By: Carona S.B. No. 471
2001S0200/2
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. As used in this subchapter,
1-8 unless the context otherwise requires:
1-9 (1) "Deferred deposit loan" means a transaction in
1-10 which a lender makes a cash advance to a borrower and, for a fee,
1-11 finance charge, or other consideration:
1-12 (A) accepts a dated instrument from the
1-13 borrower;
1-14 (B) agrees to hold the instrument for a stated
1-15 period before negotiation, deposit, or presentation of the
1-16 instrument for payment; and
1-17 (C) pays to the borrower, credits to the
1-18 borrower's account, or pays to another person on the borrower's
1-19 behalf the amount of the instrument, less finance charges permitted
1-20 by Section 342.604.
1-21 (2) "Instrument" means a personal check or
1-22 authorization to transfer or withdraw funds from an account signed
1-23 by a borrower and made payable to a person subject to this
1-24 subchapter.
1-25 (3) "Lender" means any person who offers or makes
2-1 deferred deposit loans.
2-2 (4) "Loan amount" means the "amount financed" as
2-3 defined in Regulation Z, 12 C.F.R. Part 226 18(b).
2-4 (5) "Renewal" means a transaction in which a borrower
2-5 pays in cash the finance charge payable under a deferred deposit
2-6 loan and refinances all or part of the loan amount of the deferred
2-7 deposit loan with a new deferred deposit loan.
2-8 Sec. 342.602. WRITTEN AGREEMENT REQUIREMENTS. Each deferred
2-9 deposit loan transaction and renewal shall be documented by a
2-10 written agreement. The written agreement shall contain the name of
2-11 the borrower, the transaction date, the amount of the instrument,
2-12 and a statement of the total amount of finance charges, expressed
2-13 both as a dollar amount and as an annual percentage rate. The
2-14 written agreement shall include all disclosures required by Section
2-15 342.603. The written agreement shall set a date, not more than 31
2-16 days after the loan transaction date, on which the instrument may
2-17 be deposited, 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:
2-21 "A deferred deposit loan is not intended to
2-22 meet long-term financial needs. This loan
2-23 should be used only to meet short-term cash
2-24 needs. Renewing the loan rather than paying
2-25 the debt in full when due will incur additional
2-26 finance charges."
3-1 Sec. 342.604. AUTHORIZED FINANCE CHARGE. Notwithstanding
3-2 any other provision of this chapter, a lender may charge for each
3-3 deferred deposit loan a finance charge not to exceed $15 for every
3-4 $100 advanced. The charge shall be deemed fully earned as of the
3-5 date of the transaction. The lender may charge only those charges
3-6 expressly authorized in this subchapter in connection with a
3-7 deferred deposit loan.
3-8 Sec. 342.605. MAXIMUM LOAN AMOUNT-RIGHT TO RESCIND. (a) A
3-9 lender shall not advance to a borrower a loan amount greater than
3-10 $500.
3-11 (b) A borrower shall have the right to rescind the deferred
3-12 deposit loan no later than 5 p.m. on the next business day
3-13 following the deferred deposit loan transaction.
3-14 Sec. 342.606. MAXIMUM TERM. A lender may not engage in
3-15 making a deferred deposit loan with a term of more than 31 days.
3-16 Sec. 342.607. MAXIMUM OUTSTANDING TRANSACTIONS NOTICE. A
3-17 lender shall provide the following notice in a prominent place on
3-18 each deferred deposit agreement in at least 10-point type:
3-19 "State law prohibits lenders from making
3-20 deferred deposit loans exceeding $500
3-21 outstanding to a debtor at any one time.
3-22 Exceeding this amount may create financial
3-23 hardships for you and your family. You have
3-24 the right to rescind this deferred deposit loan
3-25 no later than 5 p.m. the next business day
3-26 following this transaction."
4-1 Sec. 342.608. RENEWAL. (a) A deferred deposit loan may not
4-2 be renewed more than three consecutive times. After the last such
4-3 renewal, the borrower shall pay the debt in cash or its equivalent.
4-4 If the borrower does not pay the debt, the lender may deposit,
4-5 negotiate, or otherwise present for payment the borrower's
4-6 instrument.
4-7 (b) On renewal of a deferred deposit loan, the lender may
4-8 assess additional finance charges not to exceed $15 for every $100
4-9 advanced as authorized under Section 342.604.
4-10 (c) A transaction is completed when the lender presents the
4-11 instrument for payment or initiates an Automated Clearing House
4-12 (ACH) debit to the borrower's bank account to collect on the
4-13 instrument or when the borrower redeems the instrument by paying
4-14 the full amount of the instrument to the holder. After the
4-15 borrower has completed the deferred deposit loan transaction, the
4-16 lender may enter into a new deferred deposit loan agreement with
4-17 the borrower and the new transaction shall not be deemed a renewal
4-18 of the previous transaction.
4-19 (d) Nothing in this section prohibits a lender from
4-20 refinancing a deferred deposit loan without limitation as to the
4-21 number of refinancings if the total amount of the charges would not
4-22 exceed the total amount authorized by Section 342.252, taking into
4-23 account the amount of the cash advance and the time the cash
4-24 advance is outstanding.
