HBA-TYH C.S.H.B. 2180 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 2180 By: Averitt Financial Institutions 3/24/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE During the interim following the 74th Legislature, the House Financial Institutions Committee was charged with reviewing the provisions of and recommending amendments to the credit statutes. The recommendations were adopted by the 75th Legislature in H.B. 1971. The primary amendments addressed a new class of commercial loans, penalties on commercial loans, a more complete division within the statutes of consumer and commercial loans, and a more organized and modern set of credit statutes. Simultaneous with the adoption of H.B. 1971 the legislature adopted H.B. 10 which was a nonsubstantive revision proposed by the Texas Legislative Council. H.B. 10 codified all of the credit laws in the new Finance Code. H.B. 1971 amended the preexisting law in Title 79 (Article 5069, V.T.C.S.). Various provisions and ambiguities have resulted from the passage of the two complex pieces of legislation, which amends the same body of law. C.S.H.B. 2180 provides clarification and technical amendments to the credit statutes and updates procedures and requirements relating to licensing of lenders. 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 ARTICLE 1. AMENDMENTS TO TITLE 79, V.T.C.S. SECTION 1.01. Amends Articles 5069-1B.002(b) and (c), Title 79, V.T.C.S., to provide that the rulemaking applies to the title, rather than the subtitle, and to delete the requirement that these definitions be liberally construed to accomplish the purposes of this subtitle. Makes a conforming change. SECTION 1.02. Amends Article 5069-1C.102, Title 79, V.T.C.S., as follows: Art. 1C.102. New title: PROHIBITION ON PREPAYMENT PENALTY. Clarifies that a prepayment penalty, rather than charge or penalty, cannot be assessed on a property that is or is to be the residential homestead of the borrower if the interest rate on the loan is greater than 12 percent. Deletes "charge or" from existing title. Makes nonsubstantive changes. SECTION 1.03. Amends Article 5069-1D.003(c), Title 79, V.T.C.S., to make the subsection applicable to this subchapter, rather than this article. SECTION 1.04. Amends Article 5069-3A.001, Title 79, V.T.C.S., by adding the definition of "regulated loan license." SECTION 1.05. Amends Article 5069-3A.002, Title 79, V.T.C.S., by changing all references of "amount financed" to "principal amount." Makes a conforming change. SECTION 1.06. Amends Articles 5069-3A.101(a) and (c), Title 79, V.T.C.S., to provide that a bank, savings bank, or savings and loan association organized under the laws of the United States or under the laws of the institution's state of domicile is exempt from being licensed for making specified transactions regarding loans. Makes a nonsubstantive change. SECTION 1.07. Amends Articles 5069-3A.102(b) and (c), Title 79, V.T.C.S., to clarify the locations that are required to be licensed to conduct business by including offices where loans are serviced or held. Makes a conforming change. SECTION 1.08. Amends Article 5069-3A.202(a), Title 79, V.T.C.S., to increase the bonding requirement that the commissioner is authorized to require the applicant to file with the application from $5,000 to $50,000 for the first license, and from $1,000 to $10,000 for each additional license, if the commissioner cannot verify that an applicant under this chapter meets the net assets requirement or if the commissioner questions the financial responsibility or general fitness of the applicant. SECTION 1.09. Amends Article 5069-3A.302, Title 79, V.T.C.S., to provide that the same effective return is determined as a true daily earnings rate. SECTION 1.10. Amends Article 5069-3A.303(a), Title 79, V.T.C.S., to authorize a default charge to be assessed on a consumer loan contract that either includes the precomputed interest or uses the scheduled installment earnings method. SECTION 1.11. Amends Article 5069-3A.304(a), Title 79, V.T.C.S., to authorize a deferment charge to be assessed on a consumer loan contract that either includes the precomputed interest or uses the scheduled installment earnings method. Makes a conforming change. SECTION 1.12. Amends Article 5069-3A.403, Title 79, V.T.C.S., to provide that the same effective return is determined as a true daily earnings rate. Authorizes the lender, if a loan that has