SRC-MWN C.S.S.B. 471 77(R)BILL ANALYSIS
Senate Research CenterC.S.S.B. 471
77R9643 DWS-FBy: Carona
Business & Commerce
3/22/2001
Committee Report (Substituted)
DIGEST AND PURPOSE
In recent years a growing number of lenders have begun to offer short-term
loans to consumers under the names "deferred deposit," "cash advances," and
"payday loans," among others. These lenders are typically not regulated and
the consumer has little protection or legal recourse. C.S.S.B. 471
regulates certain aspects of payday loans.
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 Chapter 342, Finance Code, by adding Subchapter M, as
follows;
SUBCHAPTER M. DEFERRED DEPOSIT LOANS
Sec. 342.601. DEFINITIONS. Defines "deferred deposit loan," "instrument,"
"lender," "renewal," and "third-party provider."
Sec. 342.602. WRITTEN AGREEMENT REQUIREMENTS. Requires each deferred
deposit loan transaction and renewal to be documented by a written
agreement. Requires the written agreement to contain certain information.
Sec. 342.603. NOTICE TO CONSUMERS. Requires a lender to provide a certain
notice in a prominent place on each deferred deposit loan agreement in at
least 10-point type that meets certain criteria.
Sec. 342.604. AUTHORIZED FINANCE CHARGE. Authorizes a lender,
notwithstanding any other provision of this chapter, to charge for each
deferred deposit loan a finance charge not to exceed $15 for every $100
advanced. Authorizes a lender to also charge a pro rata finance charge for
any incremental amount advanced in excess of a multiple of $100. Provides
that the charge is considered fully earned as of the date of the
transaction. Authorizes the lender to charge only those charges expressly
authorized in this subchapter in connection with a deferred deposit loan.
Sec. 342.605. MAXIMUM CASH ADVANCE-RIGHT TO RESCIND. Prohibits a lender
from advancing to a borrower an amount greater than $500. Provides that a
borrower has the right to rescind the deferred deposit loan no later than 5
p.m. on the next business day after the loan transaction date. Provides
that this chapter does not prohibit a lender from being a party, with the
same borrower at the same time, to a deferred deposit loan and a loan
authorized by this chapter other than a deferred deposit loan.
Sec. 342.606. MINIMUM AND MAXIMUM TERM. Prohibits a lender from engaging in
a deferred deposit loan with a term of less than seven or more than 31
days.
Sec. 342.607. MAXIMUM OUTSTANDING TRANSACTIONS NOTICE. Requires a lender
to provide a notice in certain language in a prominent place on each
deferred deposit loan agreement in at least 10-point type that contains
certain information.
Sec. 342.608. RENEWAL. Prohibits a deferred deposit loan from being renewed
more than three consecutive times. Requires the borrower, after the last
such renewal, to pay the debt in cash or its equivalent. Authorizes the
lender, if the borrower does not pay the debt, to negotiate, or otherwise
present for payment the borrower's instrument. Authorizes the lender, on
renewal of a deferred deposit loan, to assess additional finance charges
not to exceed $15 for every $100 advanced as authorized under Section
342.604. Authorizes a lender to also charge a pro rata finance charge for
any incremental amount advanced in excess of a multiple of $100. Provides
that a transaction is completed when the lender presents the instrument for
payment or initiates an Automated Clearing House (ACH) debit to the
borrower's bank account to collect on the instrument or when the borrower
redeems the instrument by paying the full amount of the instrument to the
holder. Authorizes the lender, the next business day after the borrower has
completed the deferred deposit loan transaction, to enter into a new
deferred deposit loan agreement with the borrower and provides that the new
transaction is not considered a renewal of the previous transaction.
Authorizes a lender to refinance a deferred deposit loan without limitation
as to the number of refinancings as authorized by Subchapter F.
Sec. 342.609. FORM OF LOAN PROCEEDS. Authorizes a lender to pay the
proceeds from a deferred deposit loan to the borrower in the form of a
business instrument, a money order, or cash. Prohibits the lender or the
lender's third-party provider from charging an additional finance charge or
fee for cashing the lender's business instrument.
Sec. 342.610. ENDORSEMENT OF INSTRUMENT. Prohibits a lender from
negotiating or presenting an instrument for payment unless the instrument
is endorsed with the actual business name of the lender.
Sec. 342.611. REDEMPTION OF INSTRUMENT. Provides that before the lender
negotiates or presents the instrument, the borrower has the right to redeem
any instrument held by the lender as a result of a deferred deposit loan if
the borrower pays the full amount of the instrument to the lender.
Sec. 342.612. AUTHORIZED DISHONORED INSTRUMENT CHARGE. Provides that, if
an instrument held by a lender as a result of a deferred deposit loan is
returned to the lender from a payor financial institution due to
insufficient funds, a closed account, or a stop-payment order, the lender
has the right to exercise all civil means authorized by law to collect the
face value of the instrument. Authorizes the lender, in addition, to
contract for and collect fees authorized by Section 342.502. Prohibits the
lender from collecting any other fees as a result of default. Prohibits a
returned instrument charge from being collected if the loan proceeds
instrument is dishonored by the financial institution or if the borrower
places a stop-payment order due to forgery or theft.
