By Tillery H.B. No. 1402
75R1315 SKB-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the sale of prepaid funeral services or funeral
1-3 merchandise.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 5(a), Chapter 512, Acts of the 54th
1-6 Legislature, Regular Session, 1955 (Article 548b, Vernon's Texas
1-7 Civil Statutes), is amended to read as follows:
1-8 (a) All sums heretofore or hereafter paid or collected on
1-9 contracts for prepaid funeral benefits entered into prior to the
1-10 effective date of this Act shall be handled in accordance with the
1-11 manner in which they have heretofore been handled. All sums paid
1-12 or collected on such contracts entered into after the effective
1-13 date of this Act (with the exception of those paid where a contract
1-14 of insurance previously is created or approved by the Department)
1-15 shall be handled in the following manner:
1-16 (1) The seller of a trust-funded prepaid funeral
1-17 benefits contract may retain as its own money, for the purpose of
1-18 covering its selling expenses, servicing costs, and general
1-19 overhead, an amount not to exceed one-half of all funds so
1-20 collected or paid until it has received for its use and benefit an
1-21 amount not to exceed ten percent of the total amount agreed to be
1-22 paid by the purchaser of said prepaid funeral benefits as such
1-23 total amount is reflected in the contract.
1-24 (2) All amounts paid or collected, with the exception
2-1 of those permitted to be retained as set forth above, shall, within
2-2 30 days after such collection, be (a) deposited in a savings and
2-3 loan association in this state in an interest-bearing account
2-4 insured by the federal government, or (b) deposited in a state or
2-5 national bank in this state in an interest-bearing account insured
2-6 by the federal government, or (c) placed with the trust department
2-7 in a state or national bank in this state, or in a trust company
2-8 authorized to do business in this state, to be invested by such
2-9 trust department or company in accordance with the terms and
2-10 provisions of this Act. Such deposits or trust accounts shall be
2-11 carried in the name of the funeral provider or other entity to whom
2-12 the purchaser makes payment, but accounting records shall be
2-13 maintained by the seller showing the amount deposited or invested
2-14 with respect to any particular purchaser's contract.
2-15 (3) On the death of a beneficiary named in a prepaid
2-16 funeral benefits contract, the seller, after completion of the
2-17 funeral service and presentation to the depository of proper
2-18 affidavits signed and sworn to by an officer or authorized agent of
2-19 the seller on forms prescribed by the Department and a certified
2-20 copy of the death certificate, may withdraw the amount equal to the
2-21 original contract amount paid in by the purchaser less amounts
2-22 retained under Subsection (a)(1) of this section, plus all earnings
2-23 attributable to that contract. The seller shall maintain the
2-24 copies of the affidavits and death certificate for examination by
2-25 the Department.
2-26 (4)(A) The seller may withdraw funds out of earnings
2-27 on the accounts for the purpose of paying reasonable and necessary
3-1 trustee's fees or depository fees. With prior approval of the
3-2 Department, the seller may withdraw funds out of earnings on the
3-3 accounts for the purpose of paying any taxes caused or created by
3-4 reason of the existence of such deposit accounts or trust accounts
3-5 or for the purpose of paying an assessment under Section 8A of this
3-6 Act.
3-7 (B) The seller may also withdraw funds from the
3-8 earnings on the accounts for the purpose of paying the examination
3-9 fee for one examination by the Department each calendar year, or
3-10 for the preparation of financial statements required by the
3-11 Department, including financial statements required in lieu of an
3-12 examination by the Department.
3-13 (C) Upon the maturity date of a trust-funded
3-14 contract as above provided and only after the funeral provider has
3-15 fully performed its obligations under said contract with the
3-16 purchaser, [or at the time of cancellation prior to maturity as
3-17 provided in Subsection (b) herein,] the seller may withdraw from
3-18 said account all earnings attributable to said contract. Such
3-19 withdrawal shall be the proportionate part of the earnings that the
3-20 amount deposited under said contract bears to the total amount
3-21 deposited from all unmatured contracts, less any withdrawals of
3-22 excess earnings made in accordance with this section, or, if the
3-23 Commissioner has affirmatively determined that the records of the
3-24 permit holder are adequate to allow this method to be exercised in
3-25 an accurate manner, the withdrawals may be equal to the actual
3-26 earnings on individual matured contracts, minus any properly
3-27 allocated expenses permitted by this section, less any withdrawals
4-1 of excess earnings made in accordance with this section. The
4-2 seller shall return to the purchaser or the purchaser's estate
4-3 money equal to the value of any undelivered goods or services,
4-4 based on the funeral provider's retail price list in effect at the
4-5 time the money is returned, that were included in the contract.
