78R3629 DWS-F
By: Madden H.B. No. 3100
A BILL TO BE ENTITLED
AN ACT
relating to a loan secured by personal property with limited
recourse against the borrower.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle B, Title 4, Finance Code, is amended by
adding Chapter 344 to read as follows:
CHAPTER 344. LIMITED RECOURSE SECURED LOAN
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 344.001. DEFINITIONS. In this chapter:
(1) "Limited recourse secured loan" means a loan of
money from a lender to a borrower in which the borrower:
(A) pledges a security interest in personal
property owned by the borrower to the lender; and
(B) has limited personal liability to repay the
lender as provided by this chapter.
(2) "Month" means any period of 30 consecutive days.
(3) "Monthly finance rate" means the rate of interest
a lender may charge on the outstanding principal balance of a
limited recourse secured loan during a month.
Sec. 344.002. APPLICABILITY OF OTHER LAW. (a) A provision
of this code other than this chapter applies to a limited recourse
secured loan only if this chapter specifically makes the provision
applicable.
(b) Chapter 14 applies to this chapter.
[Sections 344.003-344.050 reserved for expansion]
SUBCHAPTER B. LICENSE AND REGULATION
Sec. 344.051. LICENSE REQUIRED. (a) A lender must hold a
license issued under this chapter to engage in the business of
making, transacting, or negotiating limited recourse secured
loans.
(b) A lender may not use any device, subterfuge, or pretense
to evade the application of this section.
Sec. 344.052. ISSUANCE OF MORE THAN ONE LICENSE FOR A
LENDER. (a) The commissioner may issue more than one license to a
lender on compliance with this chapter for each license.
(b) A lender who is required to hold a license under this
chapter must hold a separate license for each office at which loans
are made, negotiated, serviced, held, or collected under this
chapter.
(c) A license is not required under this chapter for:
(1) a place of business devoted to accounting or other
recordkeeping; and
(2) a place of business at which loans are not made,
negotiated, serviced, held, or collected under this chapter.
[Sections 344.053–344.100 reserved for expansion]
SUBCHAPTER C. APPLICATION FOR AND ISSUANCE OF LICENSE
Sec. 344.101. APPLICATION REQUIREMENTS. (a) The
application for a license under this chapter must:
(1) be under oath;
(2) give the approximate location from which business
is to be conducted;
(3) identify the business's principal parties in
interest; and
(4) contain other relevant information that the
commissioner requires for the findings required under Section
344.104.
(b) On the filing of one or more license applications, the
applicant shall pay to the commissioner an investigation fee of
$200.
(c) On the filing of each license application, the applicant
shall pay to the commissioner for the license's year of issuance a
license fee in an amount determined as provided by Section 14.107.
Sec. 344.102. BOND. (a) If the commissioner requires, an
applicant for a license under this chapter shall file with the
application a bond that:
(1) is in an amount not to exceed the total of:
(A) $50,000 for the first license; and
(B) $10,000 for each additional license;
(2) is satisfactory to the commissioner; and
(3) is issued by a surety company qualified to do
business as a surety in this state.
(b) The bond must be in favor of this state for the use of
this state and the use of a person who has a cause of action under
this chapter against the license holder.
(c) The bond must be conditioned on:
(1) the license holder's faithful performance under
this chapter; and
(2) the payment of all amounts that become due to the
state or another person under this chapter during the calendar year
for which the bond is given.
(d) The aggregate liability of a surety to all persons
damaged by the license holder's violation of this chapter may not
exceed the amount of the bond.
Sec. 344.103. INVESTIGATION OF APPLICATION. On the filing
of an application and, if required, a bond, and on payment of the
required fees, the commissioner shall conduct an investigation to
determine whether to issue the license.
Sec. 344.104. APPROVAL OR DENIAL OF APPLICATION. (a) The
commissioner shall approve the application and issue to the
applicant a license to make loans under this chapter if the
commissioner finds that:
(1) the financial responsibility, experience,
character, and general fitness of the applicant are sufficient to:
(A) command the confidence of the public; and
(B) warrant the belief that the business will be
operated lawfully and fairly, within the purposes of this chapter;
and
(2) the applicant has net assets of at least $25,000
available for the operation of the business.
