79R11417 ATP-F


By:  Flynn, Madden, Eissler, et al.                               H.B. No. 846

Substitute the following for H.B. No. 846:                                    

By:  Flynn                                                    C.S.H.B. No. 846


A BILL TO BE ENTITLED
AN ACT
relating to the regulation of deferred presentment transactions and lenders for deferred presentment transactions. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: SECTION 1. Section 342.104, Finance Code, is amended by amending Subsection (a) and adding Subsection (e) to read as follows: (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 $150,000 [$25,000] available for the operation of the business, except as provided by Subsection (e). (e) An applicant is not required to have total net assets of more than $2.5 million available for the operation of all offices at which the applicant engages in deferred presentment transactions. SECTION 2. Section 342.153, Finance Code, is amended by amending Subsection (a) and adding Subsection (e) to read as follows: (a) Except as provided by Subsection (b), [or] (c), or (e), a license holder shall maintain for each office for which a license is held net assets of at least $150,000 [$25,000] that are used or readily available for use in conducting the business of that office. (e) A license holder is not required to have total net assets of more than $2.5 million that are used or readily available for use in conducting the business of all offices at which the applicant engages in deferred presentment transactions. SECTION 3. Chapter 342, Finance Code, is amended by adding Subchapter M to read as follows:
SUBCHAPTER M. DEFERRED PRESENTMENT TRANSACTIONS
Sec. 342.601. DEFINITIONS. In this subchapter: (1) "Consecutive transaction" means a transaction between a borrower and a lender in which the borrower: (A) pays in cash the finance charge payable under a deferred presentment transaction with the lender and engages in a new deferred presentment transaction with the lender before the end of the same business day; or (B) refinances all or part of the finance charges and advance of the deferred presentment transaction with a new deferred presentment transaction with the lender before the end of the same business day. (2) "Instrument" means a personal check or authorization to transfer or withdraw funds from an account of a borrower made payable to a person subject to this subchapter. (3) "Lender" means a lender licensed under this chapter. (4) "Third-party provider" means a person who transacts or negotiates a deferred presentment transaction by providing services in cooperation with and for the benefit of a lender. Sec. 342.602. WRITTEN AGREEMENT REQUIREMENTS. Each deferred presentment transaction shall be documented by a written agreement. The written agreement must: (1) state the name of the borrower, the transaction date, the amount of the instrument, and the total amount of finance charges, expressed both as a dollar amount and as an annual percentage rate; (2) specify the amount of the insufficient funds fee that the lender may charge the borrower under Section 342.617 for a returned instrument; (3) include all disclosures required by Section 342.604; and (4) set a date, not later than the 45th day after the transaction date, on which the instrument may be deposited, negotiated, or presented for payment. Sec. 342.603. FILING OF FORM. A lender shall comply with Section 341.502 regarding the form of the loan contract. Sec. 342.604. NOTICE TO CONSUMERS. A lender shall provide the following notice in a prominent place on each deferred presentment transaction agreement in at least 12-point type that is boldfaced, capitalized, underlined, or otherwise conspicuously set out from the surrounding written material: "A deferred presentment transaction is not intended to meet long-term financial needs. This money should be used only to meet short-term cash needs. Renewing or refinancing the transaction rather than paying the debt in full when due will incur additional finance charges." Sec. 342.605. AUTHORIZED FINANCE CHARGE. A deferred presentment transaction may provide for a finance charge not to exceed $15 for every $100 advanced. A deferred presentment transaction may also provide for a pro rata finance charge for any incremental amount advanced in excess of a multiple of $100. The charge is considered fully earned as of the date of the transaction. The lender may assess only charges expressly authorized by this subchapter in connection with a deferred presentment transaction. Sec. 342.606. MAXIMUM CASH ADVANCE--RIGHT TO RESCIND. (a) A lender may not advance to a borrower an amount greater than $1,000. (b) A borrower has the right to rescind the deferred presentment transaction not later than 5 p.m. on the next business day after the transaction date. (c) This chapter does not prohibit a lender from being a party, with the same borrower at the same time, to a deferred presentment transaction and a loan authorized by this chapter other than a deferred presentment transaction. Sec. 342.607. MINIMUM AND MAXIMUM TERM. A lender may not engage in a deferred presentment transaction with a term of less than seven or more than 45 days. Sec. 342.608. MAXIMUM OUTSTANDING TRANSACTIONS NOTICE. A lender shall provide the following notice in a prominent place on each deferred presentment transaction agreement in at least 12-point type that is boldfaced, capitalized, underlined, or otherwise conspicuously set out from the surrounding written material: "State law prohibits lenders from making deferred presentment transactions exceeding $1,000 outstanding to a debtor at any one time. Exceeding this amount may create financial hardships for you and your family. You have the right to rescind this deferred presentment transaction not later than 5 p.m. the next business day following this transaction." Sec. 342.609. CONSECUTIVE TRANSACTIONS. A lender may not enter into more than two consecutive transactions following an initial deferred presentment transaction. Each consecutive transaction requires a 10 percent reduction in the principal amount of