4-6 (D) On approval by the Commissioner, a seller of
4-7 prepaid funeral benefits may withdraw excess earnings from the
4-8 seller's trust accounts. For the purposes of this section, "excess
4-9 earnings" means funds in the trust accounts, including all realized
4-10 and unrealized gains and losses, that exceed 110 percent of the
4-11 actuarial projection of funds needed to fulfill the seller's
4-12 obligations based on actuarial assumptions approved by the
4-13 Commissioner and the retail price list of funeral providers at the
4-14 time of the withdrawal [all sums paid by purchasers on the
4-15 contracts].
4-16 (i) A seller must apply to the
4-17 Commissioner for approval to withdraw excess earnings from the
4-18 seller's trust accounts under this subsection. An application must
4-19 be in writing and must include a sworn statement by an agent of the
4-20 seller designated under Section 6 of this Act that:
4-21 (I) specifies the amount
4-22 eligible for withdrawal based on the market value of the trust
4-23 assets as of a date not more than 45 days prior to the date of the
4-24 application; and
4-25 (II) affirms that the
4-26 requested withdrawal constitutes excess earnings.
4-27 (ii) An application by a seller to
5-1 withdraw excess earnings from the seller's trust accounts must be
5-2 accompanied by:
5-3 (I) a statement from the
5-4 trustee of the trust accounts verifying the market and book values
5-5 of the assets in the accounts as of a date not more than 45 days
5-6 prior to the date of the application;
5-7 (II) the seller's most
5-8 recent audited or unaudited financial statements dated not more
5-9 than 18 months prior to the date the application is filed with the
5-10 Commissioner. In the event of the filing of a consolidated
5-11 application on behalf of affiliated sellers, audited financial
5-12 statements of the parent company may be submitted in lieu of those
5-13 of the sellers. Such audited statements shall be accompanied by an
5-14 unqualified opinion by a certified public accountant. In the event
5-15 the seller provides unaudited financial statements or audited
5-16 financial statements with a qualified opinion pursuant to this
5-17 subsection, the Commissioner may approve the application if the
5-18 application is accompanied by a surety bond from a company
5-19 acceptable to the Commissioner, in favor of the Commissioner, in an
5-20 amount equal to the amount of the requested withdrawal. Such bond
5-21 shall be reduced on an annual basis by an amount equal to 10
5-22 percent per year;
5-23 (III) the seller's
5-24 quarterly audited or unaudited profit and loss statements covering
5-25 the two years immediately preceding the year covered by the
5-26 financial statements required in Subsection (a)(4)(D)(ii)(II) of
5-27 this section. If the seller has not been in operation for three
6-1 (3) years, the profit and loss statements shall cover the period of
6-2 time that the seller has been operating;
6-3 (IV) financial records or
6-4 reports reflecting the total amount of the seller's contracts and
6-5 the total amount of payments made by purchasers with respect to the
6-6 seller's contracts; and
6-7 (V) In the event an
6-8 application is submitted by a seller that is not the funeral home
6-9 designated in the contracts that is obligated to provide the
6-10 specified prepaid funeral benefits, in addition to all information
6-11 required under Subsections (a)(4)(D)(ii)(I) through (IV) of this
6-12 section, such application shall be accompanied by:
6-13 (-a-) copies
6-14 of agreements with all funeral homes that willdeliver the funeral
6-15 services and merchandise, including amounts agreed to be paid to
6-16 such funeral homes by the seller; and
6-17 (-b-) an
6-18 affidavit from each funeral home stating that the withdrawal of
6-19 excess earnings in the amount requested will not affect its
6-20 contractual obligation to deliver the contracted funeral services
6-21 and merchandise.
