HBA-NLM C.S.H.B. 3240 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3240 By: Denny Financial Institutions 4/14/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Under current law, there is an established maximum interest charge of approximately 32 percent permitted on non-real property loans and this rate varies depending upon the amount borrowed and terms of the loan. However, consumers who are considered to be low risk borrowers qualify for larger loans and the maximum interest rate drops when the size of the loan increases. There is concern that consumers who only qualify for the minimum loan amounts may seek alternative means to obtain additional funds, such as loans that originate outside the state. The purpose of this bill is to allow lenders to competitively price loan products and offer a wider range of rates on larger loans, without permitting an increase in the maximum rates on smaller loans. C.S.H.B. 3240 authorizes a loan contract under this chapter that is not secured by real property to provide for an interest charge on the cash advance that does not exceed 30 percent per year computed by actuarial method, as an alternative to the interest charge otherwise permitted by this section. In addition, this bill specifies the maximum cash advance amount, prohibits interest from being precomputed, and requires the interest to be computed by the actuarial method, on a loan using an interest charge under these provisions. 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 Article 5069-3A.301, V.T.C.S., as follows: (b) Authorizes a loan contract under this chapter that is not secured by real property to provide for an interest charge on the cash advance that does not exceed 30 percent per year computed by actuarial method, as an alternative to the interest charge otherwise permitted by this section. Specifies the maximum cash advance amount, prohibits interest from being precomputed, and requires the interest to be computed by the actuarial method, on a loan using an interest charge under this subsection. (c) Makes a conforming change. (d)-(e) Redesignated from existing Subsections (c)-(d). SECTION 2. Amends Section 342.201, Finance Code, to make conforming changes. SECTION 3. (a) Provides that this Act takes effect September 1, 1999, except as otherwise provided by Subsections (b) and (c). (b) Provides that Section 1 of this Act takes effect only if the Act of the 76th Legislature, Regular Session, 1999, relating to nonsubstantive additions to and corrections in enacted codes does not take effect. (c) Provides that Section 2 of this Act takes effect only if the Act of the 76th Legislature, Regular Session, 1999, relating to nonsubstantive additions to and corrections in enacted codes takes effect. SECTION 4. Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 3240 modifies the original in SECTION 1 (Article 5069-3A.301(b), V.T.C.S.) by clarifying the ceiling amount and the method of computation for a loan contract under this chapter. The substitute specifies the maximum cash advance amount, prohibits interest from being precomputed, and requires the interest to be computed by the actuarial method, on a loan using this alternative interest charge. The substitute removes the qualification in the original that a loan contract for which this alternative interest charge is available is a regular transaction. C.S.H.B. 3240 modifies the original in SECTION 2 (Section 342.201, Finance Code), to make conforming changes.