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 $500;
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 $1,050; and
3-7 (3) 18 percent a year on that part of the cash advance
3-8 that is more than the amount computed for Subdivision (2) but less
3-9 than or equal to an amount computed under Subchapter C, Chapter
3-10 341, using the reference base amount of $2,500.
3-11 (f) A loan contract under this subchapter may provide for an
3-12 administrative fee in an amount not to exceed $25 for a loan of
3-13 more than $1,000 or $20 for a loan of $1,000 or less. The
3-14 administrative fee is considered earned when the loan is made or
3-15 refinanced and is not subject to refund. A lender refinancing the
3-16 loan may not contract for or receive an administrative fee for the
3-17 loan more than once in any 180-day period, except that if the loan
3-18 has an interest charge authorized by Subsection (e) the lender may
3-19 not contract for or receive the administrative fee more than once
3-20 in any 365-day period. One dollar [Fifty cents] of each
3-21 administrative fee shall be deposited with the comptroller for use
3-22 in carrying out the finance commission's responsibilities under
3-23 Section 11.305.
3-24 SECTION 2. Section 342.351, Finance Code, is amended to read
3-25 as follows:
3-26 Sec. 342.351. REFUND OF PRECOMPUTED INTEREST: SUM OF THE
4-1 PERIODIC BALANCES [REGULAR TRANSACTION]. (a) This section applies
4-2 to a loan contract that includes precomputed interest authorized
4-3 under Subchapter F or G and that is a regular transaction.
4-4 (b) If the contract is prepaid in full, including payment in
4-5 cash or by a new loan or renewal of the loan, or if the lender
4-6 demands payment in full of the unpaid balance, after the first
4-7 installment due date but before the final installment due date, the
4-8 lender shall refund or credit to the borrower the amount computed
4-9 by:
4-10 (1) dividing the sum of the periodic balances
4-11 scheduled to follow the installment date after the date of the
4-12 prepayment or demand, as appropriate, by the sum of all the
4-13 periodic balances under the schedule of payments set out in the
4-14 loan contract; and
4-15 (2) multiplying the total interest contracted for
4-16 under Section [342.201,] 342.252[,] or 342.301, as appropriate, by
4-17 the result under Subdivision (1).
4-18 (c) If the prepayment in full or demand for payment in full
4-19 occurs before the first installment due date, the lender shall:
4-20 (1) retain an amount computed by:
4-21 (A) dividing 30 into the amount that could be
4-22 retained if the first installment period were one month and the
4-23 loan were prepaid in full on the date the first installment is due;
4-24 and
4-25 (B) multiplying the result under Paragraph (A)
4-26 by the number of days in the period beginning on the date the loan
5-1 was made and ending on the date of the prepayment or demand; and
5-2 (2) refund or credit to the borrower the amount
5-3 computed by subtracting the amount retained under Subdivision (1)
5-4 from the interest contracted for under Section [342.201,]
5-5 342.252[,] or 342.301, as appropriate.
5-6 SECTION 3. The heading to Section 342.352, Finance Code, is
5-7 amended to read as follows:
5-8 Sec. 342.352. REFUND OF PRECOMPUTED INTEREST ON CONTRACT:
5-9 SCHEDULED INSTALLMENT EARNINGS [IRREGULAR TRANSACTION OR TERM OF
5-10 MORE THAN 60 MONTHS].
5-11 SECTION 4. Subsections (a) and (f), Section 342.352, Finance
5-12 Code, are amended to read as follows:
5-13 (a) This section applies to a loan contract:
5-14 (1) that includes precomputed interest and to which
5-15 Section 342.351 does not apply; [or]
5-16 (2) that includes interest contracted for under
5-17 Section 342.201; or
5-18 (3) that has a term of more than 60 months.
5-19 (f) For the purposes of this section, the simple annual
5-20 interest rate under a contract is equal to the rate computed under
5-21 the scheduled installment earnings method [that the contract would
5-22 have produced over its full term if, assuming that each scheduled
5-23 payment under the contract is paid on the date due and considering
5-24 the amount of each scheduled installment and the time of each
5-25 scheduled installment period, the rate were applied to the unpaid
5-26 principal amounts determined to be outstanding from time to time
6-1 according to the schedule of payments].
6-2 SECTION 5. Subsection (a), Section 342.501, Finance Code, is
6-3 amended to read as follows:
6-4 (a) An authorized lender may not induce or permit a person
6-5 or a husband and wife to be directly or indirectly obligated under
6-6 more than one loan contract at any time for the purpose or with the
6-7 effect of obtaining an amount of interest greater than the amount
6-8 of interest otherwise authorized under this chapter for a loan of
6-9 that aggregate amount with a maximum interest charge computed under
6-10 Section 342.201(a), Section 342.201(e), Section 342.252, or any
6-11 combination [both] of those sections.
6-12 SECTION 6. Section 342.508, Finance Code, is amended to read
6-13 as follows:
6-14 Sec. 342.508. MAXIMUM LOAN TERM. A lender may not enter a
6-15 loan contract under Section 342.201(a) or Section 342.201(e) under
6-16 which the borrower agrees to make a scheduled payment of principal
6-17 more than:
6-18 (1) 37 calendar months after the date on which the
6-19 contract is made, if the contract is for a cash advance of $1,500
6-20 or less;
6-21 (2) 49 calendar months after the date on which the
6-22 contract is made, if the contract is for a cash advance of more
6-23 than $1,500 but not more than $3,000; or
6-24 (3) 60 months after the date on which the contract is
6-25 made, if the contract is for a cash advance of more than $3,000.
