicing or timely distribution of proceeds
12-23 to security holders; and
12-24 (C) issued by a pass-through entity for a
12-25 business, commercial, agricultural, investment, or similar purpose.
12-26 (2) "Pass-through entity" means a business entity
12-27 <corporation, limited liability company>, association, <general
13-1 partnership, registered limited liability partnership, limited
13-2 partnership or business,> grantor or common-law trust under state
13-3 law, or segregated pool of assets under federal tax law that, on
13-4 the date of original issuance of asset-backed securities, does not
13-5 have significant assets other than:
13-6 (A) assets pledged to or held for the benefit of
13-7 holders of the asset-backed securities; or
13-8 (B) assets pledged to or held for the benefit of
13-9 holders of other asset-backed securities issued on an earlier date.
13-10 (b) The <Notwithstanding Article 1.01 of this subtitle, for
13-11 purposes of this title the> term "interest," as used in this
13-12 Subtitle, does not include <excludes> any sums paid or passed
13-13 through, obligated to be paid or to be passed through, or not paid
13-14 as a result of a discounted sale price to the holders of
13-15 asset-backed securities by a pass-through entity, in connection
13-16 with the original issuance or otherwise, regardless of the
13-17 denomination of the sums under the terms of the asset-backed
13-18 securities. <Sums excluded from the definition of interest by this
13-19 article are not subject to Article 1.04 of this subtitle.>
13-20 (c) This Article <article> does not affect or otherwise
13-21 apply to conventional interest<, as defined by Article 1.01 of this
13-22 subtitle,> paid, charged, or received on the ultimate underlying
13-23 assets pledged to or held for the benefit of the holders of
13-24 asset-backed securities.
13-25 SECTION 7. Subtitle 1, Title 79, Revised Statutes (Article
13-26 5069-1.01 et seq., Vernon's Texas Civil Statutes), is amended by
13-27 adding Articles 1.14, and 1.15 to read as follows:
14-1 Art. 1.14. CERTAIN ITEMS THAT DO NOT CONSTITUTE INTEREST.
14-2 (a) The term "interest," as used in this Subtitle, does not
14-3 include any time price differential. The contracting for,
14-4 charging, or receipt of a time price differential is not affected
14-5 by this Subtitle, except to the extent that an agreement described
14-6 in Chapter 6, 6A, or 7 of this Title is affected by Article 1.04 of
14-7 this Subtitle.
14-8 (b) In the case of any qualified commercial loan made to a
14-9 business entity, the term "interest," as used in this Subtitle,
14-10 does not include:
14-11 (1) any discount or commission that an obligor has
14-12 paid or agreed to pay to one or more underwriters of securities
14-13 issued by the obligor;
14-14 (2) any option or other right to exchange, redeem, or
14-15 convert all or a portion of the principal amount of the loan, or
14-16 interest on the principal amount, for or into capital stock or
14-17 other equity securities of an obligor or of any affiliate of the
14-18 obligor;
14-19 (3) any option or other right to purchase in any other
14-20 manner capital stock or other equity securities of an obligor or of
14-21 any affiliate of the obligor;
14-22 (4) any option or other right, whether by contract,
14-23 conveyance, or otherwise, to participate in or own a share of the
14-24 income, revenues, production, or profits:
14-25 (A) of an obligor or any affiliate of the
14-26 obligor;
14-27 (B) of any segment of the business or operations
15-1 of an obligor or any affiliate of the obligor; or
15-2 (C) derived or to be derived from any interest
15-3 of an obligor or of any affiliate of the obligor in any real or
15-4 personal property, including any proceeds of the sale or other
15-5 disposition of the interest; or
15-6 (5) any compensation realized as a result of the
15-7 receipt, exercise, sale, or other disposition of any option or
15-8 other right described by Subsection (2) or (3) of this Section.
15-9 (c) For purposes of this Article, the terms "security" and
15-10 "equity security" have the meanings assigned to those respective
15-11 terms by the Securities Exchange Act of 1934 (15 U.S.C. Section 78a
15-12 et seq.).
15-13 Art. 1.15. GUARANTIES. (a) "Interest," as used in this
15-14 Subtitle, does not include:
15-15 (1) a guaranty that a creditor requires as a condition
15-16 to making, renewing, or extending a qualified commercial loan made
15-17 to a business entity; or
15-18 (2) any compensation received by the creditor pursuant
15-19 to the guaranty.
15-20 (b) This Article does not apply to any loan that is subject
15-21 to Chapter 2, 3, 4, 5, 6, 6A, 7, 8, or 15 of this Title.
15-22 SECTION 8. This Act takes effect September 1, 1995.
15-23 SECTION 9. The importance of this legislation and the
15-24 crowded condition of the calendars in both houses create an
15-25 emergency and an imperative public necessity that the
15-26 constitutional rule requiring bills to be read on three several
15-27 days in each house be suspended, and this rule is hereby suspended.