HBA-NLM H.B. 562 76(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 562
By: Giddings
Financial Institutions
2/19/1999
Introduced



BACKGROUND AND PURPOSE 

Under current law, it is a criminal offense if a person presents a check
for payment with knowledge that the funds in the account on which the check
is written are insufficient to cover the check. However, if the payee of a
check has knowledge of insufficient funds and makes certain arrangements
with the issuer of the check, no crime is committed.  H.B. 562 establishes
that a transaction is a loan if it involves a cash advance made in exchange
for a check and an agreement is made to defer the deposit or negotiation of
the check.  This bill is proposed in order to limit the ability of certain
businesses that issue cash in exchange for undated checks to use justice of
the peace courts to collect sums due. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

SECTION BY SECTION ANALYSIS

SECTION 1.  Amends Subchapter A, Chapter 342, Finance Code, by adding
Section 342.007 and Section 342.008, as follows: 

Sec.  342.007.  DELAYED DEPOSIT OF CERTAIN INSTRUMENTS.  Specifies that a
"check" in this section includes a negotiable order of withdrawal or share
draft.  Provides that a transaction is a loan subject to this subtitle
(Loans and Financed Transactions) if the transaction involves a cash
advance made in exchange for a check and an agreement to delay or defer
deposit or negotiation of the check for a fixed period. Establishes that
interest is a charge or other amount received by a person making a cash
advance, other than repayment of the amount of the cash advance, for
transactions under this section which are subject to this subtitle.
Prohibits a person from avoiding the application of this section by any
untruthful action or device, including a claim or contract that a
transaction is a retail sale or involves a service fee. Provides that this
section does not apply to a bona fide retail sale of merchandise, if the
sale does not involve a cash advance and an agreement to delay or defer
deposit or negotiation of a check.  

Sec.  342.008.  CERTAIN SALES OF PERSONAL PROPERTY. (a) Provides that a
loan subject to this subtitle is a sale or the purported sale of personal
property used primarily for personal, family, or household use, under the
following provisions: 

(1)  the buyer agrees to lease the property back to the seller for payments
that  equal or exceed the price of the property paid by the buyer; 

(2)  the buyer agrees to resell the property to the seller for an amount
which equals or exceeds the price of the property paid by the buyer; or 





 (3)  the seller gives the buyer a check, negotiable order of withdrawal,
or share draft for an amount that equals or exceeds the price paid for the
property by the buyer and agrees that the instrument may be deposited or
negotiated if the seller does not exercise a purchase option or make lease
payments. 

(b)  Provides that any excess amount received by the buyer in a transaction
under Subsection (a) is interest subject to this subtitle.  

(c)  Provides that is it a deceptive trade practice under Subchapter E,
Chapter 17, Business & Commerce Code, to purport to the taking of title or
a security interest or other lien in property by a buyer in connection
with a transaction described by Subsection (a). Specifies that title to the
property is not transferred and the security interest or other lien does
not attach. 

(d)  Provides that a sale or purported sale of personal property used for
business, commercial, investment, agricultural, or similar purposes is
exempt from this section. 

SECTION 2.  Amends Subchapter D, Chapter 392, Finance Code, by adding
Section 392.307, to specify that "check" in this section includes a
negotiable order of withdrawal or share draft. Prohibits a person from
filing or threatening to file a charge, complaint, or a criminal
prosecution under Section 31.03, 31.04, or 32.41, Penal Code (Theft, Theft
of Service, and Issuance of Bad Check, respectively), based on nonpayment
of a check, if the accused person gave the check in exchange for a cash
advance and did not deposit the check in a financial institution or present
the check for payment. 

SECTION 3.  Effective date: September 1, 1999.

SECTION 4.  Emergency clause.