By: Wentworth S.B. No. 1273
Line and page numbers may not match official copy.
Bill not drafted by TLC or Senate E&E.
A BILL TO BE ENTITLED
AN ACT
1-1 relating to collateral protection insurance.
1-2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-3 SECTION 1. Subchapter B, Chapter 5, Insurance Code, is
1-4 amended by adding Article 5.25 to read as follows:
1-5 ARTICLE 5.25. COLLATERAL PROTECTION INSURANCE
1-6 Sec. 1. In this article:
1-7 (1) "Collateral" means property pledged or used to
1-8 secure payment, repayment, or performance under a credit or lease
1-9 agreement, whether personal property, real property, fixtures,
1-10 inventory, receivables, rights, or privileges.
1-11 (2) "Collateral protection insurance" means insurance
1-12 coverage defined by Section 2.
1-13 (3) "Credit agreement" means the written document that
1-14 sets forth the terms of the credit transaction.
1-15 (4) "Credit transaction" means a transaction with
1-16 terms that require the payment or repayment of money, goods,
1-17 services, property, rights, or privileges which is to be made on a
1-18 future date and the obligation is secured by collateral.
1-19 (5) "Creditor" means a person that is a lender of
1-20 money or the vendor of goods, services, property, rights, or
1-21 privileges for which a repayment is arranged through a credit
1-22 transaction and includes any successor to the rights, title,
2-1 interest, or liens of the lender, vendor, or lessor.
2-2 (6) "Debtor" means a borrower of money or a purchaser
2-3 or lessee of goods, services, property, rights, or privileges for
2-4 which payment or repayment is arranged through a credit agreement.
2-5 The term does not include a person who is not the primary obligor
2-6 under a credit transaction and who is not jointly and severally
2-7 liable with the debtor for the obligation.
2-8 Sec. 2. (a) Collateral protection insurance is insurance
2-9 coverage that:
2-10 (1) is purchased by a creditor subsequent to the date
2-11 of a credit agreement;
2-12 (2) provides monetary protection against loss of or
2-13 damage to the collateral or against liability arising out of the
2-14 ownership or use of the collateral;
2-15 (3) is purchased according to the terms of a credit
2-16 agreement as a result of a debtor's failure to provide evidence of
2-17 insurance or failure to maintain adequate insurance covering the
2-18 collateral, with the costs of the collateral protection insurance,
2-19 including interest and any other charges imposed by the creditor in
2-20 connection with the placement of collateral protection insurance,
2-21 payable by the debtor.
2-22 (b) Collateral protection insurance includes insurance
2-23 coverage that is purchased to protect only the interest of the
2-24 creditor and insurance coverage that is purchased to protect both
2-25 the interest of the creditor and some or all of the interest of the
2-26 debtor.
3-1 (c) The term of a collateral protection insurance policy may
3-2 extend to the full term of the credit transaction.
3-3 (d) Collateral protection insurance does not include
3-4 insurance coverage that is:
3-5 (1) purchased by the creditor for which the debtor is
3-6 not charged;
3-7 (2) purchased at the inception of a credit transaction
3-8 to which the debtor is a party or agrees, whether or not costs are
3-9 included in any payment plan under the credit transaction;
3-10 (3) purchased by the creditor following foreclosure,
3-11 repossession, or a similar event where the creditor gains
3-12 possession or control over the collateral;
3-13 (4) maintained by the creditor for the protection of
3-14 collateral which may come into the possession or control of the
3-15 creditor through foreclosure, repossession, or a similar event;
3-16 (5) credit insurance, mortgage protection insurance,
3-17 insurance issued to cover the life or health of the debtor, or any
3-18 other insurance maintained to cover the inability or failure of the
3-19 debtor to make payment under the credit agreement;
3-20 (6) title insurance; or
3-21 (7) flood insurance required to be placed by creditors
3-22 by 42 U.S.C. 4012(a) under the National Flood Insurance Reform Act
3-23 of 1994.