the debt. Sec. 342.610. MULTIPLE DEFERRED PRESENTMENT TRANSACTIONS. (a) On receiving an application for a deferred presentment transaction, the lender shall determine if the applicant has any outstanding deferred presentment transactions by: (1) requiring the applicant to sign an affidavit stating whether the applicant has any deferred presentment transactions outstanding with the lender or another deferred presentment lender and the status of each loan; and (2) verifying the accuracy of the affidavit through commercially reasonable means. (b) If a lender determines that an applicant has one or more outstanding deferred presentment transactions in which the amounts advanced equal or exceed $1,000, the lender may not enter into the deferred presentment transaction being applied for. (c) A lender's method of verifying the accuracy of an applicant's affidavit complies with Subsection (a) if the verification method includes a manual investigation or an electronic query of the lender's own records, including records maintained at the location where the loan is being applied for and records maintained at other locations that are owned and operated by the lender or the lender's affiliates. Sec. 342.611. COMPLETION OF DEFERRED PRESENTMENT TRANSACTION. A deferred presentment transaction is completed when: (1) the lender presents the instrument for payment or initiates an Automated Clearing House (ACH) debit to the borrower's bank account to collect on the instrument; or (2) the borrower redeems the instrument by paying the full amount of the instrument to the lender. Sec. 342.612. REQUIRED INFORMATION ON SUBSEQUENT TRANSACTIONS. (a) At the time a borrower enters into a second consecutive deferred presentment transaction with a lender, the lender shall furnish to the borrower: (1) reference information on one or more consumer credit counseling agencies or services; and (2) any materials furnished to the lender by the commissioner if the commissioner furnishes the lender with educational materials on consumer credit counseling for the purpose of making the materials available to borrowers. (b) If a borrower enters into a second consecutive deferred presentment transaction with a lender, the lender shall provide the borrower an option to repay the loan under a written repayment plan. The borrower must request the repayment plan in writing before the date the borrower must repay the loan. The terms of the repayment plan must be conspicuously disclosed to the borrower at the time of the second consecutive transaction and shall require the borrower to: (1) repay the loan in a minimum of four equal installments, with one installment due on each of the next succeeding dates on which the borrower receives regular wages, compensation, or other income; (2) pay a processing fee for administration of the payment plan of 10 percent of the amount of the advance for each deferred presentment transaction, not to exceed $20; and (3) agree to not enter into an additional deferred presentment transaction during the repayment plan term. Sec. 342.613. FORM OF ADVANCE. A lender may pay the advance from a deferred presentment transaction to the borrower in the form of a business instrument, a money order, or cash, or in another available form chosen by the borrower. The lender or the lender's third-party provider may not charge an additional finance charge or fee for cashing the lender's business instrument. Sec. 342.614. ENDORSEMENT OF INSTRUMENT. A lender may not negotiate or present an instrument for payment unless the instrument is endorsed with the actual business name of the lender. Sec. 342.615. MULTIPLE INSTRUMENTS PROHIBITED. A lender may not accept more than one personal check in exchange for the advance under a deferred presentment transaction. Sec. 342.616. REDEMPTION OF INSTRUMENT. Before the lender negotiates or presents the instrument, the borrower has the right to redeem any instrument held by the lender as a result of a deferred presentment transaction if the borrower pays the full amount of the instrument to the lender. Sec. 342.617. AUTHORIZED DISHONORED INSTRUMENT CHARGE. If an instrument held by a lender as a result of a deferred presentment transaction is returned to the lender from a payor financial institution due to insufficient funds, a closed account, or a stop-payment order, the lender has the right to exercise all civil means authorized by law to collect the face value of the instrument. In addition, the lender may assess and collect an insufficient funds fee not to exceed $20. The lender may not collect any other fees as a result of default. A lender may charge only one insufficient funds fee for each deferred presentment transaction in which the presented instrument is returned unpaid. Sec. 342.618. POSTING OF CHARGES. A lender offering a deferred presentment transaction shall post at any place of business where a deferred presentment transaction is made a notice of the charges assessed for a deferred presentment transaction, including an insufficient funds fee charged under Section 342.617. Sec. 342.619. NOTICE ON ASSIGNMENT OR SALE OF INSTRUMENTS. Before the sale or assignment of instruments held by a lender as a result of a deferred presentment transaction, the lender shall place a notice on the instrument in at least 12-point type that is boldfaced, capitalized, underlined, or otherwise conspicuously set out from the surrounding written material to read: "This is a deferred presentment transaction instrument." Sec. 342.620. RECORDS. A lender shall maintain records in accordance with Section 342.558. Sec. 342.621. ANNUAL REPORT. (a) A lender shall file an annual report with the commissioner on a form prescribed by the commissioner that states for the preceding calendar year in detail and under appropriate headings: (1) the assets and liabilities of the lender at the beginning and end of the year; (2) the lender's income, expense, gain, and loss, a reconciliation of surplus or net worth with the balance sheets, and the ratios of the profits to the assets reported; (3) the total number of deferred presentment transactions made; (4) the total