By: Carona S.B. No. 471
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to deferred deposit loans.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Chapter 342, Finance Code, is amended by adding
1-5 Subchapter M to read as follows:
1-6 SUBCHAPTER M. DEFERRED DEPOSIT LOANS
1-7 Sec. 342.601. DEFINITIONS. In this subchapter:
1-8 (1) "Deferred deposit loan" means a transaction in
1-9 which a lender makes a cash advance to a borrower and, for a fee,
1-10 finance charge, or other consideration:
1-11 (A) accepts a dated instrument from the
1-12 borrower;
1-13 (B) agrees to hold the instrument for a stated
1-14 period before negotiation, deposit, or presentation of the
1-15 instrument for payment; and
1-16 (C) pays to the borrower, credits to the
1-17 borrower's account, or pays to another person on the borrower's
1-18 behalf the amount of the instrument, less finance charges permitted
1-19 by Section 342.604.
1-20 (2) "Instrument" means a personal check or
1-21 authorization to transfer or withdraw funds from an account of a
1-22 borrower made payable to a person subject to this subchapter.
1-23 (3) "Lender" means an authorized lender.
1-24 (4) "Renewal" means a transaction in which a borrower
1-25 pays in cash the finance charge payable under a deferred deposit
2-1 loan and refinances all or part of the loan amount of the deferred
2-2 deposit loan with a new deferred deposit loan.
2-3 (5) "Third-party provider" means a person who
2-4 transacts or negotiates deferred deposit loans by providing
2-5 services in cooperation with and for the benefit of a lender.
2-6 Sec. 342.602. WRITTEN AGREEMENT REQUIREMENTS. Each deferred
2-7 deposit loan transaction and renewal shall be documented by a
2-8 written agreement. The written agreement must:
2-9 (1) state the name of the borrower, the transaction
2-10 date, the amount of the instrument, and the total amount of finance
2-11 charges, expressed both as a dollar amount and as an annual
2-12 percentage rate;
2-13 (2) include all disclosures required by Section
2-14 342.603; and
2-15 (3) set a date, not later than the 31st day after the
2-16 loan transaction date, on which the instrument may be deposited,
2-17 negotiated, or presented for payment.
2-18 Sec. 342.603. NOTICE TO CONSUMERS. A lender shall provide
2-19 the following notice in a prominent place on each deferred deposit
2-20 loan agreement in at least 10-point type that is bold-faced,
2-21 capitalized, underlined, or otherwise conspicuously set out from
2-22 the surrounding written material:
2-23 "A deferred deposit loan is not intended to
2-24 meet long-term financial needs. This loan
2-25 should be used only to meet short-term cash
2-26 needs. Renewing the loan rather than paying
3-1 the debt in full when due will incur additional
3-2 finance charges."
3-3 Sec. 342.604. AUTHORIZED FINANCE CHARGE. A lender may
3-4 charge a finance charge not to exceed the finance charge authorized
3-5 in Subchapter F.
3-6 Sec. 342.605. MAXIMUM CASH ADVANCE-RIGHT TO RESCIND. (a) A
3-7 lender may not advance to a borrower an amount greater than $500.
3-8 (b) A borrower has the right to rescind the deferred deposit
3-9 loan not later than 5 p.m. on the next business day after the loan
3-10 transaction date.
3-11 (c) This chapter does not prohibit a lender from being a
3-12 party, with the same borrower at the same time, to a deferred
3-13 deposit loan and a loan authorized by this chapter other than a
3-14 deferred deposit loan.
3-15 Sec. 342.606. MINIMUM AND MAXIMUM TERM. A lender may not
3-16 engage in a deferred deposit loan with a term of less than seven or
3-17 more than 31 days.
3-18 Sec. 342.607. MAXIMUM OUTSTANDING TRANSACTIONS NOTICE. A
3-19 lender shall provide the following notice in a prominent place on
3-20 each deferred deposit loan agreement in at least 10-point type that
3-21 is bold-faced, capitalized, underlined, or otherwise conspicuously
3-22 set out from the surrounding written material:
3-23 "State law prohibits lenders from making
3-24 deferred deposit loans exceeding $500
3-25 outstanding to a debtor at any one time.
3-26 Exceeding this amount may create financial
4-1 hardships for you and your family. You have
4-2 the right to rescind this deferred deposit loan
4-3 not later than 5 p.m. the next business day
4-4 following this transaction."