3-24 Sec. 3. A creditor may place collateral protection insurance
3-25 provided the following conditions are met:
3-26 (A) the debtor has entered into a credit
4-1 transaction with the creditor;
4-2 (B) the credit transaction has been reduced to a
4-3 credit agreement, and the credit agreement requires the debtor to
4-4 maintain insurance on the collateral; and
4-5 (C) a notice substantially similar to the
4-6 following has been included in the credit agreement or on a
4-7 separate document provided to the debtor, at the time the credit
4-8 agreement or on a separate document provided to the debtor, at the
4-9 time the credit agreement is entered into:
4-10 "Unless you provide us with evidence of the
4-11 insurance coverage required by your agreement with us, we may
4-12 purchase insurance at your expense to protect our interest in your
4-13 collateral. This insurance may, but need not, protect your
4-14 interest. The coverage we purchase may not pay any claim that you
4-15 make or any claim that is made against you in connection with the
4-16 collateral. If we purchase insurance for the collateral, you will
4-17 be responsible for the costs of that insurance, including interest
4-18 and any other charges we may impose in connection with the
4-19 placement of the insurance, until the effective date of the
4-20 cancellation or expiration of the insurance. If after we purchase
4-21 the insurance you provide us with proof that you had adequate
4-22 insurance as required by our credit agreement on your collateral as
4-23 of the date the collateral became uninsured and that you continue
4-24 to have the insurance that you purchased yourself, we will cancel
4-25 the insurance purchased by us without charging you any costs,
4-26 interest, or any other charges in connection with the insurance
5-1 that we purchased. The costs of the insurance that we purchase may
5-2 be added to your total outstanding balance or obligation. The
5-3 costs of the insurance may be significantly greater than the cost
5-4 of insurance that you may be able to obtain on your own."
5-5 Sec. 4. (a) Not later than 30 days after the purchase date
5-6 of the collateral protection insurance, the creditor shall mail to
5-7 the debtor at the last known address on file with the creditor a
5-8 notice entitled "Notice of Placement of Insurance" in a form
5-9 substantially similar to the following:
5-10 "NOTICE OF PLACEMENT OF INSURANCE
5-11 Your credit agreement with us requires you to maintain
5-12 adequate insurance on your collateral until you pay off your loan.
5-13 You have not given us proof that you have adequate insurance on
5-14 your collateral. Under the terms of your credit agreement, we have
5-15 purchased insurance at your expense to protect our interest in your
5-16 collateral.
5-17 The insurance we purchased will pay claims made by us as the
5-18 creditor. The insurance we purchased may not pay any claims made
5-19 by you or against you in connection with your collateral.
5-20 You are responsible for the costs of this insurance,
5-21 including any interest and other charges that we may impose in
5-22 connection with the purchase of this insurance. The initial
5-23 premium payment for this insurance is $ which may include any
5-24 interest or other charges that we may impose. The costs of this
5-25 insurance will be added to your payment obligations and may be
5-26 significantly greater than the cost of insurance that you can buy
6-1 on your own.
6-2 You may still obtain insurance of your own choosing on the
6-3 collateral. If you provide us with proof that you have obtained
6-4 adequate insurance on your collateral, we will cancel the insurance
6-5 that we purchased and refund or credit any unearned premiums to
6-6 you.
6-7 If, after the date this notice was sent to you, you provide
6-8 us with proof that you had adequate insurance on your collateral as
6-9 of the date the collateral became uninsured and that you continue
6-10 to have the insurance that you purchased yourself, we will cancel
6-11 the insurance purchased by us without charging you any costs,
6-12 interest, or any other charges in connection with the insurance
6-13 that we purchased."
