By Eiland, Gutierrez, Heflin, Giddings, Cuellar       H.B. No. 1277

                                A BILL TO BE ENTITLED

 1-1                                   AN ACT

 1-2     relating to the regulation of certain open-end credit agreements.

 1-3           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-4           SECTION 1.  Article 15.02, Title 79, Revised Statutes

 1-5     (Article 5069-15.02, Vernon's Texas Civil Statutes), is amended to

 1-6     read as follows:

 1-7           Art. 15.02.  MAXIMUM RATES OF INTEREST.  (a)  [A creditor may

 1-8     charge and collect interest on an account either]

 1-9                 [(1)(i)  on that portion of the average daily balance

1-10     not above $1,500 at an annual rate not above 18 percent; and (ii)

1-11     on that portion of the average daily balance above $1,500 and not

1-12     above $2,500 at an annual rate not above 12 percent; and (iii) on

1-13     that portion of the average daily balance above $2,500 at an annual

1-14     rate not above 10 percent; or]

1-15                 [(2)  on the entire average daily balance at the annual

1-16     rate of 14.4 percent.]

1-17           [(b)]  A creditor may charge one-twelfth of the applicable

1-18     annual rate under Section (c) [(a)] of Article 15.02 of this

1-19     chapter in any billing cycle on the average daily balance of an

1-20     account during such billing cycle[, if billing cycles may be

1-21     considered equal under Article 15.01(e) of this chapter].

1-22           (b) [(c)]  The maximum interest which may be contracted for

1-23     and collected under this article may be computed by a method other

1-24     than the average daily balance method as defined in this chapter if

 2-1     the amount of interest computed by the other method will not exceed

 2-2     the amount of interest computed under such average daily balance

 2-3     method.

 2-4           (c) [(d)]  Notwithstanding Article 1.04 of this Title or any

 2-5     other provision of law, on any open-end account authorized under

 2-6     Article 3.15(4), 4.01(4), 15.01(k), or 15.01(l)  of this Title,

 2-7     pursuant to which credit card transactions as defined in Article

 2-8     1.01(g) of this Title may be made or in connection with which

 2-9     account a merchant discount as defined in Article 1.01(h) of this

2-10     Title is imposed or received by the creditor, the rate of interest

2-11     from time to time in effect on such account [is subject to and] may

2-12     not exceed 18 percent per year [the quarterly ceiling from time to

2-13     time in effect as computed pursuant to Article 1.04 of this Title

2-14     and as further limited by this section, and the ceiling on such

2-15     account is subject to quarterly adjustment, which adjustment shall

2-16     be made at the option of the creditor either on the quarterly

2-17     calendar dates set out in Article 1.04(d) of this Title or on the

2-18     first day of the first billing cycle of an account immediately

2-19     following said quarterly calendar dates.  If a computation of the

2-20     quarterly ceiling under Article 1.04(a)(2) of this Title is more

2-21     than 22 percent per annum, the ceiling under this provision shall

2-22     be 22 percent per annum.  If the computation under Article

2-23     1.04(a)(2) of this Title is less than 14 percent per annum, the

2-24     ceiling under this provision shall be 14 percent per annum].

2-25     Notwithstanding any other provision of this Title, a creditor

2-26     charging a rate limited by this section shall not be required to

2-27     disclose any decreases which may from time to time occur in the

 3-1     rate on its account.

 3-2           (d)  A creditor may charge and collect from the customer in

 3-3     connection with an account subject to this chapter:

 3-4                 (1)  an annual fee not to exceed:

 3-5                       (A)  $50 per year on an account with a credit

 3-6     limit of $5,000 or less;

 3-7                       (B)  $75 per year on an account with a credit

 3-8     limit of more than $5,000 and not more than $25,000; or

 3-9                       (C)  $125 per year on an account with a credit

3-10     limit of more than $25,000;

3-11                 (2)  a late charge not to exceed five percent of the

3-12     amount of an unpaid payment or $15, whichever is less, that is

3-13     assessed if the payment is not paid within a stated period of 15 or

3-14     more days after the date on which the payment is due;

3-15                 (3)  a cash advance charge not to exceed two percent of

3-16     the amount of the cash advance or $2, whichever is greater;

3-17                 (4)  a reasonable processing fee for the return of a

3-18     dishonored check in the amount and manner prescribed by Chapter

3-19     617, Acts of the 68th Legislature, Regular Session, 1983 (Article

3-20     9022, Vernon's Texas Civil Statutes); and

3-21                 (5)  a fee for exceeding the credit limit of an account

3-22     not to exceed five percent of the amount that exceeds the credit

3-23     limit or $15, whichever is greater.