4-5 Sec. 342.608. RENEWAL. (a) A deferred deposit loan
4-6 agreement must require that, before renewal of the loan, the
4-7 borrower must have paid all finance charges accrued to the time of
4-8 the renewal plus an amount equal to at least 10 percent of the
4-9 principal amount of the loan at the time the loan was made, in the
4-10 case of the first renewal, or at the time of the preceding renewal,
4-11 in the case of a subsequent renewal. The loan may be renewed
4-12 without payment of 10 percent of the applicable principal amount if
4-13 the finance charge on renewal is computed only on the principal
4-14 amount of the loan that would have remained unpaid if the borrower
4-15 had paid 10 percent of the applicable principal amount. A deferred
4-16 deposit loan may not be renewed more than three consecutive times.
4-17 After the last renewal, the borrower shall pay the debt in cash or
4-18 its equivalent. If the borrower does not pay the debt, the lender
4-19 may deposit, negotiate, or otherwise present for payment the
4-20 borrower's instrument.
4-21 (b) On renewal of a deferred deposit loan, the lender may
4-22 assess additional finance charges not to exceed $15 for every $100
4-23 advanced as authorized under Section 342.604. A lender may also
4-24 charge a pro rata finance charge for any incremental amount
4-25 advanced in excess of a multiple of $100.
4-26 (c) A transaction is completed when the lender presents the
5-1 instrument for payment or initiates an Automated Clearing House
5-2 (ACH) debit to the borrower's bank account to collect on the
5-3 instrument or when the borrower redeems the instrument by paying
5-4 the full amount of the instrument to the holder. The next business
5-5 day after the borrower has completed the deferred deposit loan
5-6 transaction, the lender may enter into a new deferred deposit loan
5-7 agreement with the borrower and the new transaction is not
5-8 considered a renewal of the previous transaction.
5-9 (d) A lender may refinance a deferred deposit loan without
5-10 limitation as to the number of refinancings as authorized by
5-11 Subchapter F.
5-12 Sec. 342.609. FORM OF LOAN PROCEEDS. A lender may pay the
5-13 proceeds from a deferred deposit loan to the borrower in the form
5-14 of a business instrument, a money order, or cash. The lender or
5-15 the lender's third-party provider may not charge an additional
5-16 finance charge or fee for cashing the lender's business instrument.
5-17 Sec. 342.610. ENDORSEMENT OF INSTRUMENT. A lender may not
5-18 negotiate or present an instrument for payment unless the
5-19 instrument is endorsed with the actual business name of the lender.
5-20 Sec. 342.611. REDEMPTION OF INSTRUMENT. Before the lender
5-21 negotiates or presents the instrument, the borrower has the right
5-22 to redeem any instrument held by the lender as a result of a
5-23 deferred deposit loan if the borrower pays the full amount of the
5-24 instrument to the lender.
5-25 Sec. 342.612. AUTHORIZED DISHONORED INSTRUMENT CHARGE. If
5-26 an instrument held by a lender as a result of a deferred deposit
6-1 loan is returned to the lender from a payor financial institution
6-2 due to insufficient funds, a closed account, or a stop-payment
6-3 order, the lender has the right to exercise all civil means
6-4 authorized by law to collect the face value of the instrument. In
6-5 addition, the lender may contract for and collect fees authorized
6-6 by Section 342.502. The lender may not collect any other fees as a
6-7 result of default. A returned instrument charge may not be
6-8 collected if the loan proceeds instrument is dishonored by the
6-9 financial institution or if the borrower places a stop-payment
6-10 order due to forgery or theft.
6-11 Sec. 342.613. POSTING OF CHARGES. A lender offering a
6-12 deferred deposit loan shall post at any place of business where
6-13 deferred deposit loans are made a notice of the charges imposed for
6-14 the deferred deposit loans.
6-15 Sec. 342.614. NOTICE ON ASSIGNMENT OR SALE OF INSTRUMENTS.
6-16 Before the sale or assignment of instruments held by a lender as a
6-17 result of a deferred deposit loan, the lender shall place a notice
6-18 on the instrument in at least 10-point type that is bold-faced,
6-19 capitalized, underlined, or otherwise conspicuously set out from
6-20 the surrounding written material to read:
6-21 "This is a deferred deposit loan instrument."