(b) If the commissioner does not find the eligibility
requirements of Subsection (a), the commissioner shall notify the
applicant.
(c) If an applicant requests a hearing on the application
not later than the 30th day after the date of notification under
Subsection (b), the applicant is entitled to a hearing not later
than the 60th day after the date of the request.
(d) The commissioner shall approve or deny the application
not later than the 60th day after the date of the filing of a
completed application with payment of the required fees or, if a
hearing is held, after the date of the completion of the hearing on
the application. The commissioner and the applicant may agree to a
later date in writing.
Sec. 344.105. DISPOSITION OF FEES ON DENIAL OF APPLICATION.
If the commissioner denies the application, the commissioner shall
retain the investigation fee and shall return to the applicant the
license fee submitted with the application.
[Sections 344.106-344.150 reserved for expansion]
SUBCHAPTER D. LICENSE
Sec. 344.151. NAME AND PLACE ON LICENSE. (a) A license
must state:
(1) the name of the license holder; and
(2) the address of the office from which the business
is to be conducted.
(b) A license holder may not conduct business under this
chapter under a name or at a place of business in this state other
than the name or office stated on the license.
Sec. 344.152. LICENSE DISPLAY. A license holder shall
display a license at the place of business provided on the license.
Sec. 344.153. MINIMUM ASSETS FOR LICENSE. A license holder
shall maintain for each office for which a license is held net
assets of at least $25,000 that are used or readily available for
use in conducting the business of that office.
Sec. 344.154. ANNUAL LICENSE FEE. Not later than December
1, a license holder shall pay to the commissioner for each license
held an annual fee for the year beginning the next January 1, in an
amount determined as provided by Section 14.107.
Sec. 344.155. EXPIRATION OF LICENSE ON FAILURE TO PAY
ANNUAL FEE. If the annual fee for a license is not paid before the
16th day after the date on which the written notice of delinquency
of payment has been given to the license holder, the license expires
on the later of:
(1) that day; or
(2) December 31 of the last year for which an annual
fee was paid.
Sec. 344.156. LICENSE SUSPENSION OR REVOCATION. After
notice and a hearing, the commissioner may suspend or revoke a
license if the commissioner finds that:
(1) the license holder failed to pay the annual
license fee, an examination fee, an investigation fee, or another
charge imposed by the commissioner under this chapter;
(2) the license holder, knowingly or without the
exercise of due care, violated this chapter or a rule adopted or
order issued under this chapter; or
(3) a fact or condition exists that, if it had existed
or had been known to exist at the time of the original application
for the license, clearly would have justified the commissioner's
denial of the application.
Sec. 344.157. CORPORATE CHARTER FORFEITURE. (a) A license
holder who violates this chapter is subject to revocation of the
holder's license and, if the license holder is a corporation,
forfeiture of its charter.
(b) When the attorney general is notified of a violation of
this chapter and revocation of a license, the attorney general
shall file suit in a district court in Travis County, if the license
holder is a corporation, for forfeiture of the license holder's
charter.
Sec. 344.158. LICENSE SUSPENSION OR REVOCATION FILED WITH
PUBLIC RECORDS. The decision of the commissioner on the suspension
or revocation of a license and the evidence considered by the
commissioner in making the decision shall be filed in the public
records of the commissioner.
Sec. 344.159. REINSTATEMENT OF SUSPENDED LICENSE; ISSUANCE
OF NEW LICENSE AFTER REVOCATION. The commissioner may reinstate a
suspended license or issue a new license on application to a person
whose license has been revoked if at the time of the reinstatement
or issuance no fact or condition exists that clearly would have
justified the commissioner's denial of an original application for
the license.
Sec. 344.160. SURRENDER OF LICENSE. A license holder may
surrender a license issued under this chapter by delivering to the
commissioner:
(1) the license; and
(2) a written notice of the license's surrender.
Sec. 344.161. EFFECT OF LICENSE SUSPENSION, REVOCATION, OR
SURRENDER. (a) The suspension, revocation, or surrender of a
license issued under this chapter does not affect the obligation of
a contract between the license holder and a borrower entered into
before the revocation, suspension, or surrender.
(b) Surrender of a license does not affect the license
holder's civil or criminal liability for an act committed before
surrender.
