By: Carona S.B. No. 272
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to interest charges and other costs of certain loans.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Section 342.201, Finance Code, is amended to read
1-5 as follows:
1-6 Sec. 342.201. MAXIMUM INTEREST CHARGE. (a) A loan contract
1-7 under this chapter that is a regular transaction and is not secured
1-8 by real property may provide for an interest charge on the cash
1-9 advance that does not exceed the amount of add-on interest equal to
1-10 the amount computed for the full term of the contract at an add-on
1-11 interest amount equal to:
1-12 (1) $18 for each $100 per year on the part of the cash
1-13 advance that is less than or equal to the amount computed under
1-14 Subchapter C, Chapter 341, using the reference base amount of $300;
1-15 and
1-16 (2) $8 for each $100 per year on the part of the cash
1-17 advance that is more than the amount computed for Subdivision (1)
1-18 but less than or equal to an amount computed under Subchapter C,
1-19 Chapter 341, using the reference base amount of $2,500.
1-20 (b) For the purpose of Subsection (a):
1-21 (1) when the loan is made an interest charge may be
1-22 computed for the full term of the loan contract;
1-23 (2) if the period before the first installment due
1-24 date includes a part of a month that is longer than 15 days, that
1-25 portion of a month may be considered a full month; and
2-1 (3) if a loan contract provides for precomputed
2-2 interest, the amount of the loan is the total of:
2-3 (A) the cash advance; and
2-4 (B) the amount of precomputed interest.
2-5 (c) A loan contract under this chapter that is an irregular
2-6 transaction and is not secured by real property may provide for an
2-7 interest charge, using any method or formula, that does not exceed
2-8 the amount that, having due regard for the schedule of installment
2-9 payments, would produce the same effective return as allowed under
2-10 this section [Subsection (a)] if the loan were payable in equal
2-11 successive monthly installments beginning one month from the date
2-12 of the contract.
2-13 (d) A loan contract under this chapter that is not secured
2-14 by real property may provide for a rate or amount of interest
2-15 computed using the true daily earnings method or the scheduled
2-16 installment earnings method that does not exceed the alternative
2-17 interest rate as computed under Subchapter A, Chapter 303.
2-18 Interest may accrue on the principal balance and amounts added to
2-19 principal after the date of the loan contract from time to time
2-20 unpaid at the rate provided for by the contract until the date of
2-21 payment in full or demand for payment in full.
2-22 (e) A loan contract under this chapter that is not secured
2-23 by real property may provide for a rate or amount of interest
2-24 computed using the true daily earnings method or the scheduled
2-25 installment earnings method that does not exceed:
2-26 (1) 30 percent a year on that part of the cash advance
3-1 that is less than or equal to the amount computed under Subchapter
3-2 C, Chapter 341, using the reference base amount of $1,000; and
3-3 (2) 24 percent a year on that part of the cash advance
3-4 that is more than the amount computed for Subdivision (1) but less
3-5 than or equal to an amount computed under Subchapter C, Chapter
3-6 341, using the reference base amount of $2,500.
3-7 (f) A loan contract under this subchapter may provide for an
3-8 administrative fee in an amount not to exceed $25 for a loan of
3-9 more than $1,000 or $20 for a loan of $1,000 or less. The
3-10 administrative fee is considered earned when the loan is made or
3-11 refinanced and is not subject to refund. A lender refinancing the
3-12 loan may not contract for or receive an administrative fee for the
3-13 loan more than once in any 180-day period, except that if the loan
3-14 has an interest charge authorized by Subsection (e) the lender may
3-15 not contract for or receive the administrative fee more than once
3-16 in any 365-day period. One dollar [Fifty cents] of each
3-17 administrative fee shall be deposited with the comptroller for use
3-18 in carrying out the finance commission's responsibilities under
3-19 Section 11.305.
3-20 SECTION 2. Section 342.351, Finance Code, is amended to read
3-21 as follows:
3-22 Sec. 342.351. REFUND OF PRECOMPUTED INTEREST: SUM OF THE
3-23 PERIODIC BALANCES [REGULAR TRANSACTION]. (a) This section applies
3-24 to a loan contract that includes precomputed interest authorized
3-25 under Subchapter F or G and that is a regular transaction.
3-26 (b) If the contract is prepaid in full, including payment in
4-1 cash or by a new loan or renewal of the loan, or if the lender
4-2 demands payment in full of the unpaid balance, after the first
4-3 installment due date but before the final installment due date, the
4-4 lender shall refund or credit to the borrower the amount computed
4-5 by:
4-6 (1) dividing the sum of the periodic balances
4-7 scheduled to follow the installment date after the date of the
4-8 prepayment or demand, as appropriate, by the sum of all the
4-9 periodic balances under the schedule of payments set out in the
4-10 loan contract; and
4-11 (2) multiplying the total interest contracted for
4-12 under Section [342.201,] 342.252[,] or 342.301, as appropriate, by
4-13 the result under Subdivision (1).