6-22 (iii) The Commissioner shall approve a
6-23 completed application to withdraw excess earnings unless the
6-24 Commissioner determines that the seller's ability to deliver the
6-25 contracted services and merchandise would be materially jeopardized
6-26 by the withdrawal due to:
6-27 (I) the seller's failure,
7-1 after written notice from the Commissioner, to substantially comply
7-2 with any law or rule applicable to the sale of prepaid funeral
7-3 benefits in this state;
7-4 (II) the seller's willful
7-5 commission of any felony or fraudulent act in the conduct of the
7-6 seller's prepaid funeral business that threatens the seller's
7-7 solvency;
7-8 (III) the seller's refusal
7-9 to submit to an examination of the seller's trust accounts under
7-10 Section 8 of this Act;
7-11 (IV) the cancellation or
7-12 involuntary non-renewal of the seller's permit to sell prepaid
7-13 funeral benefits;
7-14 (V) the seller's knowing
7-15 withdrawal from the trust accounts of amounts that are not
7-16 authorized under this Act or the seller's refusal to correct the
7-17 unauthorized withdrawal after the receipt of written notice from
7-18 the Commissioner;
7-19 (VI) the seller's failure
7-20 to deposit or remit funds in accordance with this section or the
7-21 seller's refusal to make the required deposit or remittance after
7-22 the receipt of written notice from the Commissioner;
7-23 (VII) the amount of the
7-24 requested withdrawal exceeding the net worth of the seller, or if
7-25 the seller is an affiliate of a consolidated entity, the net worth
7-26 of the parent corporation. In the event the requested withdrawal
7-27 exceeds the net worth of the seller or, if applicable, the parent
8-1 corporation, the Commissioner may approve the withdrawal if the
8-2 seller provides a surety bond from a company acceptable to the
8-3 Commissioner, in favor of the Commissioner, in the amount of the
8-4 withdrawal in excess of the net worth of the seller or its parent.
8-5 Such bond shall be reduced on an annual basis by an amount equal to
8-6 20 percent per year;
8-7 (VIII) the seller (or the
8-8 parent, if a consolidated application is filed) having experienced
8-9 a net loss from operations in any of the last three years. In the
8-10 event of such a loss, the Commissioner may approve the withdrawal
8-11 if the seller provides a surety bond from a company acceptable to
8-12 the Commissioner, in favor of the Commissioner, in an amount equal
8-13 to the requested withdrawal. Such bond shall be reduced on an
8-14 annual basis by an amount equal to 10 percent per year;
8-15 (IX) the contingent
8-16 liabilities other than commitments disclosed on the face of
8-17 seller's (or parent's if a consolidated application is filed)
8-18 audited consolidated or unconsolidated balance sheet exceeding
8-19 seller's (or parent's if a consolidated application is filed) net
8-20 worth as of the date of the financial statement. In such event,
8-21 the Commissioner may approve the withdrawal if the seller provides
8-22 a surety bond from a company acceptable to the Commissioner, in
8-23 favor of the Commissioner, in an amount equal to the requested
8-24 withdrawal. Such bond shall be reduced on an annual basis by an
8-25 amount equal to 10 percent per year; or
8-26 (X) the withdrawal causing
8-27 the investments in the trust accounts to be in violation of Section
9-1 5A(d) of this Act.
9-2 (iv) In connection with the Commissioner's
9-3 review of a seller's application to withdraw excess earnings from
9-4 the trust accounts under this subsection, the Commissioner may
9-5 conduct an examination or audit of the seller's prepaid funeral
9-6 benefits records under Section 8 of this Act.
9-7 (v) The Commissioner shall issue a written
9-8 notice within 10 days of receipt of an application informing the
9-9 seller either that the application is complete and accepted for
9-10 filing, or that the application is deficient and that specific
9-11 additional information is required within 30 days. If the
9-12 requested information is not received within 30 days, the
9-13 application is deemed denied unless good cause exists for failure
9-14 to provide the information timely. The Commissioner shall approve
9-15 or deny an application under this subsection within 90 days of the
9-16 date of filing of a completed application. If a completed
9-17 application to withdraw excess earnings under this subsection is
9-18 not denied by the Commissioner within 90 days after it is accepted
9-19 by the Commissioner as complete, the application shall be deemed
9-20 approved by the Commissioner and the requested withdrawal shall be
9-21 deemed authorized without further action by the Commissioner. The
9-22 Commissioner may extend this time period for an additional 90 days
9-23 for good cause and upon notice to the seller. If the Commissioner
9-24 denies the application for withdrawal, the seller will be entitled
9-25 to a hearing conducted pursuant to the Administrative Procedure and
9-26 Texas Register Act (Article 6252-13a, Vernon's Texas Civil
9-27 Statutes). Judicial review of a final decision by the Commissioner
10-1 shall be by trial de novo in a district court of Travis County.
