By Shields H.B. No. 3714
Line and page numbers may not match official copy.
Bill not drafted by TLC or Senate E&E.
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to collateral protection insurance for lenders.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. The Insurance Code is amended by adding Chapter
1-5 27 as follows:
1-6 Sec. 1. Short Title. This Act may be cited as the
1-7 Collateral Protection Insurance Act. An Act concerning the
1-8 protection of collateral pledged to ensure payment or performance
1-9 under a credit agreement.
1-10 Sec. 5. Definitions. In this Act, the following words and
1-11 phrases shall have the following meanings:
1-12 "Collateral" means any or all property pledged or otherwise
1-13 used to secure payment, repayment, or performance under a credit or
1-14 lease agreement, whether personal property, real property,
1-15 fixtures, inventory, receivables, rights, privileges, or otherwise.
1-16 "Collateral protection insurance" means:
1-17 Insurance coverage that: (1) is purchased by a creditor
1-18 subsequent to the date of a credit agreement; (2) provides monetary
1-19 protection against loss of or damage to the collateral or against
1-20 liability arising out of the ownership or use of the collateral;
1-21 and (3) is purchased according to the terms of a credit agreement
2-1 as a result of a debtor's failure to provide evidence of insurance
2-2 or failure to maintain adequate insurance covering the collateral,
2-3 with the costs of the collateral protection insurance, including
2-4 interest and any other charges imposed by the creditor in
2-5 connection with the placement of the collateral protection
2-6 insurance, payable by the debtor. Collateral protection insurance
2-7 includes insurance coverage that is purchased to protect only the
2-8 interest of the creditor and insurance coverage that is purchased
2-9 to protect both the interest of the creditor and some or all of the
2-10 interest of the debtor. The term of a collateral protection
2-11 insurance policy may, but need not, extend to the full term of the
2-12 credit transaction.
2-13 Collateral protection insurance does not include insurance
2-14 coverage that is: (1) purchased by the creditor for which the
2-15 debtor is not charged; (2) purchased at the inception of a credit
2-16 transaction to which the debtor is a party or agrees, whether or
2-17 not the costs are included in any payment plan under the credit
2-18 transaction; (3) purchased by the creditor following foreclosure,
2-19 repossession, or a similar event wherein the creditor gains
2-20 possession or control over the collateral; (4) maintained by the
2-21 creditor for the protection of any or all collateral which may come
2-22 into the possession or control of the creditor through foreclosure,
2-23 repossession, or a similar event; (5) credit insurance, mortgage
2-24 protection insurance, insurance issued to cover the life or health
2-25 of the debtor, or any other insurance maintained to cover the
3-1 inability or failure of the debtor to make payment under the credit
3-2 agreement; (6) title insurance; or (7) flood insurance required to
3-3 be placed by creditors by 42 U.S.C. 4012(a), as amended, pursuant
3-4 to the National Flood Insurance Reform Act of 1994.
3-5 "Credit agreement" means the written document or documents
3-6 that set forth the terms of the credit transaction.
3-7 "Credit transaction" means any transaction the terms of which
3-8 require the payment or repayment of money, goods, services,
3-9 property, rights, or privileges, which is to be made on one or more
3-10 future dates, where such obligation is secured by collateral.
3-11 "Creditor" means any person, corporation, partnership,
3-12 association, or other venture, which is a lender of money or the
3-13 vendor or lessor of goods, services, property, rights, or
3-14 privileges, for which repayment is arranged through a credit
3-15 transaction, and includes any successor to the rights, title,
3-16 interest, or liens of such lender, vendor, or lessor.
3-17 "Debtor" means a borrower of money or a purchaser or lessee
3-18 of goods, services, property, rights, or privileges, for which
3-19 payment or repayment is arranged through a credit agreement.
3-20 Debtor does not include any person who is not the primary obligor
3-21 under a credit transaction and who is not jointly liable or jointly
3-22 and severally liable with the debtor for the obligation.
