HBA-SEP, JLV C.S.H.B. 690 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 690 By: Thompson Financial Institutions 3/23/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE Under current law, there is an established maximum interest charge permitted on non-real property loans which varies depending on the loan terms and borrowed amount. The maximum interest rate for consumers who qualify for larger loans is less than the maximum interest rate for consumers who qualify for smaller loans. 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. C.S.H.B. 690 establishes an alternate maximum interest charge on a consumer loan contract that is not secured by real property. 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. ANALYSIS C.S.H.B. 690 amends the Finance Code to establish an alternate maximum interest charge on a consumer loan contract that is not secured by real property. The bill authorizes such a loan to provide for a rate or amount of interest computed by using the daily earnings method or the scheduled installment earnings method that does not exceed: _30 percent per year on that part of the cash advance provided that the maximum cash advance is less than or equal to the amount computed by the consumer credit commissioner by dividing the reference base index into the consumer price index using the reference base amount of $1,250; and _24 percent per year on that part of the cash advance that is more than the amount, but less than or equal to an amount computed by the consumer credit commissioner by dividing the reference base index into the consumer price index using the reference base amount of $2,500. The bill provides that for the purposes of refunding precomputed interest on a contract, the simple annual rate is equal to the rate computed under the scheduled installment earnings method, rather than the rate that the contract would have produced over its full term assuming that payments were made on time. EFFECTIVE DATE September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 690 modifies the original to provide that such a loan using the alternative interest charge provide for a rate or amount of interest computed by using the daily earnings method or the scheduled installment earnings method that does not exceed specified ceilings computed by the consumer credit commissioner. The substitute modifies the original by removing provisions authorizing a loan using the alternative interest charge to provide for an interest charge on a cash advance that does not exceed 30 percent per year. The substitute no longer provides that on a loan using the alternative interest charge, the maximum cash advance is the revised ceiling computed by the consumer credit commissioner by dividing the reference base index into the consumer price index using the reference base amount of $2,500. The substitute removes provisions prohibiting the interest from being precomputed and requiring the interest to be computed by the actuarial method. The substitute also adds provisions for the refunding of precomputed interest on a contract.