Sec. 344.162. MOVING AN OFFICE. (a) A license holder shall
give written notice to the commissioner before the 30th day
preceding the date the license holder moves an office from the
location provided on the license.
(b) The commissioner shall amend a license holder's license
accordingly.
Sec. 344.163. TRANSFER OR ASSIGNMENT OF LICENSE. A license
may be transferred or assigned only with the approval of the
commissioner.
[Sections 344.164-344.200 reserved for expansion]
SUBCHAPTER E. LOAN TERMS; DEFAULT
Sec. 344.201. PLEDGED PROPERTY. Personal property may be
used to secure a limited recourse secured loan only if the property
is currently owned by the borrower and is not encumbered by any
other outstanding encumbrance.
Sec. 344.202. POSSESSION BY BORROWER. A limited recourse
secured loan must allow the borrower to possess and use the pledged
property while the loan is outstanding.
Sec. 344.203. MINIMUM TERM AND MAXIMUM AMOUNT OF LOAN. (a)
A loan under this chapter may not have a term of less than 30 days.
(b) The maximum loan amount under this chapter is $5,000.
Sec. 344.204. MAXIMUM INTEREST RATES. (a) Notwithstanding
any statute to the contrary, a loan under this chapter may provide
for a rate of interest that does not exceed the following maximum
monthly finance rate:
(1) on a loan of $500 or less, a monthly finance rate
of 17 percent;
(2) on a loan that is more than $500 but not more than
$2,500, a monthly finance rate of 15 percent; and
(3) on a loan that is more than $2,500 but not more
than $5,000, a monthly finance rate of 13 percent.
(b) Interest shall be computed on a limited recourse secured
loan on a daily basis at the rate of 1/30th of the monthly finance
rate multiplied by the outstanding principal balance.
Sec. 344.205. PREPAYMENT. The borrower is entitled to
prepay any or all of the principal balance of a limited recourse
secured loan without penalty.
Sec. 344.206. AMOUNTS AUTHORIZED TO BE INCLUDED IN
CONTRACT. A contract for a loan under this chapter may include a
charge for:
(1) any fees actually paid to a government agency in
connection with the loan, including any fee charged to record the
lender's security interest in the pledged property; and
(2) fees for optional insurance or for an automobile
club membership under Chapter 722, Transportation Code, if the
insurance or club membership is not required by the lender as a
condition of the borrower obtaining a loan.
Sec. 344.207. SECURITY INTEREST AND REPOSSESSION. (a) The
lender may contract for a security interest in the pledged property
and record the interest pursuant to law applicable to the property.
(b) The lender may, on a default by the borrower and after
the waiting period provided by Section 344.208, take possession of
the pledged property:
(1) pursuant to judicial process; or
(2) without judicial process, if the lender proceeds
without breach of the peace.
(c) After repossession, the lender shall sell the pledged
property in a commercially reasonable manner. If there exists any
surplus from the sale after the lender deducts from the sale
proceeds the amount of principal and interest outstanding on the
loan plus any cost incurred as a result of the repossession and
sale, the surplus shall be returned to the borrower not later than
15 business days after the date of the sale.
Sec. 344.208. NOTICE AND WAITING PERIOD BEFORE
REPOSSESSION. (a) Before taking possession of pledged property
under Section 344.207, a lender shall send a notice to the borrower
notifying the borrower:
(1) of the existence of the default;
(2) that the borrower has 10 days to cure the default;
and
(3) of the action that must be taken to cure the
default.
(b) The lender may take possession of the pledged property
only if the borrower does not cure the default as stated in the
notice before the 11th day after the date of the notice.
Sec. 344.209. LIMITED RECOURSE. (a) A limited recourse
secured loan is made without personal recourse against the borrower
unless the borrower:
(1) engages in fraud against the lender in connection
with the loan;
(2) conceals a prior unreleased encumbrance on the
pledged property;
(3) encumbers the pledged property in violation of the
loan agreement after receiving the loan; or
(4) intentionally conceals or damages the pledged
property.
(b) If the borrower engages in an activity listed in
Subsection (a), the lender is entitled to pursue the borrower
personally for all outstanding principal and interest owed under
the loan.
