1-1 By: Carona S.B. No. 471 1-2 (In the Senate - Filed January 30, 2001; January 31, 2001, 1-3 read first time and referred to Committee on Business and Commerce; 1-4 March 26, 2001, reported adversely, with favorable Committee 1-5 Substitute by the following vote: Yeas 5, Nays 1; March 26, 2001, 1-6 sent to printer.) 1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 471 By: Carona 1-8 A BILL TO BE ENTITLED 1-9 AN ACT 1-10 relating to deferred deposit loans. 1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-12 SECTION 1. Chapter 342, Finance Code, is amended by adding 1-13 Subchapter M to read as follows: 1-14 SUBCHAPTER M. DEFERRED DEPOSIT LOANS 1-15 Sec. 342.601. DEFINITIONS. In this subchapter: 1-16 (1) "Deferred deposit loan" means a transaction in 1-17 which a lender makes a cash advance to a borrower and, for a fee, 1-18 finance charge, or other consideration: 1-19 (A) accepts a dated instrument from the 1-20 borrower; 1-21 (B) agrees to hold the instrument for a stated 1-22 period before negotiation, deposit, or presentation of the 1-23 instrument for payment; and 1-24 (C) pays to the borrower, credits to the 1-25 borrower's account, or pays to another person on the borrower's 1-26 behalf the amount of the instrument, less finance charges permitted 1-27 by Section 342.604. 1-28 (2) "Instrument" means a personal check or 1-29 authorization to transfer or withdraw funds from an account signed 1-30 by a borrower and made payable to a person subject to this 1-31 subchapter. 1-32 (3) "Lender" means an authorized lender. 1-33 (4) "Renewal" means a transaction in which a borrower 1-34 pays in cash the finance charge payable under a deferred deposit 1-35 loan and refinances all or part of the loan amount of the deferred 1-36 deposit loan with a new deferred deposit loan. 1-37 (5) "Third-party provider" means a person who 1-38 transacts or negotiates deferred deposit loans by providing 1-39 services in cooperation with and for the benefit of a lender. 1-40 Sec. 342.602. WRITTEN AGREEMENT REQUIREMENTS. Each deferred 1-41 deposit loan transaction and renewal shall be documented by a 1-42 written agreement. The written agreement must: 1-43 (1) state the name of the borrower, the transaction 1-44 date, the amount of the instrument, and the total amount of finance 1-45 charges, expressed both as a dollar amount and as an annual 1-46 percentage rate; 1-47 (2) include all disclosures required by Section 1-48 342.603; and 1-49 (3) set a date, not later than the 31st day after the 1-50 loan transaction date, on which the instrument may be deposited, 1-51 negotiated, or presented for payment. 1-52 Sec. 342.603. NOTICE TO CONSUMERS. A lender shall provide 1-53 the following notice in a prominent place on each deferred deposit 1-54 loan agreement in at least 10-point type that is bold-faced, 1-55 capitalized, underlined, or otherwise conspicuously set out from 1-56 the surrounding written material: 1-57 "A deferred deposit loan is not intended to 1-58 meet long-term financial needs. This loan 1-59 should be used only to meet short-term cash 1-60 needs. Renewing the loan rather than paying 1-61 the debt in full when due will incur additional 1-62 finance charges." 1-63 Sec. 342.604. AUTHORIZED FINANCE CHARGE. Notwithstanding 1-64 any other provision of this chapter, a lender may charge for each 2-1 deferred deposit loan a finance charge not to exceed $15 for every 2-2 $100 advanced. A lender may also charge a pro rata finance charge 2-3 for any incremental amount advanced in excess of a multiple of 2-4 $100. The charge is considered fully earned as of the date of the 2-5 transaction. The lender may charge only charges expressly 2-6 authorized by this subchapter in connection with a deferred deposit 2-7 loan. 2-8 Sec. 342.605. MAXIMUM CASH ADVANCE-RIGHT TO RESCIND. (a) A 2-9 lender may not advance to a borrower an amount greater than $500. 