BWM C.S.H.B. 1277 75(R)BILL ANALYSIS


FINANCIAL INSTITUTIONS
C.S.H.B. 1277
By: Eiland
4-1-97
Committee Report (Substituted)



BACKGROUND

In 1983, the Texas Legislature significantly reduced the interest rates on
credit cards and eliminated fees.  Although this was intended to protect
Texas consumers, its real world economic impact was to make credit card
operations not feasible in Texas. As a result, all major banking
operations with credit card activities moved these to friendly venues.
Also, credit card clearing operations left the state.  At a conservative
estimate, approximately 10,000 jobs in this sector left Texas. 

Without these changes, Texas lenders will be disadvantaged in their credit
card operations. Under numerous recent U.S. Supreme Court interpretations,
it is quite clear that lenders can export both rates and charges from
whichever state is their state of domicile. This encourages lenders to
locate in rate friendly states.  At the same time, those fees and charges
may be legally imposed on credit card borrowers, no matter where they are
located.  This has led to a lose/lose situation with customers paying high
exported fees and charges and Texas losing the jobs and Texas banks unable
to offer a full range of credit card services without affiliating with out
of state operations.  

PURPOSE

The object of this bill is to make credit card operations more attractive
in Texas without permitting the excesses found in other states. Thus, at
the same time, consumers will receive protections through the caps placed
on fees and rates. 

This bill amends Chapter 15 of the Texas Credit Code to increase the
interest rates on revolving loan and revolving tri-party accounts
(primarily credit cards) to the same rate as is permissible on all other
written, lending transactions in Texas.  In addition, reasonable fees are
authorized in line with those commonly found in other states. The proposed
changes should reverse and create a win/win situation. 

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 15.02, Title 79, Revised Statues (Article
5069-15.02, Vernon's Texas Civil Statutes) by allowing a rate equal to the
current maximum legal rate of 18% per annum.  In addition, this section
now authorizes certain fees, but places a cap on the authorized fees. 

SECTION 2. Amends Chapter 15, Title 79 Revised Statutes (Article
5069-15.01 et seq., Vernon's Texas Civil Statutes) by adding Articles
15.12-15.14. 

 Art. 15.12 authorizes variable rate arrangements.
 Art. 15.13 provides mechanism to give notice of a rate change on variable
rate cards. 
 Art. 15.14 clarifies that certain fees charged in connection with an
account which also has   a credit feature are not interest.  This section
mirrors an interpretation from the Consumer  Credit Commissioner and thus
is not a change in existing law.  Rather, it statutorily  codifies that
interpretation. 

SECTION 3.  Amends Article 1.04, Title 79, Revised Statutes (Article
5069-1.04, Vernon's Texas Civil Statutes) to clear up a conflict in the
law. 

SECTION 4.  Amends Article 1.11(d), Title 79, Revised Statutes (Article
5069-1.11, Vernon's Texas Civil Statutes) to refer to the correct
subsection previously amended in the bill. 

 SECTION 5. Effective date: September 1, 1997.

SECTION 6. Emergency clause.


COMPARISON OF ORIGINAL TO SUBSTITUTE

The Committee Substitute to H.B. 1277 amends Article 15.02, Title 79,
Revised Statutes (Article 5609-15.02, Vernon's Texas Civil Statutes)
rather than deleting the entire article and substituting new language, and
in the process makes several substantive changes.  The $50 per year charge
limit found in the original bill is bracketed in the Substitute to $50 per
year on an account with a credit limit of $5,000 or less, $75 per year on
credit limits from $5,000 to $25,000, and $125 per year on accounts with
credit limits in excess of $25,000.  Furthermore, the late charge on these
accounts is changed from being the greater to the lesser of five percent
or $15.  The grace period is also changed from ten to fifteen days.
Article 15.12 is changed in the Substitute to mandate that any percentage
rate changes be applicable to future charges and not applicable to any
outstanding balance on the account.  Article 15.13 is added to provide the
mechanics to give notice of rate changes on variable rate credit cards.
Article 15.13 as found in the original bill is changed to Article 15.14.
Lastly, Article 1.04, Title 79, Revised Statutes (Article 5609-1.04,
Vernon's Texas Civil Statutes) is amended to clear up a conflict in the
law.