Sec. 344.210. LIMITED RECOURSE SECURED LOAN
AGREEMENTS--REQUIRED DISCLOSURES. Each limited recourse secured
loan agreement must include:
(1) all disclosures required to be made under the
Truth in Lending Act (15 U.S.C. Section 1601 et seq.), as amended;
(2) a statement that the loan is a limited recourse
secured loan governed by this chapter; and
(3) the following disclosure, which must appear
conspicuously in at least 10-point boldfaced type above the
borrower's signature:
"THIS IS A SHORT-TERM, HIGHER-INTEREST LOAN. DO NOT BORROW
FROM THIS LENDER IF YOU CAN BORROW MONEY AT A LOWER INTEREST RATE.
DO NOT BORROW FROM THIS LENDER UNLESS YOU HAVE AN URGENT NEED FOR
CASH.
"YOU RISK THE LOSS OF THE PERSONAL PROPERTY PLEDGED AS
COLLATERAL FOR THIS LOAN IF YOU DO NOT PAY ACCORDING TO THE LOAN
AGREEMENT.
"YOU SHOULD PAY OFF THIS LOAN AS QUICKLY AS POSSIBLE TO AVOID
PAYING EXCESS INTEREST.
"YOU ARE NOT PERSONALLY LIABLE FOR ANY AMOUNT BORROWED IF YOU
DO NOT DAMAGE, CONCEAL, OR ENCUMBER THE PLEDGED PROPERTY OR DEFRAUD
THE LENDER. IF YOU DO NOT WISH TO REPAY THE LOAN OR CANNOT REPAY THE
LOAN YOU NEED ONLY SURRENDER THE PLEDGED PROPERTY TO THE LENDER. IF
YOU DO SURRENDER THE PROPERTY, THE LENDER CANNOT DEMAND ANY FURTHER
PAYMENTS.
"YOU HAVE THE RIGHT TO CANCEL THIS LOAN WITHOUT PAYING ANY
INTEREST BY REPAYING TO THE LENDER THE FULL PRINCIPAL AMOUNT
BORROWED NO LATER THAN THE CLOSE OF THE LENDER'S NEXT BUSINESS DAY
FOLLOWING THE DATE OF THIS AGREEMENT."
[Sections 344.211–344.250 reserved for expansion]
SUBCHAPTER F. PROHIBITED ACTS AND PENALTIES
Sec. 344.251. PROHIBITED ACTS. (a) A lender may not:
(1) enter into a limited recourse secured loan with a
borrower under 18 years of age;
(2) make a limited recourse secured loan giving the
lender any recourse against the borrower other than the rights
granted under this chapter;
(3) charge any interest or fee other than as permitted
by this chapter;
(4) make a limited recourse secured loan that does not
provide the borrower the right to rescind the loan without cost by
repaying the full principal amount borrowed by the close of the
lender's next business day after the loan was executed;
(5) threaten to use criminal process or use any other
unfair or deceptive practice in making or collecting a loan under
this chapter; or
(6) include any of the following in any limited
recourse secured loan agreement:
(A) a hold harmless clause, except that a lender
is not liable to the borrower or any other person for an injury or
damages sustained by the borrower or other person as a result of an
accident involving the pledged property still in the possession of
the borrower;
(B) a confession of judgment clause; or
(C) a waiver of any provision of this chapter.
(b) A lender who violates Subsection (a) forfeits all
interest contracted for on the limited recourse secured loan.
Sec. 344.252. PRIVATE REMEDY FOR UNDISCLOSED OR EXCESSIVE
CHARGES. (a) Any interest, fees, or charges collected that are
undisclosed or in excess of those allowed by this chapter may be
recovered by the borrower in an action at law or as otherwise agreed
between the parties. A borrower who prevails in an action at law is
entitled to reasonable attorney's fees and court costs.
(b) Before pursuing an action at law under Subsection (a),
the borrower shall provide the lender with a written notice of the
intended action by certified mail, return receipt requested. The
notice must specifically identify the interest, fees, or charges
that the borrower contends were undisclosed, incorrectly
disclosed, or excessive. If before the 31st day after the date of
receipt of the notice the lender tenders to the borrower the
excessive interest, fees, or charges, the tender is a defense to any
further proceedings.
[Sections 344.253-344.300 reserved for expansion]
SUBCHAPTER G. ADMINISTRATION OF CHAPTER
Sec. 344.301. ADOPTION OF RULES. (a) The finance
commission may adopt rules to enforce this chapter.