2-10 (b) A borrower has the right to rescind the deferred deposit 2-11 loan not later than 5 p.m. on the next business day after the loan 2-12 transaction date. 2-13 (c) This chapter does not prohibit a lender from being a 2-14 party, with the same borrower at the same time, to a deferred 2-15 deposit loan and a loan authorized by this chapter other than a 2-16 deferred deposit loan. 2-17 Sec. 342.606. MINIMUM AND MAXIMUM TERM. A lender may not 2-18 engage in a deferred deposit loan with a term of less than seven or 2-19 more than 31 days. 2-20 Sec. 342.607. MAXIMUM OUTSTANDING TRANSACTIONS NOTICE. A 2-21 lender shall provide the following notice in a prominent place on 2-22 each deferred deposit loan agreement in at least 10-point type that 2-23 is bold-faced, capitalized, underlined, or otherwise conspicuously 2-24 set out from the surrounding written material: 2-25 "State law prohibits lenders from making 2-26 deferred deposit loans exceeding $500 2-27 outstanding to a debtor at any one time. 2-28 Exceeding this amount may create financial 2-29 hardships for you and your family. You have 2-30 the right to rescind this deferred deposit loan 2-31 not later than 5 p.m. the next business day 2-32 following this transaction." 2-33 Sec. 342.608. RENEWAL. (a) A deferred deposit loan may not 2-34 be renewed more than three consecutive times. After the last 2-35 renewal, the borrower shall pay the debt in cash or its equivalent. 2-36 If the borrower does not pay the debt, the lender may deposit, 2-37 negotiate, or otherwise present for payment the borrower's 2-38 instrument. 2-39 (b) On renewal of a deferred deposit loan, the lender may 2-40 assess additional finance charges not to exceed $15 for every $100 2-41 advanced as authorized under Section 342.604. A lender may also 2-42 charge a pro rata finance charge for any incremental amount 2-43 advanced in excess of a multiple of $100. 2-44 (c) A transaction is completed when the lender presents the 2-45 instrument for payment or initiates an Automated Clearing House 2-46 (ACH) debit to the borrower's bank account to collect on the 2-47 instrument or when the borrower redeems the instrument by paying 2-48 the full amount of the instrument to the holder. The next business 2-49 day after the borrower has completed the deferred deposit loan 2-50 transaction, the lender may enter into a new deferred deposit loan 2-51 agreement with the borrower and the new transaction is not 2-52 considered a renewal of the previous transaction. 2-53 (d) A lender may refinance a deferred deposit loan without 2-54 limitation as to the number of refinancings as authorized by 2-55 Subchapter F. 2-56 Sec. 342.609. FORM OF LOAN PROCEEDS. A lender may pay the 2-57 proceeds from a deferred deposit loan to the borrower in the form 2-58 of a business instrument, a money order, or cash. The lender or 2-59 the lender's third-party provider may not charge an additional 2-60 finance charge or fee for cashing the lender's business instrument. 2-61 Sec. 342.610. ENDORSEMENT OF INSTRUMENT. A lender may not 2-62 negotiate or present an instrument for payment unless the 2-63 instrument is endorsed with the actual business name of the lender. 2-64 Sec. 342.611. REDEMPTION OF INSTRUMENT. Before the lender 2-65 negotiates or presents the instrument, the borrower has the right 2-66 to redeem any instrument held by the lender as a result of a 2-67 deferred deposit loan if the borrower pays the full amount of the 2-68 instrument to the lender. 2-69 Sec. 342.612. AUTHORIZED DISHONORED INSTRUMENT CHARGE. If 3-1 an instrument held by a lender as a result of a deferred deposit 3-2 loan is returned to the lender from a payor financial institution 3-3 due to insufficient funds, a closed account, or a stop-payment 3-4 order, the lender has the right to exercise all civil means 3-5 authorized by law to collect the face value of the instrument. In 3-6 addition, the lender may contract for and collect fees authorized 3-7 by Section 342.502. The lender may not collect any other fees as a 3-8 result of default. A returned instrument charge may not be 3-9 collected if the loan proceeds instrument is dishonored by the 3-10 financial institution or if the borrower places a stop-payment 3-11 order due to forgery or theft. 3-12 Sec. 342.613. POSTING OF CHARGES. A lender offering a 3-13 deferred deposit loan shall post at any place of business where 3-14 deferred deposit loans are made a notice of the charges imposed for 3-15 the deferred deposit loans. 3-16 Sec. 342.614. NOTICE ON ASSIGNMENT OR SALE OF INSTRUMENTS. 