By Shields H.B. No. 540
77R1767 MXM-F
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to collateral protection insurance.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Chapter 341, Finance Code, is amended by adding
1-5 Subchapter F to read as follows:
1-6 SUBCHAPTER F. COLLATERAL PROTECTION INSURANCE
1-7 Sec. 341.501. DEFINITIONS. In this subchapter:
1-8 (1) "Collateral" means property pledged or used to
1-9 secure payment, repayment, or performance under a credit or lease
1-10 agreement, including personal property, real property, fixtures,
1-11 inventory, receivables, rights, or privileges.
1-12 (2) "Collateral protection insurance" means insurance
1-13 coverage described by Section 341.502.
1-14 (3) "Credit agreement" means a written document that
1-15 sets forth the terms of a credit transaction.
1-16 (4) "Credit transaction" means a transaction with
1-17 terms that require the payment or repayment of money, goods,
1-18 services, property, rights, or privileges on a future date and in
1-19 which the obligation for payment or repayment is secured by
1-20 collateral.
1-21 (5) "Creditor" means a person who is a lender of money
1-22 or a vendor or lessor of goods, services, property, rights, or
1-23 privileges for which a repayment is arranged through a credit
1-24 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 (7) "Title insurance" means insurance that may be
2-9 issued only by persons regulated under Chapter 9, Insurance Code,
2-10 and that insures:
2-11 (A) a lender or owner against loss caused by:
2-12 (i) defective title held by the mortgagor
2-13 or owner or insured;
2-14 (ii) unknown mortgages or defective
2-15 recording of mortgages or liens on real property;
2-16 (iii) failure of any person to pay ad
2-17 valorem taxes resulting in a lien; or
2-18 (iv) failure to research properly title,
2-19 taxes, liens, or other matters relative to the validity or priority
2-20 of loans or liens secured by real property or insurance; or
2-21 (B) the validity, enforceability, or priority of
2-22 any lien or title on real property.
2-23 Sec. 341.502. COLLATERAL PROTECTION INSURANCE.
2-24 (a) Collateral protection insurance is insurance coverage that:
2-25 (1) is purchased by a creditor after the date of a
2-26 credit agreement;
2-27 (2) provides monetary protection against loss of or
3-1 damage to the collateral or against liability arising out of the
3-2 ownership or use of the collateral; and
3-3 (3) is purchased according to the terms of a credit
3-4 agreement as a result of a debtor's failure to provide evidence of
3-5 insurance or failure to maintain adequate insurance covering the
3-6 collateral, with the costs of the collateral protection insurance,
3-7 including interest and any other charges incurred by the creditor
3-8 in connection with the placement of collateral protection
3-9 insurance, payable by the debtor.
3-10 (b) Collateral protection insurance includes insurance
3-11 coverage that is purchased to protect only the interest of the
3-12 creditor or insurance coverage that is purchased to protect both
3-13 the interest of the creditor and some or all of the interest of the
3-14 debtor.
3-15 (c) The term of a collateral protection insurance policy may
3-16 extend to the full term of the credit transaction.
3-17 (d) Collateral protection insurance does not include
3-18 insurance coverage that is:
3-19 (1) purchased by the creditor for which the debtor is
3-20 not charged;
3-21 (2) purchased at the inception of a credit transaction
3-22 in which the debtor is a party or to which the debtor agrees,
3-23 whether or not costs are included in a payment plan under the
3-24 credit transaction;
3-25 (3) purchased by the creditor following foreclosure,
3-26 repossession, or a similar event in which the creditor gains
3-27 possession or control over the collateral;
4-1 (4) maintained by the creditor for the protection of
4-2 collateral that comes into the possession or control of the
4-3 creditor through foreclosure, repossession, or a similar event;
4-4 (5) credit insurance, mortgage protection insurance,
4-5 insurance issued to cover the life or health of the debtor, or any
4-6 other insurance maintained to cover the inability or failure of the
4-7 debtor to make payment under the credit agreement;
4-8 (6) title insurance; or
4-9 (7) flood insurance required to be placed by creditors
4-10 under Section 102, National Flood Insurance Reform Act of 1994 (42
4-11 U.S.C. Section 4012a).