3-24           (e)  A creditor may not charge, contract for, or receive

3-25     interest on fees authorized under this article.  [Except as

3-26     provided in Section (d) of this Article, as an alternative to the

3-27     rates authorized by Section (a) of this Article, the parties may

 4-1     agree to any rate not exceeding a rate authorized by Article 1.04

 4-2     of this Title.]

 4-3           (f)  No fees shall be charged to or collected from the

 4-4     customer in connection with an account subject to this chapter

 4-5     unless authorized by statute.

 4-6           SECTION 2.  Chapter 15, Title 79, Revised Statutes (Article

 4-7     5069-15.01 et seq., Vernon's Texas Civil Statutes), is amended by

 4-8     adding Articles 15.12-15.14 to read as follows:

 4-9           Art. 15.12.  VARIATION IN PERIODIC PERCENTAGE RATE.  (a)  If

4-10     the arrangement governing the account so provides, the periodic

4-11     percentage rate of interest or finance charges under the account

4-12     may vary in accordance with an index that is made readily available

4-13     to and verifiable by the customer and is beyond the control of the

4-14     creditor.

4-15           (b)  The periodic percentage rate, as varied, shall be made

4-16     applicable only to indebtedness incurred on or after the effective

4-17     date of the variation.

4-18           (c)  The periodic percentage rate, as varied, shall not

4-19     exceed the maximum rate permitted under Article 15.02 of this

4-20     chapter.

4-21           Art. 15.13.  NOTICE OF VARIATION IN PERIODIC PERCENTAGE RATE.

4-22     (a)  Not later than the 30th day before the date on which the

4-23     revision becomes effective, a creditor that revises a percentage

4-24     interest rate or an index, formula, or provision used to compute

4-25     the interest rate under Article 15.12 of this chapter shall

4-26     disclose in a written notice to the customer:

4-27                 (1)  the new interest rate or new index, formula, or

 5-1     provision that will be used to compute the interest rate on the

 5-2     customer's account;

 5-3                 (2)  the date on which the new interest rate becomes

 5-4     effective or the date on which the creditor begins using the new

 5-5     index, formula, or provision to compute the interest rate on the

 5-6     customer's account;

 5-7                 (3)  the period for which the new rate or new index,

 5-8     formula, or provision is effective;

 5-9                 (4)  the customer's rights relating to an interest rate

5-10     change on an account and the procedures for asserting those rights

5-11     under Section (c) of this Article; and

5-12                 (5)  the address to which the customer may send

5-13     notification to the creditor that the customer elects not to

5-14     continue the open-end account.

5-15           (b)  If a revision by the creditor to the interest rate or

5-16     index, formula, or provision used to compute the interest rate

5-17     results in an increased percentage interest rate on the customer's

5-18     account, the notice required under Section (a) of this Article must

5-19     contain the following statement printed in not less than 10-point

5-20     type:

5-21           "YOU MAY TERMINATE THIS AGREEMENT IF YOU DO NOT WANT TO PAY

5-22     THE NEW INTEREST RATE."

5-23           (c)  A creditor shall include with a notice required under

5-24     Section (a) of this Article a form on which the customer may

5-25     indicate whether or not the customer will continue the open-end

5-26     account with the creditor by checking or marking an appropriate box

5-27     or completing a form with a similar method of indication.  The form

 6-1     may be included on a portion of the account statement that is to be

 6-2     returned to the creditor or may be separate from the account

 6-3     statement.

 6-4           (d)  To terminate an open-end account, a customer must send

 6-5     to the creditor not later than the 45th day after the date on which

 6-6     the notice required under Section (a) of this Article is mailed

 6-7     written notice that the customer elects to terminate the account.

 6-8           (e)  A customer who elects to discontinue an account in

 6-9     accordance with this Article is entitled to pay the remaining

6-10     balance on the account at the interest rate and over the period in

6-11     effect before the proposed revision and at the minimum payment

6-12     terms in effect before the revision unless the customer agrees in

6-13     writing to new payment terms.  A creditor may not accelerate the

6-14     balance due on an open-end account because the customer has

6-15     discontinued the use of the account.