3-23 Sec. 10. Placement of Collateral Protection Insurance. A
3-24 creditor may place collateral protection insurance provided the
3-25 following conditions are met:
4-1 (1) the debtor has entered into a credit transaction
4-2 with the creditor; and
4-3 (2) the credit transaction has been reduced to a
4-4 credit agreement, and the credit agreement requires the debtor to
4-5 maintain insurance on the collateral; and
4-6 (3) a notice substantially similar to the following
4-7 has been included in the credit agreement or on a separate document
4-8 provided to the debtor, at the time the credit agreement is
4-9 entered:
4-10 Unless you provide us with evidence of the insurance coverage
4-11 required by your agreement with us, we may purchase insurance at
4-12 your expense to protect our interest in your collateral. This
4-13 insurance may, but need not, protect your interest. The coverage
4-14 that we purchase may not pay any claim that you make or any claim
4-15 that is made against you in connection with the collateral. If we
4-16 purchase insurance for the collateral, you will be responsible for
4-17 the costs of that insurance, including interest and any other
4-18 charges we may impose in connection with the placement of the
4-19 insurance, until the effective date of the cancellation or
4-20 expiration of the insurance. If after we purchase the insurance
4-21 you provide us with proof that you had adequate insurance as
4-22 required by our credit agreement on your collateral as of the date
4-23 the collateral became uninsured and that you continue to have the
4-24 insurance that you purchased yourself, we will cancel the insurance
4-25 purchased by us without charging you any costs, interest, or other
5-1 charges in connection with the insurance that we purchased. The
5-2 costs of the insurance that we purchase may be added to your total
5-3 outstanding balance or obligation. The costs of the insurance may
5-4 be significantly greater than the cost of insurance that you may
5-5 be able to obtain on your own.
5-6 Sec. 15. Notice of Purchase of Collateral Protection
5-7 Insurance; Repayment Terms. (a) Within 30 calendar days following
5-8 the purchase date of collateral protection insurance, the creditor
5-9 shall mail or have mailed to the debtor at the last known address
5-10 on file with the creditor, a notice entitled "Notice of Placement
5-11 of Insurance" in a form substantially similar to the following:
5-12 NOTICE OF PLACEMENT OF INSURANCE. Your credit agreement with
5-13 us requires you to maintain adequate insurance on your collateral
5-14 until you pay off your loan. You have not given us proof that you
5-15 have adequate insurance on your collateral. Under the terms of
5-16 your credit agreement, we have purchased insurance at your expense
5-17 to protect our interest in your collateral.
5-18 The insurance we purchased will pay claims made by us as the
5-19 creditor. The insurance we purchased may not pay any claims made
5-20 by you or against you in connection with your collateral.
5-21 You are responsible for the costs of this insurance,
5-22 including any interest and other charges that we may impose in
5-23 connection with the purchase of this insurance. The initial
5-24 premium payment for this insurance is ($amount), which may or may
5-25 not include any interest or other charges that we may impose. The
6-1 costs of this insurance will be added to your payment obligations
6-2 and may be significantly greater than the cost of insurance that
6-3 you can buy on your own.
6-4 You still may obtain insurance of your own choosing on the
6-5 collateral. If you provide us with proof that you have obtained
6-6 adequate insurance on your collateral, we will cancel the insurance
6-7 that we purchased and refund or credit any unearned premiums to
6-8 you.
6-9 If, after the date this notice was sent to you, you provide
6-10 us with proof that you had adequate insurance on your collateral as
6-11 of the date the collateral became uninsured and that you continue
6-12 to have the insurance that you purchased yourself, we will cancel
6-13 the insurance that we purchased without charging you any costs,
6-14 interest, or other charges in connection with the insurance that we
6-15 purchased.
6-16 (b) The terms for repayment of the costs of the collateral
6-17 protection insurance, which shall include interest and any other
6-18 charges imposed by the creditor in connection with the placement of
6-19 the collateral protection insurance, shall include one or more of
6-20 the following:
6-21 (1) full payment within 30 days after the date of the
6-22 Notice of Placement of Insurance;
6-23 (2) a final balloon payment within 30 days after the
6-24 last scheduled payment required by the credit agreement; or
6-25 (3) full amortization over the term of the credit
7-1 transaction, the term of the collateral protection insurance
7-2 coverage, or the term for which amortization is used by the
7-3 creditor.
7-4 Sec. 20. Notice of Amortization. If any form of
7-5 amortization is used by the creditor, the creditor shall send to
7-6 the debtor notice of the terms of the amortization and change in
7-7 the debtor's periodic payment.