4-12 Sec. 341.503. CREDITOR DUTIES. (a) A creditor who requires
4-13 collateral protection insurance that is paid for directly or
4-14 indirectly by the debtor may place collateral protection insurance
4-15 provided the following conditions are met:
4-16 (1) the debtor has entered into a credit transaction
4-17 with the creditor;
4-18 (2) the credit transaction has been reduced to a
4-19 credit agreement, and the credit agreement requires the debtor to
4-20 maintain insurance on the collateral; and
4-21 (3) a notice has been included in the credit agreement
4-22 or on a separate document provided to the debtor at the time the
4-23 credit agreement is concluded that states that:
4-24 (A) the debtor is required to:
4-25 (i) keep the collateral insured against
4-26 damage in the amount equal to the debtor's indebtedness to the
4-27 creditor;
5-1 (ii) purchase the insurance from an
5-2 insurer that is authorized to do business in this state or an
5-3 eligible surplus lines insurer that is approved by the debtor;
5-4 (iii) name the creditor as the person to
5-5 be paid under the policy in the event of a loss; and
5-6 (iv) deliver to the creditor a copy of the
5-7 policy and any receipts showing the payment of premiums; and
5-8 (B) if the debtor fails to meet any requirement
5-9 listed in Paragraph (A), the creditor may obtain collateral
5-10 protection insurance on behalf of the debtor at the debtor's
5-11 expense.
5-12 (b) The notice required by Subsection (a)(3) must be printed
5-13 in type that is:
5-14 (1) at least 10 points in size;
5-15 (2) in all capital letters; and
5-16 (3) in all bold letters.
5-17 (c) Not earlier than the 60th day before and not later than
5-18 the 10th day after the date the collateral protection insurance is
5-19 purchased, the creditor, by prepaid, first class mail, shall mail
5-20 to the debtor at the last known address on file with the creditor a
5-21 notice that states:
5-22 (1) that the creditor has purchased or will purchase
5-23 collateral protection insurance on behalf of the debtor and at the
5-24 debtor's expense as provided by the credit agreement;
5-25 (2) the type of insurance that the creditor has
5-26 obtained or will obtain, the extent of the coverage, and whose
5-27 interest the policy protects;
6-1 (3) the beginning and ending dates of the policy
6-2 period;
6-3 (4) the total cost of the policy to the debtor;
6-4 (5) the annual interest rate charged on the insurance
6-5 premium if that rate is different from the rate charged in the
6-6 related credit transaction;
6-7 (6) the manner in which the debtor may pay a premium,
6-8 interest, or finance charge relating to the purchase of the
6-9 collateral protection insurance; and
6-10 (7) at the option of the creditor, other repayment
6-11 options to which the debtor has agreed in the original credit
6-12 transaction.
6-13 (d) If the notice required by Subsection (c) is returned to
6-14 the creditor undelivered, the creditor shall:
6-15 (1) locate the debtor by using the procedures the
6-16 creditor regularly uses for locating debtors; and
6-17 (2) mail a second notice at the time the debtor is
6-18 located.
6-19 (e) The terms for repayment of the costs of the collateral
6-20 protection insurance, including interest and any other charges
6-21 actually incurred that the creditor may impose in connection with
6-22 the placement of the collateral protection insurance, must include
6-23 one or more of the following:
6-24 (1) a final balloon payment on or before the 30th day
6-25 after the date of the last scheduled payment required by the credit
6-26 agreement; or
6-27 (2) 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 the amortization is used by the
7-3 creditor.
7-4 Sec. 341.504. AMORTIZATION OF DEBT. 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 any change
7-7 in the debtor's periodic payment.
