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79R4241 DWS-F
By: Madden H.B. No. 1193
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) "Borrower" means an owner of personal property who
pledges a security interest in the property to a lender in exchange
for a loan of money.
(2) "Lender" means a person who:
(A) makes, offers to make, transacts,
negotiates, or originates a limited recourse secured loan;
(B) arranges a limited recourse secured loan for
another person; or
(C) acts as an agent for or assists another
person in the origination or collection of a limited recourse
secured loan.
(3) "Limited recourse secured loan" means a loan of
money from a lender to a borrower in which the borrower has limited
personal liability to repay the lender as provided by this chapter.
(4) "Pledged property" means the personal property
pledged by a borrower under a limited recourse secured loan.
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 and Subchapter L, Chapter 342, apply to this
chapter.
[Sections 344.003-344.050 reserved for expansion]
SUBCHAPTER B. LICENSE AND REGULATION
Sec. 344.051. LICENSE REQUIRED. (a) A person must hold a
license issued under this chapter to act as a lender.
(b) A person 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, offered, transacted, negotiated, originated, arranged,
serviced, held, or collected under this chapter.
(c) A license is not required under this chapter for a place
of business:
(1) devoted to accounting or other recordkeeping; and
(2) at which loans are not made, offered, transacted,
negotiated, originated, arranged, 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
$500.
(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) 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 $50,000
for each license, not to exceed a total of $1 million;
(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 rules adopted 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 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 $50,000
available for the operation of each licensed location.
(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 $50,000.
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 debtor 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. COMPLIANCE WITH CHAPTER. A license holder
may not make, offer to make, transact, negotiate, originate,
arrange, service, hold, or collect a limited recourse secured loan
that does not meet all requirements and conditions of this chapter.
Sec. 344.202. PLEDGED PROPERTY. Any personal property may
be used to secure a limited recourse secured loan if:
(1) the property is currently owned by the borrower
and is not encumbered by any other outstanding encumbrance; and
(2) the borrower is allowed possession and use of the
property while the loan is outstanding.
Sec. 344.203. MAXIMUM AMOUNT OF LOAN AND LOAN TERM. (a)
The maximum loan amount under this chapter may not exceed the lesser
of $2,000 or the fair market retail value of the pledged property.
(b) A loan under this chapter must have an original term of
not less than seven days or more than 30 days.
(c) A lender may renew a limited recourse secured loan for
not more than five additional periods if:
(1) the term of each renewal period is within the
limits contained in Subsection (b);
(2) no interest, fees, or charges from prior loan or
renewal periods are capitalized or added to the principal amount in
any renewal; and
(3) any interest or fees charged in the renewal period
are not greater than charged in previous periods.
Sec. 344.204. MAXIMUM INTEREST AND FEE. (a)
Notwithstanding any law to the contrary, a lender making a loan
under this chapter may charge:
(1) a rate of interest not to exceed three percent a
month; and
(2) a fee, which is not interest, that does not exceed
one-tenth of the principal amount of the loan.
(b) The interest and fee under Subsection (a) may be charged
during the loan period and the same amount may be charged during any
renewal of the loan.
Sec. 344.205. COST OF LIEN RECORDATION. A contract for a
loan under this chapter may include a charge for any fees paid to a
governmental agency in connection with the loan, including any fee
charged to record the lender's security interest in the pledged
property.
Sec. 344.206. SECURITY INTEREST AND DEFAULT. (a) The
lender may contract for a security interest under Chapter 9,
Business & Commerce Code, 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 344.207, seek possession and
sale of the pledged property pursuant to Chapter 9, Business &
Commerce Code.
(c) The lender shall return to the borrower any surplus from
the sale, after the lender deducts the amount of principal and
interest outstanding on the loan plus any cost incurred as a result
of the repossession and sale.
Sec. 344.207. NOTICE AND WAITING PERIOD BEFORE
REPOSSESSION. (a) Before taking possession of pledged property
under Section 344.206, 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. 344.208. 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. 344.209. 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.);
(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-COST LOAN. DO NOT BORROW FROM
THIS LENDER IF YOU CAN BORROW MONEY AT A LOWER COST. 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 EXCESSIVE CHARGES.
"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 344.210–344.250 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) enter into 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 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 use
of 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, IMPROPERLY
DISCLOSED, OR EXCESSIVE CHARGES. (a) Any interest, fees, or
charges collected that are undisclosed, improperly disclosed, 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 a proceeding under this
subsection is entitled to reasonable attorney's fees and court
costs.
(b) Before pursuing a proceeding under Subsection (a), the
borrower shall provide the lender with a written notice of the
intended proceeding by certified mail, return receipt requested.
The notice must specifically identify the interest, fees, or
charges that the borrower contends were undisclosed, improperly
disclosed, or excessive. If before the 31st day after the date of
receipt of the notice the lender tenders to the borrower the
undisclosed, improperly disclosed, or excessive interest, fees, or
charges, the tender is a defense to any further proceedings. If the
lender does not make the tender and in the proceeding the borrower
prevails and establishes that the interest, fees, or charges were
undisclosed, improperly disclosed, or excessive, the borrower is
entitled to recover from the lender two times the amount of
undisclosed, improperly disclosed, or excessive interest, fees, or
charges.
[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. 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, 2006.
SECTION 3. This Act takes effect September 1, 2005.