7-8 Sec. 25. Cancellation of Collateral Protection Insurance. A
7-9 debtor may at any time cause the cancellation of collateral
7-10 protection insurance by providing proper evidence to the creditor
7-11 that the debtor has obtained insurance as required by the credit
7-12 agreement. If a debtor provides the creditor with proper evidence
7-13 that the debtor had insurance on the collateral as required by the
7-14 credit agreement on or before the date the collateral protection
7-15 insurance is effective and that the debtor continues to have
7-16 insurance on the collateral as required by the credit agreement,
7-17 the creditor shall cancel the insurance that it purchased and may
7-18 not charge the debtor any costs, interest, or other charges in
7-19 connection with the insurance.
7-20 Sec. 30. Unearned Premiums. Upon cancellation or expiration
7-21 of collateral protection insurance, the amount of unearned
7-22 premiums, if any, as calculated in accordance with the Texas
7-23 Automobile Manual and/or the policy filed by the insurer with the
7-24 Texas Department of Insurance, shall be refunded to the creditor.
7-25 A refund of unearned premiums may be credited, by the creditor, to
8-1 the debtor's obligation under the credit agreement or distributed
8-2 directly to the debtor by check or other means.
8-3 Sec. 35. Selection of Insurance Carrier. Collateral
8-4 protection insurance may be placed with any insurance carrier
8-5 selected by the creditor that is authorized to underwrite
8-6 collateral protection insurance by the Department of Insurance.
8-7 The insurance shall be evidenced by an individual policy or a
8-8 certificate of insurance.
8-9 Sec. 40. Substantial Compliance. A creditor, its insurer or
8-10 the insurer's agent that places collateral protection insurance in
8-11 substantial compliance with the terms of this Act shall not be
8-12 directly or indirectly liable in any manner to a debtor, co-signor,
8-13 guarantor, or any other person, in connection with the placement of
8-14 the collateral protection insurance. Notices required to be mailed
8-15 under this Act shall be mailed by United States Mail, first class,
8-16 postage prepaid.
8-17 Sec. 45. No Fiduciary Relationship. This Act does not
8-18 impose a fiduciary relationship between the creditor and the
8-19 debtor. Placement of collateral protection insurance is for the
8-20 sole purpose of protecting the interest of the creditor when the
8-21 debtor fails to insure collateral as required by the credit
8-22 agreement.
8-23 Sec. 50. No Cause of Action Created. A creditor is not, by
8-24 virtue of this Act, required to purchase collateral protection
8-25 insurance or to otherwise insure collateral. A creditor shall not,
9-1 by virtue of this Act, be liable to a debtor or to any other person
9-2 for not purchasing collateral protection insurance, as a result of
9-3 the amount or level of coverage of collateral protection insurance
9-4 purchased by the creditor, or because the creditor purchased
9-5 collateral protection insurance that protects only the interests of
9-6 the creditor or less than all of the interest of the debtor. This
9-7 Act shall not be deemed to create a cause of action for damages on
9-8 behalf of the debtor or any other person in connection with the
9-9 placement of collateral protection insurance.
9-10 Sec. 55. Uniform Commercial Code. The obligations and
9-11 rights of the creditor and the debtor with respect to the
9-12 collateral as provided by the Texas Uniform Commercial Code are not
9-13 affected by this Act.
9-14 Sec. 60. Severability; No Impairment of Creditor's Rights.
9-15 This Act shall not impair any other remedies, rights, or options
9-16 available to a creditor pursuant to any law, regulation, ruling,
9-17 court order, contract, or agreement.
9-18 Sec. 65. Coverage of Act. Substantial compliance with the
9-19 provisions of this Act shall be mandatory for the placement of
9-20 collateral protection insurance in this State by a creditor
9-21 pursuant to a credit agreement entered into on or after September
9-22 30, 1999. No provision of this Act shall be held or applied
9-23 against a creditor in connection with collateral protection
9-24 insurance placed prior to September 30, 1999. A creditor that
9-25 places collateral protection insurance pursuant to a credit
10-1 agreement entered into prior to September 30, 1999 shall have
10-2 available to it all of the rights provided by this Act if the
10-3 creditor is in substantial compliance with the provisions of this
10-4 Act other than item (3) of Section 10.
10-5 SECTION 2. This Act takes effect September 31, 1999.
10-6 SECTION 3. The importance of this legislation and the
10-7 crowded condition of the calendars in both houses create an
10-8 emergency and an imperative public necessity that the
10-9 constitutional rule requiring bills to be read on three several
10-10 days in each house be suspended, and this rule is hereby suspended.