SRC-EPT, TBR S.B. 272 77(R)BILL ANALYSIS Senate Research CenterS.B. 272 By: Carona Business & Commerce 6/12/2001 Enrolled DIGEST 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. S.B. 272 establishes an alternate maximum interest charge on a consumer loan contract that is not secured by real property RULEMAKING AUTHORITY This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 342.201, Finance Code, as follows: (c) Provides that a loan contract under this chapter that is an irregular transaction and is not secured by real property may provide for an interest charge, using any method or formula, that does not exceed the amount that, having due regard for the schedule of installment payments, would produce the same effective return as allowed under this section, rather than Subsection (a), if the loan were payable in equal successive monthly installments beginning one month from the date of the contract. (e) Provides that a loan contract under this chapter that is not secured by real property may provide for a rate or amount of interest computed using the true daily earnings method or the scheduled installment earnings method that does not exceed certain percentages. (f) Prohibits a lender from contracting for or receiving certain administrative fees more than once annually. Increases from fifty cents to one dollar the portion of each administrative fee to be deposited with the comptroller for certain purposes. SECTION 2. Amends Section 342.351, Finance Code, as follows: Sec. 342.351. New heading: REFUND OF PRECOMPUTED INTEREST: SUM OF THE PERIODIC BALANCES. (a) Provides that this section applies to a loan contract that includes precomputed interest authorized under Subchapter F or G and that is a regular transaction. (b) Deletes a reference to Section 342.201 in this subsection concerning interest paid on contracts prepaid in full. (c) Makes a conforming change. SECTION 3. Amends the heading to Section 342.352, Finance Code, to read as follows: Sec. 342.352. REFUND OF PRECOMPUTED INTEREST ON CONTRACT: SCHEDULED INSTALLMENT EARNINGS. SECTION 4. Amends Sections 342.352 (a) and (f), Finance Code, as follows: (a) Provides that this section applies to a loan contract that includes interest contracted for under Section 342.201. (f) Provides that for the purposes of this section, the simple annual interest rate under a contract is equal to the rate computed under the scheduled installment earnings method. Deletes language regarding contractual terms. SECTION 5. Amends Section 342.501(a), Finance Code, to prohibit an authorized lender from inducing or permitting a person or a husband and wife to be directly or indirectly obligated under more than one loan contract at any time for the purpose or with the effect of obtaining an amount (if interest greater than the amount of interest otherwise authorized under this chapter) for a loan of that aggregate amount with a maximum interest charge computed under Section 342.201(a), Section 342.201(e), Section 342.252, or any combination of those sections. SECTION 6. Amends Section 342.508, Finance Code, to provide that a lender may not enter a loan contract under Section 342.201(a) or Section 342.201(e) under which the borrower agrees to make a scheduled payment of principal more than certain amounts. SECTION 7. Amends Section 11.305, Finance Code, as follows: (a) Requires the finance commission to instruct the consumer credit commissioner to establish a program to address alternatives to high-cost lending in this state. Requires the program to perform certain functions. (b) Authorizes the program rather than the finance commission to provide funding for pilot programs and make grants to nonprofit institutions working to provide alternatives to high-cost loans. (c) Requires the consumer credit commissioner rather than the finance commission, not later than December 1 of each year, to provide to the legislature a report detailing its findings and making recommendations to improve the availability, quality, and prices of financial services. SECTION 8. Amends Section 302.001, Finance Code, to add Subsection (d) to authorize in addition to interest authorized by Subsection (b), a loan providing for a rate of interest that is 10 percent a year or less to provide for a delinquency charge on the amount of any payment in default for a period of not less than 10 day in an amount not to exceed the greater of five percent of the amount of the payment of $7.50. Provides that the charging of the delinquency charge does not make the loan subject to Chapter 342 or any other provision of Subtitle B. SECTION 9. Amends Chapter 339, Finance Code, to clarify and confirm existing law by adding Section 339.005 as follows: Section 339.005. APPLICABILITY OF CERTAIN FEDERAL LAW. Provides that this title does not override or restrict the applicability of 12 U.S.C. Section 1735f-7a. SECTION 10. Amends Section 342.004, Finance Code, by adding Subsection (c) to authorize a loan described by Section 302.001(d) to provide for a delinquency charge as provided by that section without being subject to this chapter or any other provision of the subtitle. SECTION 11. Amends Section 342.005, Finance Code, to provide that except as proved by Sections 302.001(d) and 342.004(c), a loan is subject to this chapter if it meets certain criteria. SECTION 12. Effective date: upon passage or September 1, 2001.