6-14 (b) The terms for repayment of the costs of the collateral
6-15 protection insurance which shall include interest and any other
6-16 charges imposed by the creditor in connection with the placement of
6-17 the collateral protection insurance, shall include one or more of
6-18 the following:
6-19 (1) full payment within 30 days after the date of the
6-20 Notice of Placement of Insurance;
6-21 (2) a final balloon payment within 30 days after the
6-22 last scheduled payment required by the credit agreement; or
6-23 (3) full amortization over the term of the credit
6-24 transaction, the term of the collateral protection insurance
6-25 coverage, or the term for which the amortization is used by the
6-26 creditor.
7-1 Sec. 5. If any form of amortization is used by the creditor,
7-2 the creditor shall send to the debtor notice of the terms of the
7-3 amortization and change in the debtor's periodic payment.
7-4 Sec. 6. A debtor may at any time cause the cancellation of
7-5 collateral protection insurance by providing proper evidence to the
7-6 creditor that the debtor has obtained insurance as required by the
7-7 credit agreement. If a debtor provides the creditor with proper
7-8 evidence that the debtor had insurance on the collateral as
7-9 required by the credit agreement on or before the date the
7-10 collateral protection insurance is effective and that the debtor
7-11 continues to have insurance on the collateral as required by the
7-12 credit agreement, the creditor shall cancel the insurance that it
7-13 purchased and may not charge the debtor any costs, interest, or
7-14 other charges in connection with the insurance.
7-15 Sec. 7. On cancellation or expiration of collateral
7-16 protection insurance, the amount of unearned premiums, as
7-17 calculated by the Texas Automobile Manual and the policy fixed by
7-18 the insurer with the department shall be refunded to the creditor.
7-19 A refund of unearned premiums may be credited, by the creditor, to
7-20 the debtor's obligation under the credit agreement or distributed
7-21 directly to the debtor by check or other means.
7-22 Sec. 8. Collateral protection insurance may be placed with
7-23 any insurance carrier selected by the creditor that is authorized
7-24 to underwrite collateral protection insurance by the department.
7-25 The insurance shall be evidenced by an individual policy or a
7-26 certificate of insurance.
8-1 Sec. 9. A creditor, its insurer, or the insurer's agent that
8-2 places collateral protection insurance in substantial compliance
8-3 with the terms of this Act may not be directly or indirectly liable
8-4 in any manner to a debtor, co-signor, guarantor, or any other
8-5 person in connection with the placement of the collateral
8-6 protection insurance. Notices required to be mailed under this
8-7 section shall be mailed by United States Mail, first class, postage
8-8 prepaid.
8-9 Sec. 10. This section does not impose a fiduciary
8-10 relationship between the creditor and debtor. Placement of
8-11 collateral protection insurance is for the sole purpose of
8-12 protecting the interest of the creditor when the debtor fails to
8-13 insure collateral as required by the credit agreement.
8-14 Sec. 11. A creditor is not required to purchase collateral
8-15 protection insurance or to insure collateral. A creditor is not
8-16 liable to a debtor or any other person for not purchasing
8-17 collateral protection insurance as a result of the amount or level
8-18 of coverage of collateral protection insurance purchased by the
8-19 creditor or because the creditor purchased collateral protection
8-20 insurance that protects only the interests of the creditor or less
8-21 than all the interest for the debtor. This article does not create
8-22 a cause of action for damages on behalf of the debtor or any other
8-23 person in connection with the placement of collateral protection
8-24 insurance.
8-25 Sec. 12. The obligations and rights of the creditor and
8-26 debtor with respect to the collateral as provided by the Texas
9-1 Uniform Commercial Code are not affected by this article.
9-2 Sec. 13. This article does not impair any other remedies,
9-3 rights, or options available to a creditor under any law,
9-4 regulation, ruling, court order, contract, or agreement.
9-5 SECTION 2. This Act takes effect September 1, 1999, and
9-6 applies only to the placement of collateral protection insurance by
9-7 a creditor under a credit agreement entered into on or after the
9-8 effective date. A creditor that places collateral protection
9-9 insurance under a credit agreement entered into before the
9-10 effective date of this Act is governed by the applicable law in
9-11 effect before that date, and that law is continued in effect for
9-12 that purpose.