10-2 (vi) Within 60 days following the approval
10-3 of an application under this subsection, the seller shall provide
10-4 the Commissioner with a verified statement indicating that the
10-5 withdrawn funds were used in the ordinary course of the seller's
10-6 business.
10-7 (vii) In the event a material error in an
10-8 application is discovered or the seller fails or refuses to comply
10-9 with or fulfill any undertaking assumed by the seller in connection
10-10 with the withdrawal of excess earnings from the seller's trust
10-11 accounts, the seller, after notice from the Commissioner and a
10-12 hearing, must return the disputed funds to the trust accounts or
10-13 the seller's permit will be subject to cancellation.
10-14 (viii) To the extent that additional
10-15 federal income taxes or other taxes are due as a result of a
10-16 withdrawal of excess earnings from a seller's trust accounts, such
10-17 taxes shall be paid by the seller and shall not be withdrawn from
10-18 the trust accounts.
10-19 (ix) Applications for withdrawal of excess
10-20 earnings under this subsection shall be filed with the Department
10-21 on forms acceptable to the Commissioner. Each application shall be
10-22 accompanied by a nonrefundable fee of $1,000 per permit, or a fee
10-23 not to exceed $5,000 for consolidated applications, made payable to
10-24 the Department, in order to cover the costs of processing the
10-25 application.
10-26 (x) This Subsection (D) shall be repealed
10-27 on December 31, 1993. Such repeal shall not affect those
11-1 applications to withdraw excess earnings filed prior to December
11-2 31, 1993, or that may be supplemented after December 31, 1993, all
11-3 of which applications shall be handled in accordance with the
11-4 provisions of this Subsection (D).
11-5 SECTION 2. Section 5(b)(1), Chapter 512, Acts of the 54th
11-6 Legislature, Regular Session, 1955 (Article 548b, Vernon's Texas
11-7 Civil Statutes), is amended to read as follows:
11-8 (b)(1) In the event a purchaser under a trust-funded
11-9 contract should desire to cancel the contract prior to maturity,
11-10 such cancellation may be accomplished by the purchaser giving to
11-11 the seller written notice of cancellation on forms prescribed by
11-12 the Department, and thereafter, the seller within 30 days after the
11-13 date of the cancellation notice shall withdraw and pay to the
11-14 purchaser the funds in such depository being held for the
11-15 purchaser's use and benefit; [provided, however,] such purchaser
11-16 shall be entitled to receive [only] the actual amounts paid in by
11-17 him and all earnings attributable to the funds less the amounts
11-18 permitted to be retained as provided in Subsection (a)(1) hereof.
11-19 The seller shall maintain copies of the cancellation forms for
11-20 examination by the Department. Purchaser or seller may make no
11-21 partial cancellations or withdrawals.
11-22 SECTION 3. Section 5(d), Chapter 512, Acts of the 54th
11-23 Legislature, Regular Session, 1955 (Article 548b, Vernon's Texas
11-24 Civil Statutes), is amended to read as follows:
11-25 (d) A seller may not demand or accept [enter into a written
11-26 agreement with a purchaser of a prepaid funeral benefits contract
11-27 providing for the payment of] a finance charge [in accordance with
12-1 Chapter 6, Title 79, Revised Statutes (Article 5069-6.01 et seq.,
12-2 Vernon's Texas Civil Statutes),] on any amount due and owing to the
12-3 seller on the prepaid funeral benefits contract.
12-4 SECTION 4. (a) This Act takes effect September 1, 1997.
12-5 (b) This Act applies only to a contract for prepaid funeral
12-6 benefits entered into on or after the effective date of this Act.
12-7 A contract for prepaid funeral benefits entered into before the
12-8 effective date of this Act is governed by the law as it existed
12-9 immediately before that date, and that law is continued in effect
12-10 for that purpose.
12-11 SECTION 5. The importance of this legislation and the
12-12 crowded condition of the calendars in both houses create an
12-13 emergency and an imperative public necessity that the
12-14 constitutional rule requiring bills to be read on three several
12-15 days in each house be suspended, and this rule is hereby suspended.