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.