(b) The commissioner shall recommend proposed rules to the
finance commission.
(c) A rule shall be entered in a permanent book. The book is
a public record and shall be kept in the office of the commissioner.
Sec. 344.302. EXAMINATION OF LENDERS; ACCESS TO
RECORDS. (a) The commissioner or the commissioner's
representative shall, at the times the commissioner considers
necessary:
(1) examine each place of business of each lender
licensed under this chapter; and
(2) investigate the lender's transactions, including
loans, and records, including books, accounts, papers, and
correspondence, to the extent the transactions and records pertain
to the business regulated under this chapter.
(b) The lender shall:
(1) give the commissioner or the commissioner's
representative free access to the lender's office, place of
business, files, safes, and vaults; and
(2) allow the commissioner or the commissioner's
authorized representative to make a copy of an item that may be
investigated under Subsection (a)(2).
(c) During an examination the commissioner or the
commissioner's representative may administer oaths and examine any
person under oath on any subject pertinent to a matter that the
commissioner is authorized or required to consider, investigate, or
secure information about under this chapter.
(d) Information obtained under this section is
confidential.
(e) A lender's violation of Subsection (b) is a ground for
the suspension or revocation of the lender's license.
Sec. 344.303. GENERAL INVESTIGATION. To discover a
violation of this chapter or to obtain information required under
this chapter, the commissioner or the commissioner's
representative may investigate the records, including books,
accounts, papers, and correspondence, of a person, including a
lender, who the commissioner has reasonable cause to believe is
violating this chapter regardless of whether the person claims to
not be subject to this chapter.
Sec. 344.304. CERTIFICATE; CERTIFIED DOCUMENT. On
application by any person and on payment of any associated cost, the
commissioner shall furnish, under the commissioner's seal and
signed by the commissioner or an assistant of the commissioner:
(1) a certificate of good standing; or
(2) a certified copy of a license, rule, or order.
Sec. 344.305. TRANSCRIPT OF HEARING PUBLIC RECORD. The
transcript of a hearing held by the commissioner under this chapter
is a public record.
Sec. 344.306. APPOINTMENT OF AGENT. (a) A lender licensed
under this chapter shall maintain on file with the commissioner a
written appointment of a resident of this state as the lender's
agent for service of all judicial or other process or legal notice,
unless the lender has appointed an agent under another statute of
this state.
(b) If a lender does not comply with this section, service
of all judicial or other process or legal notice may be made on the
commissioner.
Sec. 344.307. PAYMENT OF EXAMINATION COSTS AND
ADMINISTRATION EXPENSES. A lender shall pay to the commissioner an
amount assessed by the commissioner to cover the direct and
indirect costs of an examination of the lender and a proportionate
share of general administrative expense.
Sec. 344.308. LENDER'S RECORDS. (a) A lender shall
maintain a record of each loan made under this chapter as is
necessary to enable the commissioner to determine whether the
lender is complying with this chapter.
(b) A lender shall keep the record and make it available at
the lender's principal place of business until the later of:
(l) the fourth anniversary of the date of the loan; or
(2) the second anniversary of the date on which the
final entry is made in the record.
(c) A record described by Subsection (a) must be prepared in
accordance with accepted accounting practices.
(d) The commissioner shall accept a lender's system of
records if the system discloses the information reasonably required
under Subsection (a).
(e) A lender shall keep each obligation signed by a borrower
at an office in this state designated by the lender unless the
obligation is transferred under an agreement that gives the
commissioner access to the obligation.
Sec. 344.309. ANNUAL REPORT. (a) Each year, not later
than May 1 or a later date set by the commissioner, a lender shall
file with the commissioner a report that contains relevant
information required by the commissioner concerning the lender's
business and operations during the preceding calendar year for each
office of the lender in this state in which business is conducted
under this chapter.
(b) A report under this section must be:
(1) under oath; and
(2) in the form prescribed by the commissioner.
(c) A report under this section is confidential.
(d) The commissioner shall annually prepare and publish a
consolidated analysis and recapitulation of reports filed under
this section.
SECTION 2. (a) This Act takes effect September 1, 2003.
(b) The requirement that a person hold a license under
Chapter 344, Finance Code, as added by this Act, applies only on and
after January 1, 2004.