number of outstanding deferred presentment transactions; (5) the minimum, maximum, and average dollar amount of the instruments whose presentments were deferred; (6) the average number of days the presentment of an instrument was deferred; (7) the total number and dollar amount of: (A) returned checks and debit authorizations; (B) transactions in which the face value of the instrument was recovered by the lender; and (C) instruments charged off on the accounting records of the lender; and (8) a statement that the lender has not used criminal process or caused criminal process to be used to collect payment on a deferred presentment transaction. (b) The commissioner shall set a date by which the reports must be filed. (c) A lender shall file each report under this section under oath. (d) Annually the commissioner shall prepare a consolidated analysis and recapitulation of reports filed under this section and shall provide the consolidated analysis and recapitulation to the legislature and the governor. (e) The consolidated analysis and recapitulation of reports are public information. The reports under this section are confidential and privileged information of the lender and are not subject to disclosure provisions under Chapter 552, Government Code. The commissioner shall ensure that the consolidated analysis and recapitulation of reports contain only aggregate data and not data specific to a lender. Sec. 342.622. AUTHORITY TO CONDUCT DEFERRED PRESENTMENT TRANSACTION BUSINESS. Only an authorized lender may lawfully engage in the deferred presentment transaction business. A licensed lender shall obtain and maintain a separate license for each location where deferred presentment transaction business is conducted. A deferred presentment transaction is a loan subject to this chapter for purposes of the application of Section 342.051. Sec. 342.623. APPLICATION OF SUBCHAPTER TO THIRD-PARTY PROVIDER. If a deferred presentment transaction is offered at the place of business of a third-party provider: (1) the third-party provider shall provide to the commissioner a sample copy of the form of a written deferred presentment transaction agreement if the third-party provider participates in the preparation, execution, delivery, or custody of the agreement, and each time the form is modified the third-party provider shall provide to the commissioner a copy of the modified form; (2) the notice under Section 342.618 shall be posted in the third-party provider's place of business; (3) the third-party provider shall, through a combination of the language in the written agreement required under Section 342.602, the notice to be posted under Subdivision (2), or other signs, notices, or information materials, make available to transaction applicants the name, address, and telephone number of the lender making the deferred presentment transaction; and (4) the third-party provider shall comply with the licensing, recordkeeping, and recording provisions of this chapter. Sec. 342.624. EXAMINATION AND INVESTIGATION. (a) A licensed lender may be examined and investigated in accordance with Sections 342.552 and 342.553. (b) The commissioner or the commissioner's representative may, at the times the commissioner considers necessary, examine and investigate a third-party provider's place of business to determine the provider's compliance with this subchapter. The third-party provider shall give the commissioner or the commissioner's representative free access to its place of business for that purpose. 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 to consider, investigate, or secure information about under this subchapter. A third-party provider shall pay to the commissioner an amount assessed by the commissioner to cover the direct and indirect cost of an examination of the provider under this section. Sec. 342.625. APPLICABILITY TO CERTAIN LENDERS AND TRANSACTIONS. (a) Except as preempted by federal law, all other applicable provisions of this subchapter apply to a deferred presentment transaction and a lender. (b) This subchapter does not apply to a credit services organization operating in compliance with Chapter 393 or the services of a credit services organization in connection with a loan having an interest rate of 10 percent a year or less. Sec. 342.626. APPLICABILITY OF PROVISIONS OF CHAPTER 341 AND THIS CHAPTER. Chapter 341 and the other provisions of this chapter apply to a lender unless those provisions are inconsistent with this subchapter. Sec. 342.627. CRIMINAL CULPABILITY. A borrower is not subject to a criminal penalty for entering into a deferred presentment transaction agreement or in the event the instrument is dishonored, unless the borrower violated: (1) Section 32.32, Penal Code; or (2) Section 32.41, Penal Code, and is presumed to have knowledge of insufficient funds under Section 32.41(b)(1), Penal Code. Sec. 342.628. DECEPTIVE TRADE PRACTICE. A deferred presentment transaction made by a person other than a lender is a deceptive trade practice actionable under Subchapter E, Chapter 17, Business & Commerce Code. Sec. 342.629. PROHIBITED PRACTICES. (a) A lender may not contact a borrower's employer about a deferred presentment debt or communicate facts about a borrower's indebtedness to an employer. (b) A lender may not threaten criminal prosecution of a borrower as a means of collecting an amount due under a deferred presentment transaction agreement. Sec. 342.630. MILITARY BORROWER. (a) A lender may not engage in collection activity against a borrower who is: (1) a member of the armed forces of the United States who is deployed to combat or a combat support posting, for the duration of the posting; or (2) a reserve or national guard member who has been called to active duty. (b) A lender may not garnish the wages of a borrower who is a member of the armed forces of the United States. Sec. 342.631. REPAYMENT AGREEMENT. A lender shall honor a repayment agreement entered into with a borrower, including a repayment agreement negotiated through a military counselor or a third-party credit counselor. SECTION 4. This Act takes effect September 1, 2005.