7-8 Sec. 341.505. CANCELLATION OF COLLATERAL PROTECTION
7-9 INSURANCE. A debtor may at any time cause the cancellation of
7-10 collateral protection insurance by providing proper evidence to the
7-11 creditor that the debtor has obtained insurance as required by the
7-12 credit agreement. If a debtor provides the creditor with proper
7-13 evidence that the debtor had insurance on the collateral as
7-14 required by the credit agreement on or before the date the
7-15 collateral protection insurance is effective and that the debtor
7-16 continues to have insurance on the collateral as required by the
7-17 credit agreement, the creditor shall cancel the insurance that it
7-18 purchased and may not charge the debtor any costs, interest, or
7-19 other charges in connection with the insurance.
7-20 Sec. 341.506. REFUND OF UNEARNED PREMIUMS. On the date the
7-21 collateral protection insurance is canceled or expires, the amount
7-22 of unearned premiums, as calculated by the Texas Automobile Rules
7-23 and Rating Manual or the policy filed by the insurer with the
7-24 department, shall be refunded to the creditor. The creditor shall
7-25 distribute a refund of unearned premiums directly to the debtor by
7-26 check or other means not later than the 14th day after the date the
7-27 creditor receives the refund.
8-1 Sec. 341.507. CHOICE OF CARRIER. Collateral protection
8-2 insurance may be placed with an insurer that is authorized to write
8-3 insurance in this state or an eligible surplus lines insurer
8-4 selected by the creditor. The insurance shall be evidenced by an
8-5 individual policy or a certificate of insurance.
8-6 Sec. 341.508. CREDITOR LIABILITY. (a) A creditor, its
8-7 insurer, or the insurer's agent that places collateral protection
8-8 insurance in compliance with the terms of this subchapter is not
8-9 directly or indirectly liable to a debtor, cosigner, guarantor, or
8-10 any other person in connection with the placement of the collateral
8-11 protection insurance.
8-12 (b) This subchapter does not impose a fiduciary relationship
8-13 between the creditor and debtor. Placement of collateral
8-14 protection insurance is for the sole purpose of protecting the
8-15 interest of the creditor if the debtor fails to insure collateral
8-16 as required by the credit agreement.
8-17 (c) A creditor is not required under this subchapter to
8-18 purchase collateral protection insurance or to otherwise insure
8-19 collateral. A creditor is not liable to a debtor or any other
8-20 person for failing to purchase collateral protection insurance,
8-21 failing to purchase a certain amount or level of coverage of
8-22 collateral protection insurance, or purchasing collateral
8-23 protection insurance that protects only the interests of the
8-24 creditor or less than all the interest of the debtor. This
8-25 subchapter does not create a cause of action for damages on behalf
8-26 of the debtor or any other person in connection with the placement
8-27 of collateral protection insurance.
9-1 Sec. 341.509. RIGHTS OF CREDITOR AND DEBTOR. (a) The
9-2 obligations and rights of the creditor and debtor with respect to
9-3 the collateral under Chapters 1 through 9, Business & Commerce
9-4 Code, are not affected by this subchapter.
9-5 (b) This subchapter does not impair other remedies, rights,
9-6 or options available to a creditor under any law, rule, regulation,
9-7 ruling, court order, or agreement.
9-8 (c) This subchapter does not impair or alter other
9-9 requirements of this code or other law that may apply to a credit
9-10 transaction.
9-11 SECTION 2. The subchapter heading to Subchapter D, Chapter
9-12 341, Finance Code, is amended to read as follows:
9-13 SUBCHAPTER D. ADVERTISING [AND INSURANCE] REQUIREMENTS
9-14 SECTION 3. Section 341.302, Finance Code, is repealed.
9-15 SECTION 4. This Act takes effect September 1, 2001, and
9-16 applies only to the placement of collateral protection insurance by
9-17 a creditor under a credit agreement entered into on or after the
9-18 effective date. A creditor that places collateral protection
9-19 insurance under a credit agreement entered into before the
9-20 effective date of this Act is governed by the applicable law in
9-21 effect before that date, and that law is continued in effect for
9-22 that purpose.