6-26 SECTION 7. Section 11.305, Finance Code, is amended to read
7-1 as follows:
7-2 Sec. 11.305. RESEARCH. (a) The finance commission shall
7-3 instruct the consumer credit commissioner to establish a program to
7-4 address alternatives to high-cost lending in this state. The
7-5 program shall [conduct research on]:
7-6 (1) study and report on the problem of high-cost
7-7 lending, including without limitation the availability, quality,
7-8 and prices of financial services, including lending and depository
7-9 services, offered in this state to agricultural businesses, small
7-10 businesses, and individual consumers in this state; [and]
7-11 (2) evaluate alternatives to high-cost lending and the
7-12 practices of business entities in this state that provide financial
7-13 services to agricultural businesses, small businesses, and
7-14 individual consumers in this state;
7-15 (3) develop models to provide lower-cost alternatives
7-16 to assist borrowers who contract for high-cost loans; and
7-17 (4) track the location of lenders who enter into loan
7-18 contracts providing for an interest charge authorized by Section
7-19 342.201, map the location of the lenders by senatorial district and
7-20 by any other appropriate areas, provide other demographic
7-21 information relating to the loans and the location of the lenders,
7-22 and provide information on the changes in the distribution of the
7-23 lenders from 1997 through the date of the report.
7-24 (b) The program [finance commission] may:
7-25 (1) apply for and receive public and private grants
7-26 and gifts to conduct the research authorized by this section; [and]
8-1 (2) contract with public and private entities to carry
8-2 out studies and analyses under this section;
8-3 (3) provide funding for pilot programs; and
8-4 (4) make grants to nonprofit institutions working to
8-5 provide alternatives to high-cost loans.
8-6 (c) Not later than December 1 of each year, the consumer
8-7 credit commissioner [finance commission] shall provide to the
8-8 legislature a report detailing its findings and making
8-9 recommendations to improve the availability, quality, and prices of
8-10 financial services.
8-11 SECTION 8. Section 302.001, Finance Code, is amended by
8-12 adding Subsection (d) to read as follows:
8-13 (d) In addition to interest authorized by Subsection (b), a
8-14 loan providing for a rate of interest that is 10 percent a year or
8-15 less may provide for a delinquency charge on the amount of any
8-16 payment in default for a period of not less than 10 days in an
8-17 amount not to exceed the greater of five percent of the amount of
8-18 the payment or $7.50. The charging of the delinquency charge does
8-19 not make the loan subject to Chapter 342 or any other provision of
8-20 Subtitle B.
8-21 SECTION 9. Chapter 339, Finance Code, is amended to clarify
8-22 and confirm existing law by adding Section 339.005 to read as
8-23 follows:
8-24 Sec. 339.005. APPLICABILITY OF CERTAIN FEDERAL LAW. This
8-25 title does not override or restrict the applicability of 12 U.S.C.
8-26 Section 1735f-7a.
9-1 SECTION 10. Section 342.004, Finance Code, is amended by
9-2 adding Subsection (c) to read as follows:
9-3 (c) A loan described by Section 302.001(d) may provide for a
9-4 delinquency charge as provided by that section without being
9-5 subject to this chapter or any other provision of this subtitle.
9-6 SECTION 11. Section 342.005, Finance Code, is amended to
9-7 read as follows:
9-8 Sec. 342.005. APPLICABILITY OF CHAPTER. Except as provided
9-9 by Sections 302.001(d) and 342.004(c), a [A] loan is subject to
9-10 this chapter if the loan:
9-11 (1) provides for interest in excess of 10 percent a
9-12 year;
9-13 (2) is extended primarily for personal, family, or
9-14 household use;
9-15 (3) is made by a person engaged in the business of
9-16 making, arranging, or negotiating those types of loans; and
9-17 (4) either:
9-18 (A) is not secured by a lien on real property;
9-19 or
9-20 (B) is described by Section 342.001(3), 342.301,
9-21 or 342.456 and is predominantly payable in monthly installments.
9-22 SECTION 12. This Act takes effect immediately if it receives
9-23 a vote of two-thirds of all the members elected to each house, as
9-24 provided by Section 39, Article III, Texas Constitution. If this
9-25 Act does not receive the vote necessary for immediate effect, this
9-26 Act takes effect September 1, 2001.
_______________________________ _______________________________
President of the Senate Speaker of the House
I hereby certify that S.B. No. 272 passed the Senate on
April 2, 2001, by a viva-voce vote; and that the Senate concurred
in House amendments on May 24, 2001, by a viva-voce vote.
_______________________________
Secretary of the Senate
I hereby certify that S.B. No. 272 passed the House, with
amendments, on May 16, 2001, by the following vote: Yeas 83,
Nays 47, three present, not voting.
_______________________________
Chief Clerk of the House
Approved:
_______________________________
Date
_______________________________
Governor