a term of one month or more is prepaid in full, to earn a minimum of the acquisition charge and interest charge for one month. Authorizes the lender, if a loan has an initial term of less than one month, to earn a minimum of the acquisition charge and an interest charge that produces the same effective return as the installment account handling charge computed at a daily rate for the term the loan is outstanding. SECTION 1.13. Amends Article 5069-3A.503(a), Title 79, V.T.C.S., to authorize a deferment charge to be assessed on a secondary mortgage loan contract that either includes the precomputed interest or uses the scheduled installment earnings method. Makes a conforming change. SECTION 1.14. Amends Article 5069-3A.507, Title 79, V.T.C.S., to delete text pertaining to a charge for an insufficient funds check that may be assessed on a secondary mortgage loan contract. Makes a conforming change. SECTION 1.15. Amends Article 5069-3A.508(a), Title 79, V.T.C.S., to remove the requirement that a statement for attorney services can only be addressed to the lender. Sets forth that a licensed appraiser, in addition to a certified appraiser, may conduct the appraisal. Changes an "and" to an "or" to clarify that any of the fees listed in this section may be charged, rather than all fees are required to be charged. SECTION 1.16. Amends Articles 5069-3A.701(a) and (b), Title 79, V.T.C.S., to make nonsubstantive changes. SECTION 1.17. Amends Articles 5069-3A.702(a) and (c), Title 79, V.T.C.S., to make nonsubstantive changes. SECTION 1.18. Amends Article 5069-3A.804, Title 79, V.T.C.S., to make nonsubstantive changes. SECTION 1.19. Amends Articles 5069-3A.852 (a) and adds Subsection (c), Title 79, V.T.C.S., to authorize attorney's fees assessed by a court, in addition to those provided for in Article 3A.507 (Amounts Authorized to be Included in Contract), to be charged on certain loans. Authorizes a lender to assess and collect a fee that does not exceed the amount prescribed by Chapter 617, Acts of the 68th Legislature, Regular Session, 1983 (Article 9022, V.T.C.S.) (Processing Fee by Holder of Dishonored Check), for the return by a depository institution of a dishonored check, negotiable order of withdrawal, or share draft offered in full or partial payment of a loan. ARTICLE 2. AMENDMENTS TO FINANCE CODE SECTION 2.01. Amends Sections 301.002(b) and (c), Finance Code, to provide that the rulemaking applies to the title, rather than the subtitle, and to delete the requirement that these definitions be liberally construed to accomplish the purposes of this subtitle. Makes a conforming change. SECTION 2.02. Amends Section 302.102, Finance Code, to clarify that a prepayment penalty cannot be assessed on a property that is or is to be the residential homestead of the borrower if the interest rate on the loan is greater than 12 percent. SECTION 2.03. Amends Section 303.003(c), Finance Code, to make the subsection applicable to this subchapter, rather than this section. SECTION 2.04. Amends Section 342.001, Finance Code, by adding the definition of "regulated loan license." SECTION 2.05. Amends Sections 342.002(a) and (b), Finance Code, by changing all references of "amount financed" to "principal amount" Makes a conforming change. SECTION 2.06. Amends Sections 342.051(a) and (c), Finance Code, to provide that a bank, savings bank, or savings and loan association organized under the laws of the United States or under the laws of the institution's state of domicile is exempt from being licensed for making specified transactions regarding loans. Makes a nonsubstantive change. SECTION 2.07. Amends Sections 342.052(b) and (c), Finance Code, to clarify the locations that are required to be licensed to conduct business by including offices where loans are serviced or held. Makes a conforming change. SECTION 2.08. Amends Section 342.102(a), Finance Code, to increase the bonding amounts from $5,000 to $50,000 for the first license, and from $1,000 to $10,000 for each additional license. SECTION 2.09. Amends Section 342.202, Finance Code, to provide that the same effective return is determined as a true daily earnings rate. SECTION 2.10. Amends Section 342.203(a), Finance Code, to authorize a default charge to be assessed on a consumer loan contract that either includes the precomputed interest or uses the scheduled installment earnings method. SECTION 2.11. Amends Section 342.204(a), to