4-14 (c) If the prepayment in full or demand for payment in full
4-15 occurs before the first installment due date, the lender shall:
4-16 (1) retain an amount computed by:
4-17 (A) dividing 30 into the amount that could be
4-18 retained if the first installment period were one month and the
4-19 loan were prepaid in full on the date the first installment is due;
4-20 and
4-21 (B) multiplying the result under Paragraph (A)
4-22 by the number of days in the period beginning on the date the loan
4-23 was made and ending on the date of the prepayment or demand; and
4-24 (2) refund or credit to the borrower the amount
4-25 computed by subtracting the amount retained under Subdivision (1)
4-26 from the interest contracted for under Section [342.201,]
5-1 342.252[,] or 342.301, as appropriate.
5-2 SECTION 3. The heading to Section 342.352, Finance Code, is
5-3 amended to read as follows:
5-4 Sec. 342.352. REFUND OF PRECOMPUTED INTEREST ON CONTRACT:
5-5 SCHEDULED INSTALLMENT EARNINGS [IRREGULAR TRANSACTION OR TERM OF
5-6 MORE THAN 60 MONTHS].
5-7 SECTION 4. Subsections (a) and (f), Section 342.352, Finance
5-8 Code, are amended to read as follows:
5-9 (a) This section applies to a loan contract:
5-10 (1) that includes precomputed interest and to which
5-11 Section 342.351 does not apply; [or]
5-12 (2) that includes interest contracted for under
5-13 Section 342.201; or
5-14 (3) that has a term of more than 60 months.
5-15 (f) For the purposes of this section, the simple annual
5-16 interest rate under a contract is equal to the rate computed under
5-17 the scheduled installment earnings method [that the contract would
5-18 have produced over its full term if, assuming that each scheduled
5-19 payment under the contract is paid on the date due and considering
5-20 the amount of each scheduled installment and the time of each
5-21 scheduled installment period, the rate were applied to the unpaid
5-22 principal amounts determined to be outstanding from time to time
5-23 according to the schedule of payments].
5-24 SECTION 5. Subsection (a), Section 342.501, Finance Code, is
5-25 amended to read as follows:
5-26 (a) An authorized lender may not induce or permit a person
6-1 or a husband and wife to be directly or indirectly obligated under
6-2 more than one loan contract at any time for the purpose or with the
6-3 effect of obtaining an amount of interest greater than the amount
6-4 of interest otherwise authorized under this chapter for a loan of
6-5 that aggregate amount with a maximum interest charge computed under
6-6 Section 342.201(a), Section 342.201(e), Section 342.252, or any
6-7 combination [both] of those sections.
6-8 SECTION 6. Section 342.508, Finance Code, is amended to read
6-9 as follows:
6-10 Sec. 342.508. MAXIMUM LOAN TERM. A lender may not enter a
6-11 loan contract under Section 342.201(a) or Section 342.201(e) under
6-12 which the borrower agrees to make a scheduled payment of principal
6-13 more than:
6-14 (1) 37 calendar months after the date on which the
6-15 contract is made, if the contract is for a cash advance of $1,500
6-16 or less;
6-17 (2) 49 calendar months after the date on which the
6-18 contract is made, if the contract is for a cash advance of more
6-19 than $1,500 but not more than $3,000; or
6-20 (3) 60 months after the date on which the contract is
6-21 made, if the contract is for a cash advance of more than $3,000.
6-22 SECTION 7. Section 11.305, Finance Code, is amended to read
6-23 as follows:
6-24 Sec. 11.305. RESEARCH. (a) The finance commission shall
6-25 instruct the consumer credit commissioner to establish a program to
6-26 address alternatives to high-cost lending in this state. The
7-1 program shall [conduct research on]:
7-2 (1) study and report on the problem of high-cost
7-3 lending, including without limitation the availability, quality,
7-4 and prices of financial services, including lending and depository
7-5 services, offered in this state to agricultural businesses, small
7-6 businesses, and individual consumers in this state; [and]
7-7 (2) evaluate alternatives to high-cost lending and the
7-8 practices of business entities in this state that provide financial
7-9 services to agricultural businesses, small businesses, and
7-10 individual consumers in this state;
7-11 (3) develop models to provide lower-cost alternatives
7-12 to assist borrowers who contract for high-cost loans; and
7-13 (4) track the location of lenders who enter into loan
7-14 contracts providing for an interest charge authorized by Section
7-15 342.201, map the location of the lenders by senatorial district and
7-16 by any other appropriate areas, provide other demographic
7-17 information relating to the loans and the location of the lenders,
7-18 and provide information on the changes in the distribution of the
7-19 lenders from 1997 through the date of the report.
7-20 (b) The program [finance commission] may:
7-21 (1) apply for and receive public and private grants
7-22 and gifts to conduct the research authorized by this section;
7-23 [and]
7-24 (2) contract with public and private entities to carry
7-25 out studies and analyses under this section;
7-26 (3) provide funding for pilot programs; and
8-1 (4) make grants to nonprofit institutions working to
8-2 provide alternatives to high-cost loans.
8-3 (c) Not later than December 1 of each year, the consumer
8-4 credit commissioner [finance commission] shall provide to the
8-5 legislature a report detailing its findings and making
8-6 recommendations to improve the availability, quality, and prices of
8-7 financial services.
8-8 SECTION 8. This Act takes effect September 1, 2001.