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                                  * * * * *