authorize a deferment charge to be assessed on a consumer loan contract that either includes the precomputed interest or uses the scheduled installment earnings method. Makes a conforming change. SECTION 2.12. Amends Section 342.253, Finance Code, to provide that the same effective return is determined as a true daily earnings rate. Authorizes the lender, if a loan that has a term of one month or more is prepaid in full, to earn a minimum of the acquisition charge and interest charge for one month. Authorizes the lender, if a loan has an initial term of less than one month, to earn a minimum of the acquisition charge and an interest charge that produces the same effective return as the installment account handling charge computed at a daily rate for the term the loan is outstanding. SECTION 2.13. Amends Section 342.303(a), Finance Code, to authorize a deferment charge to be assessed on a secondary mortgage loan contract that either includes the precomputed interest or uses the scheduled installment earnings method. Makes a conforming change. SECTION 2.14. Proposes to amend Section 342.307, Finance Code, to delete text pertaining to a charge for an insufficient funds check that may be assessed on a secondary mortgage loan contract. Makes a conforming change. (This section title does not currently match the citation. However, the title and text being amended appear in Article 5069-3A.507, V.T.C.S., and Section 344.106, Finance Code, which were enacted by different acts of the 75th Legislature and which cover identical subject matter.) SECTION 2.15. Amends Section 342.308(a), Finance Code, to remove the requirement that a statement for attorney services can only be addressed to the lender. Sets forth that a licensed appraiser, in addition to a certified appraiser, may conduct the appraisal. Changes an "and" to an "or" to clarify that any of the fees listed in this section may be charged, rather than all fees are required to be charged. SECTION 2.16. Amends Sections 342.401(a) and (b), Finance Code, to make nonsubstantive changes. SECTION 2.17. Amends Sections 342.402(a) and (c), Finance Code, to make nonsubstantive changes. SECTION 2.18. Amends Section 342.454, Finance Code, to make nonsubstantive changes. SECTION 2.19. Amends Section 342.502 (b) and adds Subsection (d), Finance Code, to authorize attorney's fees assessed by a court, in addition to those provided for in Section 342.307 (Amounts Authorized to be Included in Contract), to be charged on certain loans. Authorizes a lender to assess and collect a fee that does not exceed the amount prescribed by Chapter 617, Acts of the 68th Legislature, Regular Session, 1983 (Article 9022, V.T.C.S.) (Processing Fee by Holder of Dishonored Check), for the return by a depository institution of a dishonored check, negotiable order of withdrawal, or share draft offered in full or partial payment of a loan. ARTICLE 3. EFFECTIVE DATE; EMERGENCY SECTION 3.01. (a) Effective date: September 1, 1999. (b) Provides that Article 1 of this Act takes effect only if the Act of the 76th Legislature, Regular Session, 1999, relating to nonsubstantive additions and corrections in enacted codes does not take effect. (c) Provides that Article 2 of this Act takes effect only if the Act of the 76th Legislature, Regular Session, 1999, relating to nonsubstantive additions and corrections in enacted codes takes effect. SECTION 3.02. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B 2180 differs from the original by deleting the requirement that these definitions be liberally construed to accomplish the purposes of this subtitle in SECTION 1.01 and SECTION 2.01. Redesignates existing Subsection (c) to Subsection (b) in both instances. C.S.H.B. 2180 differs from the original in SECTION 1.08 by increasing the bonding requirement that the commissioner is authorized to require the applicant to file with the application from $5,000 to $50,000 for the first license, and from $1,000 to $10,000 for each additional license, if the commissioner cannot verify that an applicant under this chapter meets the net assets requirement or if the commissioner questions the financial responsibility or general fitness of the applicant. The original simply increased the bonding requirement, but did not qualify the commissioner's authority to require the bonds by setting forth conditions on verification of assets or financial responsibility or general fitness.