6-16           Art. 15.14.  ACCOUNT CONNECTED WITH DEMAND DEPOSIT ACCOUNT.

6-17     (a)  If an account is offered and extended by a creditor that is a

6-18     depository institution in connection with a demand deposit account

6-19     or other transaction account maintained by the customer with the

6-20     creditor under an arrangement in which the creditor agrees to honor

6-21     checks, drafts, or other debits to the account by making extensions

6-22     of credit to the customer under the account, any charges

6-23     customarily imposed by the creditor under the terms governing that

6-24     demand deposit or other transaction account in the absence of any

6-25     associated arrangement with respect to an account subject to the

6-26     requirements of this chapter may continue to be imposed on that

6-27     demand deposit or other transaction account without specific

 7-1     reference or incorporation in the arrangement governing the

 7-2     account.

 7-3           (b)  The account charges referred to by Section (a) of this

 7-4     Article include:

 7-5                 (1)  check charges;

 7-6                 (2)  monthly maintenance charges;

 7-7                 (3)  checkbook charges;

 7-8                 (4)  charges for checks drawn in excess of an available

 7-9     line of credit; and

7-10                 (5)  similar charges.

7-11           (c)  The amount of any charge imposed on a demand deposit or

7-12     other transaction account described by Section (a) of this Article

7-13     may be charged to the account under the arrangement as a loan and

7-14     may be included in the outstanding unpaid indebtedness under the

7-15     terms of the arrangement governing the account, to the extent the

7-16     balance in the demand deposit or other transaction account is

7-17     insufficient to pay the charge.

7-18           SECTION 3.  Chapter 15, Title 79, Revised Statutes (Article

7-19     5069-15.01 et seq., Vernon's Texas Civil Statutes), is amended by

7-20     adding Article 15.15 to read as follows:

7-21           Art. 15.15.  APPLICATION OF PAYMENT.  Notwithstanding any

7-22     other provision of law, a payment made by a customer toward the

7-23     balance of an account shall be applied by the creditor to repayment

7-24     of loan or purchase transactions posted to the customer's account

7-25     in the order in which the transactions are posted to the account

7-26     regardless of the type of transaction.

7-27           SECTION 4.  Article 1.04, Title 79, Revised Statutes (Article

 8-1     5069-1.04, Vernon's Texas Civil Statutes), is amended by adding

 8-2     Subsection (s) to read as follows:

 8-3           (s)  This Article does not apply to a credit card transaction

 8-4     or other open-end account that is subject to Chapter 15 of this

 8-5     Title.

 8-6           SECTION 5.  Article 1.11(d), Title 79, Revised Statutes

 8-7     (Article 5069-1.11, Vernon's Texas Civil Statutes), is amended to

 8-8     read as follows:

 8-9           (d)  Notwithstanding Section (a) of this article or any other

8-10     provision of law, a seller or lessor may sell open-end account

8-11     credit agreements between such seller or lessor and its customers

8-12     or any balances thereunder to a purchaser who purchases a

8-13     substantial portion of such seller's or lessor's open-end account

8-14     credit agreements or any balances thereunder, at such terms,

8-15     conditions, and price as may be agreed, in accordance with Article

8-16     6.07 of this title, and any charges, fees, and discounts on such

8-17     sales and purchases shall not be deemed to be a merchant discount

8-18     or to disqualify such credit agreements or any balances thereunder

8-19     from being subject to a ceiling in Article 1.04 of this title as

8-20     modified by Section (c) of this article or from coverage by this

8-21     article, or to subject such accounts to the limitations of Article

8-22     15.02(c) [(d)] of this title.

8-23           SECTION 6.  This Act applies only to an open-end account

8-24     credit agreement that is entered into, amended, or renewed on or

8-25     after the effective date of this Act.

8-26           SECTION 7.  Section 1 of this Act, increasing maximum rates

8-27     of interest, applies only to credit card operations that are

 9-1     located in this state at the time the interest rates are increased

 9-2     by the financial institution operating the credit card operation.

 9-3           SECTION 8.  The importance of this legislation and the

 9-4     crowded condition of the calendars in both houses create an

 9-5     emergency and an imperative public necessity that the

 9-6     constitutional rule requiring bills to be read on three several

 9-7     days in each house be suspended, and this rule is hereby suspended,

 9-8     and that this Act take effect and be in force from and after its

 9-9     passage, and it is so enacted.