Sec. 342.613. POSTING OF CHARGES. Requires a lender offering a deferred
deposit loan to post at any place of business where deferred deposit loans
are made a notice of the charges imposed for the deferred deposit loans.
Sec. 342.614. NOTICE ON ASSIGNMENT OR SALE OF INSTRUMENTS. Requires the
lender, before the sale or assignment of instruments held by a lender as a
result of a deferred deposit loan, to place a notice on the instrument in
at least 10-point type containing certain language.
Sec. 342.615. RECORDS AND ANNUAL REPORTS. Requires a lender to maintain
records and file an annual report in accordance with Sections 342.558 and
343.559.
Sec. 342.616. AUTHORITY TO CONDUCT DEFERRED DEPOSIT LOAN BUSINESS. Provides
that only an authorized lender may lawfully engage in the deferred deposit
loan business. Requires a lender to obtain and maintain a separate license
for each location where deferred deposit loan business is conducted.
Provides that a deferred deposit loan is a loan subject to this chapter for
purposes of the application of Section 342.051.
Sec. 342.617. APPLICATION OF SUBCHAPTER TO THIRD-PARTY PROVIDER. Provides
that if deferred deposit loans are offered at the place of business of a
third-party provider certain criteria is required to be met.
Sec. 342.618. EXAMINATION AND INVESTIGATION. Authorizes a licensed lender
to be examined and investigated in accordance with Section 342.552.
Authorizes the consumer credit commissioner (commissioner) or the
commissioner's representative, at the times the commissioner considers
necessary, to examine and investigate a third-party provider's place of
business to determine the provider's compliance with this subchapter.
Requires the third-party provider to give the commissioner or the
commissioner's representative free access to its place of business for that
purpose. Authorizes the commissioner or the commissioner's representative,
during an examination, to administer oaths and examine any person under
oath on any subject pertinent to a matter that the commissioner is
authorized to consider, investigate, or secure information about under this
subchapter. Requires a third-party provider to pay to the commissioner an
amount assessed by the commissioner to cover the direct and indirect cost
of an examination of the provider under this section.
Sec. 342.619. APPLICABILITY TO LENDER. Provides that except as preempted by
federal law, all other applicable provisions of this subchapter apply to a
deferred deposit loan and a lender.
Sec. 342.620. APPLICABILITY OF PROVISIONS OF CHAPTER 341 AND THIS CHAPTER.
Provides that Chapter 341 and other provisions of this chapter apply to a
lender unless those provisions are inconsistent with this subchapter.
Sec. 342.621. CRIMINAL CULPABILITY. Provides that a borrower to not subject
to any criminal penalty for entering into a deferred deposit loan agreement
or in the event the instrument is dishonored, unless the borrower violated
Section 32.32 (False Statement to Obtain Property or Credit), Penal Code.
Sec. 342.622. DECEPTIVE TRADE PRACTICE. Provides that a deferred deposit
loan made by a person other than a lender is a deceptive trade practice
actionable under Chapter 17E (Deceptive Trade Practices and Consumer
Protection), Business and Commerce Code.
SECTION 2. Effective date: September 1, 2001.
Makes application of this Act prospective.
SUMMARY OF COMMITTEE CHANGES
SECTION 1. Amends As Filed S.B. 471, Chapter 342, Finance Code, as follows:
_Adds "lender" and "third-party provider" as new proposed definitions.
Deletes the definition of "loan amount" contained in the As Filed version.
_Makes nonsubstantive changes in Section 342.602 regarding requirements
for the written agreement.
_Adds new proposed language in Section 342.603 regarding the format of the
notice supplied to consumers.
_Adds new proposed language in Section 342.604 authorizing a lender to
charge a pro rata finance charge.
_Changes the heading to Section 342.605 and adds new proposed language
regarding lender. Makes nonsubstantive changes.
_Changes the heading to Section 342.606 and adds new proposed language
regarding the minimum term of a deferred loan.
_Makes conforming changes in Section 342.607.
_Adds new proposed language in Section 342.608 regarding lender actions.
Makes a nonsubstantive change.
_Adds new language in Section 342.609 referencing the lender or lender's
third-party provider.
_Adds new proposed language in Section 342.611 to make a nonsubstantive
change.
_Adds new proposed language in Section 342.612 referencing fees authorized
by Section 342.502. Makes nonsubstantive changes.
_Makes conforming and nonsubstantive changes in Sections 342.614 and
342.616.
_Replaces and adds new proposed language in Section 342.617 regarding
application of the subchapter to a third-party provider.
_Replaces and adds new proposed language in Section 342.618 regarding the
examination and investigation of a lender.
_Adds new language to existing Section 342.619 regarding provisions
applicable to a lender.
_Makes a nonsubstantive change in Section 342.620.
_Adds new proposed language in Section 342.621 clarifying criminal
culpability.
_Adds new proposed Section 342.622 regarding deceptive trade practice.