3-17 Before the sale or assignment of instruments held by a lender as a 3-18 result of a deferred deposit loan, the lender shall place a notice 3-19 on the instrument in at least 10-point type that is bold-faced, 3-20 capitalized, underlined, or otherwise conspicuously set out from 3-21 the surrounding written material to read: 3-22 "This is a deferred deposit loan instrument." 3-23 Sec. 342.615. RECORDS AND ANNUAL REPORTS. A lender shall 3-24 maintain records and file an annual report in accordance with 3-25 Sections 342.558 and 342.559. 3-26 Sec. 342.616. AUTHORITY TO CONDUCT DEFERRED DEPOSIT LOAN 3-27 BUSINESS. Only an authorized lender may lawfully engage in the 3-28 deferred deposit loan business. A licensed lender shall obtain and 3-29 maintain a separate license for each location where deferred 3-30 deposit loan business is conducted. A deferred deposit loan is a 3-31 loan subject to this chapter for purposes of the application of 3-32 Section 342.051. 3-33 Sec. 342.617. APPLICATION OF SUBCHAPTER TO THIRD-PARTY 3-34 PROVIDER. If deferred deposit loans are offered at the place of 3-35 business of a third-party provider: 3-36 (1) the third-party provider shall provide to the 3-37 commissioner a sample copy of the form of a written deferred 3-38 deposit loan agreement if the third-party provider participates in 3-39 the preparation, execution, delivery, or custody of the agreement, 3-40 and each time the form is modified the third-party provider shall 3-41 provide to the commissioner a copy of the modified form; 3-42 (2) the notice under Section 342.613 shall be posted 3-43 in the third-party provider's place of business; 3-44 (3) the third-party provider shall, through a 3-45 combination of the language in the written agreement required under 3-46 Section 342.602, the notice to be posted under Subdivision (2), or 3-47 other signs, notices, or information materials, make available to 3-48 loan applicants the name, address, and telephone number of the 3-49 lender making the deferred deposit loans; and 3-50 (4) the third-party provider shall comply with the 3-51 licensing provisions of this chapter. 3-52 Sec. 342.618. EXAMINATION AND INVESTIGATION. (a) A 3-53 licensed lender may be examined and investigated in accordance with 3-54 Section 342.552. 3-55 (b) The commissioner or the commissioner's representative 3-56 may, at the times the commissioner considers necessary, examine and 3-57 investigate a third-party provider's place of business to determine 3-58 the provider's compliance with this subchapter. The third-party 3-59 provider shall give the commissioner or the commissioner's 3-60 representative free access to its place of business for that 3-61 purpose. During an examination, the commissioner or the 3-62 commissioner's representative may administer oaths and examine any 3-63 person under oath on any subject pertinent to a matter that the 3-64 commissioner is authorized to consider, investigate, or secure 3-65 information about under this subchapter. A third-party provider 3-66 shall pay to the commissioner an amount assessed by the 3-67 commissioner to cover the direct and indirect cost of an 3-68 examination of the provider under this section. 3-69 Sec. 342.619. APPLICABILITY TO LENDER. Except as preempted 4-1 by federal law, all other applicable provisions of this subchapter 4-2 apply to a deferred deposit loan and a lender. 4-3 Sec. 342.620. APPLICABILITY OF PROVISIONS OF CHAPTER 341 AND 4-4 THIS CHAPTER. Chapter 341 and the other provisions of this chapter 4-5 apply to a lender unless those provisions are inconsistent with 4-6 this subchapter. 4-7 Sec. 342.621. CRIMINAL CULPABILITY. A borrower is not 4-8 subject to a criminal penalty for entering into a deferred deposit 4-9 loan agreement or in the event the instrument is dishonored, unless 4-10 the borrower violated Section 32.32, Penal Code. 4-11 Sec. 342.622. DECEPTIVE TRADE PRACTICE. A deferred deposit 4-12 loan made by a person other than a lender is a deceptive trade 4-13 practice actionable under Subchapter E, Chapter 17, Business & 4-14 Commerce Code. 4-15 SECTION 2. This Act takes effect September 1, 2001, and 4-16 applies only to acts or omissions occurring on or after that date. 4-17 * * * * *