6-22 Sec. 342.615. RECORDS AND ANNUAL REPORTS. A lender shall
6-23 maintain records and file an annual report in accordance with
6-24 Sections 342.558 and 342.559.
6-25 Sec. 342.616. AUTHORITY TO CONDUCT DEFERRED DEPOSIT LOAN
6-26 BUSINESS. Only an authorized lender may lawfully engage in the
7-1 deferred deposit loan business. A licensed lender shall obtain and
7-2 maintain a separate license for each location where deferred
7-3 deposit loan business is conducted. A deferred deposit loan is a
7-4 loan subject to this chapter for purposes of the application of
7-5 Section 342.051.
7-6 Sec. 342.617. APPLICATION OF SUBCHAPTER TO THIRD-PARTY
7-7 PROVIDER. If deferred deposit loans are offered at the place of
7-8 business of a third-party provider:
7-9 (1) the third-party provider shall provide to the
7-10 commissioner a sample copy of the form of a written deferred
7-11 deposit loan agreement if the third-party provider participates in
7-12 the preparation, execution, delivery, or custody of the agreement,
7-13 and each time the form is modified the third-party provider shall
7-14 provide to the commissioner a copy of the modified form;
7-15 (2) the notice under Section 342.613 shall be posted
7-16 in the third-party provider's place of business;
7-17 (3) the third-party provider shall, through a
7-18 combination of the language in the written agreement required under
7-19 Section 342.602, the notice to be posted under Subdivision (2), or
7-20 other signs, notices, or information materials, make available to
7-21 loan applicants the name, address, and telephone number of the
7-22 lender making the deferred deposit loans; and
7-23 (4) the third-party provider shall comply with the
7-24 licensing provisions of this chapter.
7-25 Sec. 342.618. EXAMINATION AND INVESTIGATION. (a) A
7-26 licensed lender may be examined and investigated in accordance with
8-1 Section 342.552.
8-2 (b) The commissioner or the commissioner's representative
8-3 may, at the times the commissioner considers necessary, examine and
8-4 investigate a third-party provider's place of business to determine
8-5 the provider's compliance with this subchapter. The third-party
8-6 provider shall give the commissioner or the commissioner's
8-7 representative free access to its place of business for that
8-8 purpose. During an examination, the commissioner or the
8-9 commissioner's representative may administer oaths and examine any
8-10 person under oath on any subject pertinent to a matter that the
8-11 commissioner is authorized to consider, investigate, or secure
8-12 information about under this subchapter. A third-party provider
8-13 shall pay to the commissioner an amount assessed by the
8-14 commissioner to cover the direct and indirect cost of an
8-15 examination of the provider under this section.
8-16 Sec. 342.619. APPLICABILITY TO LENDER. Except as preempted
8-17 by federal law, all other applicable provisions of this subchapter
8-18 apply to a deferred deposit loan and a lender.
8-19 Sec. 342.620. APPLICABILITY OF PROVISIONS OF CHAPTER 341 AND
8-20 THIS CHAPTER. Chapter 341 and the other provisions of this chapter
8-21 apply to a lender unless those provisions are inconsistent with
8-22 this subchapter.
8-23 Sec. 342.621. CRIMINAL CULPABILITY. A borrower is not
8-24 subject to a criminal penalty for entering into a deferred deposit
8-25 loan agreement or in the event the instrument is dishonored, unless
8-26 the borrower violated Section 32.32, Penal Code.
9-1 Sec. 342.622. DECEPTIVE TRADE PRACTICE. A deferred deposit
9-2 loan made by a person other than a lender is a deceptive trade
9-3 practice actionable under Subchapter E, Chapter 17, Business &
9-4 Commerce Code.
9-5 Sec. 342.623. CONSIDERATION OF BORROWER'S ABILITY TO PAY.
9-6 When making or negotiating a deferred deposit loan, the lender
9-7 shall consider, in determining the size, duration, and schedule of
9-8 installments of the loan, the financial ability of the borrower to
9-9 repay the loan, and specifically evaluate whether the borrower will
9-10 be reasonably able to pay the loan in cash at the time and in the
9-11 manner provided in the deferred deposit loan agreement.
9-12 SECTION 2. This Act takes effect September 1, 2001, and
9-13 applies only to acts or omissions occurring on or after that date.