4-25 Sec. 342.609. FORM OF LOAN PROCEEDS. A lender may pay the
4-26 proceeds from a deferred deposit loan to the borrower in the form
5-1 of a business instrument, a money order, or cash. The borrower
5-2 shall not be charged an additional finance charge or fee for
5-3 cashing the lender's business instrument.
5-4 Sec. 342.610. ENDORSEMENT OF INSTRUMENT. A lender may not
5-5 negotiate or present an instrument for payment unless the
5-6 instrument is endorsed with the actual business name of the lender.
5-7 Sec. 342.611. REDEMPTION OF INSTRUMENT. Prior to the
5-8 lender's negotiating or presenting the instrument, the borrower
5-9 shall have the right to redeem any instrument held by the lender as
5-10 a result of a deferred deposit loan if the borrower pays the full
5-11 amount of the instrument to the lender.
5-12 Sec. 342.612. AUTHORIZED DISHONORED INSTRUMENT CHARGE. If
5-13 an instrument held by a lender as a result of a deferred deposit
5-14 loan is returned to the lender from a payor financial institution
5-15 due to insufficient funds, a closed account, or a stop-payment
5-16 order, the lender shall have the right to exercise all civil means
5-17 authorized by law to collect the face value of the instrument. In
5-18 addition, the lender may contract for and collect a returned
5-19 instrument charge, not to exceed $25, plus court costs and
5-20 reasonable attorney's fees as awarded by a court and incurred as a
5-21 result of the default. Such attorney's fees shall not exceed the
5-22 loan amount. The lender may not collect any other fees as a result
5-23 of default. A returned instrument charge shall not be allowed if
5-24 the loan proceeds instrument is dishonored by the financial
5-25 institution or if the borrower places a stop-payment order due to
5-26 forgery or theft.
6-1 Sec. 342.613. POSTING OF CHARGES. A lender offering a
6-2 deferred deposit loan shall post at any place of business where
6-3 deferred deposit loans are made a notice of the charges imposed for
6-4 the deferred deposit loans.
6-5 Sec. 342.614. NOTICE ON ASSIGNMENT OR SALE OF INSTRUMENTS.
6-6 Prior to the sale or assignment of instruments held by a lender as
6-7 a result of a deferred deposit loan, the lender shall place a
6-8 notice on the instrument in at least 10-point type to read:
6-9 "This is a deferred deposit loan instrument."
6-10 Sec. 342.615. RECORDS AND ANNUAL REPORTS. A lender shall
6-11 maintain records and file an annual report in accordance with
6-12 Sections 342.558 and 342.559.
6-13 Sec. 342.616. AUTHORITY TO CONDUCT DEFERRED DEPOSIT LOAN
6-14 BUSINESS. Only an authorized lender may lawfully engage in the
6-15 deferred deposit loan business. A licensed lender shall be
6-16 required to obtain and maintain a separate license for each
6-17 location where deferred deposit loan business is conducted.
6-18 Deferred deposit loans are deemed to be loans subject to this
6-19 chapter for purposes of the application of Section 342.051.
6-20 Sec. 342.617. EXAMINATION AND INVESTIGATION. A licensed
6-21 lender may be examined and investigated in accordance with Section
6-22 342.552.
6-23 Sec. 342.618. DISCIPLINARY ACTION. If the commissioner
6-24 finds that a lender has violated any provisions of this subchapter,
6-25 the commissioner shall notify the lender of the violations and the
6-26 actions the lender must take to cure the violations. The
7-1 commissioner shall allow the lender 30 days to cure the violations
7-2 before taking disciplinary action. If the commissioner determines
7-3 that the lender has taken the actions contained in the notice, the
7-4 lender shall not be subject to disciplinary action for the
7-5 violations that have been cured unless the lender is found to have
7-6 knowingly committed the violations.
7-7 Sec. 342.619. APPLICABILITY TO LENDER. Notwithstanding that
7-8 a bank, savings association, or credit union may be exempted by
7-9 federal law from this subchapter's interest and finance charge and
7-10 licensure provisions, all other applicable provisions of this
7-11 subchapter apply to both a deferred deposit loan and a lender.
7-12 Sec. 342.620. APPLICABILITY OF PROVISIONS OF CHAPTER 341 AND
7-13 THIS CHAPTER. The provisions of Chapter 341 and other provisions
7-14 of this chapter apply to a lender unless those provisions are
7-15 inconsistent with this subchapter.
7-16 Sec. 342.621. CRIMINAL CULPABILITY. A borrower shall not be
7-17 subject to any criminal penalty for entering into a deferred
7-18 deposit loan agreement. A borrower shall not be subject to any
7-19 criminal penalty in the event the instrument is dishonored, unless
7-20 the borrower violated Section 32.32, Penal Code.
7-21 SECTION 2. This Act takes effect September 1, 2001, and
7-22 applies only to acts or omissions occurring on or after that date.