By:  Van de Putte                                                 S.B. No. 1211


A BILL TO BE ENTITLED

AN ACT

relating to collateral protection insurance.                                  
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:                        
	SECTION 1.  Section 307.051, Finance Code, is amended by 
amending Subsection (e) and adding Subsection (e-1) to read as 
follows:
	(e)  A premium for collateral protection insurance covering 
collateral other than real property may not be based on an amount 
that exceeds the actual amount of unpaid indebtedness of the debtor 
as of the effective date of the policy.  This condition applies 
without regard to whether the coverage under the policy limits the 
insurer's liability to:
		(1)  the amount of unpaid debt;                                               
		(2)  the cash value of the collateral; or                                     
		(3)  the cost of repair of the collateral.                                    
	(e-1)  With respect to collateral protection insurance 
covering real property, a creditor, at the creditor's option, may 
obtain insurance that will cover either the replacement cost of 
improvements or the amount of unpaid indebtedness, subject to 
policy limits.  The debtor shall be obligated to reimburse the 
creditor for the premium, interest, and any other charges incurred 
by the creditor in connection with the placement of the insurance.  
The creditor may use the previous evidence of insurance coverage 
furnished by the debtor to determine the sufficient level of 
replacement cost coverage to be provided.
	SECTION 2.  Subsections (a) and (b), Section 307.052, 
Finance Code, are amended to read as follows:
	(a)  A creditor who requires collateral protection insurance 
that is paid for directly or indirectly by a debtor may place 
collateral protection insurance if:
		(1)  the debtor has entered into a credit transaction 
with the creditor for which a credit agreement exists;
		(2)  the credit agreement requires the debtor to 
maintain insurance on the collateral; and
		(3)  a notice has been included in the credit agreement 
or a separate document provided to the debtor at the time the credit 
agreement is executed that states that:
			(A)  the debtor is required to:                                              
				(i)  keep the collateral insured against 
damage in the amount the creditor specifies [equal to the debtor's 
indebtedness to the creditor];
				(ii)  purchase the insurance from an insurer 
that is authorized to do business in this state or an eligible 
surplus lines insurer; and
				(iii)  name the creditor as the person to be 
paid under the policy in the event of a loss;
			(B)  the debtor must, if required by the creditor, 
deliver to the creditor a copy of the policy and proof of the 
payment of premiums; and
			(C)  if the debtor fails to meet any requirement 
listed in Paragraph (A) or (B), the creditor may obtain collateral 
protection insurance on behalf of the debtor at the debtor's 
expense.
	(b)  Not later than the 31st day after the date the 
collateral protection insurance is charged to the debtor, the 
creditor, by prepaid, first class mail, shall mail to each debtor at 
the last known address on file with the creditor a notice that 
states:
		(1)  that the creditor has purchased or will purchase 
collateral protection insurance on behalf of the debtor and at the 
debtor's expense as provided by the credit agreement;
		(2)  the type of insurance that the creditor has 
obtained or will obtain, the extent of the coverage, and whose 
interest the policy protects;
		(3)  the beginning and ending dates of the policy 
period;                   
		(4)  the total cost of the policy to the debtor;                              
		(5)  the annual interest rate charged on the cost of 
insurance if that rate is different from the rate charged in the 
related credit transaction;
		(6)  the manner in which the debtor may pay the cost of 
insurance, interest, or finance charge relating to the purchase of 
the collateral protection insurance; [and]
		(7)  at the option of the creditor, other repayment 
options to which the debtor has agreed in the original credit 
transaction; and
		(8)  if collateral protection insurance covering real 
property is obtained under Section 307.051(e-1):
			(A)  that coverage may be available to the debtor 
through the Texas FAIR plan at a lower cost; and
			(B)  contact information about the Texas FAIR 
plan.                 
	SECTION 3.  The change in law made by this Act applies only 
to a credit agreement entered into on or after the effective date of 
this Act.  A credit agreement entered into before the effective date 
of this Act is governed by the law in effect when the credit 
agreement was entered into, and the former law is continued in 
effect for that purpose.
	SECTION 4.  This Act takes effect immediately if it receives 
a vote of two-thirds of all the members elected to each house, as 
provided by Section 39, Article III, Texas Constitution.  If this 
Act does not receive the vote necessary for immediate effect, this 
Act takes effect September 1, 2003.