BILL ANALYSIS

C.S.H.B. 2931

By: Woolley

Pensions, Investments & Financial Services

Committee Report (Substituted)

BACKGROUND AND PURPOSE

Debt cancellation agreements are noninsurance products that may be purchased by consumers of motor vehicles to cover the difference between a vehicle's value and the amount owed to a lender in the event of theft or total loss. These agreements are regulated in some manner in over 40 other states and balance consumer protections with a regulatory framework that allows debt cancellation agreements to be offered.

Observers express concerns regarding disclosures for consumers regarding cancellation and complaints; disclosures that specify what is excluded from the agreement; regulation of debt cancellation agreement forms that are inconsistent or misleading; and the rate framework for such agreements. C.S.H.B. 2931 seeks to address concerns that the debt cancellation agreement market is inoperable.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

C.S.H.B. 2931 amends the Finance Code to specify that a debt cancellation agreement offered to a retail buyer by a retail seller in connection with a retail installment transaction for a motor vehicle installment sale includes a guaranteed asset protection waiver or similarly named agreement.

C.S.H.B. 2931 enacts provisions applicable exclusively to a debt cancellation agreement that includes insurance coverage as part of the retail buyer's responsibility to the holder.  The bill requires the amount charged for such a debt cancellation agreement made in connection with a retail installment contract to be created in good faith and be commercially reasonable and exempts such a debt cancellation agreement from a provision of law otherwise applicable to debt cancellation agreements made in connection with a retail installment contract for a motor vehicle installment sale requiring the amount charged for such an agreement to be reasonable. The bill prohibits the consumer credit commissioner from directly or indirectly setting rates for a debt cancellation agreement to which the bill's provisions apply. The bill establishes that the debt cancellation agreement becomes a part of or a separate addendum to the retail installment contract and remains a term of the retail installment contract on the assignment, sale, or transfer by the holder.

C.S.H.B. 2931 requires a debt cancellation agreement to fully disclose all provisions permitting the exclusion of loss or damage, including the following, if applicable:

·         an act occurring after the original maturity date or date of holder's acceleration of the retail installment contract;

·         any dishonest, fraudulent, illegal or intentional act of any authorized driver that directly results in the total loss of the motor vehicle;

·         any act of gross negligence by an authorized driver that directly results in the total loss of the motor vehicle;

·         conversion, embezzlement, or concealment by any person in lawful possession of the motor vehicle;

·         lawful confiscation by an authorized public official;

·         the operation, use, or maintenance of the motor vehicle in any race or speed contest;

·         war, whether or not declared, invasion,  insurrection, rebellion, revolution, or an act of terrorism;

·         normal wear and tear, freezing, or mechanical or electrical breakdown or failure;

·         use of the motor vehicle for primarily commercial purposes;

·         damage that occurs after the motor vehicle has been repossessed;

·         damage to the motor vehicle before the purchase of the debt cancellation agreement;

·         unpaid insurance premiums and salvage, towing, and storage charges relating to the motor vehicle;

·         damage related to any personal property attached to or within the motor vehicle;

·         damages associated with falsification of documents by any person not associated with the retail seller or other person canceling the retail buyer's obligation;

·         any unpaid debt resulting from exclusions in the retail buyer's primary physical damage coverage not included in the debt cancellation agreement;

·         abandonment of the motor vehicle by the retail buyer only if the retail buyer voluntarily discards, leaves behind, or otherwise relinquishes possession of the motor vehicle to the extent that the relinquishment shows intent to forsake and desert the motor vehicle so that the motor vehicle may be appropriated by any other person;

·         any amounts deducted from the primary insurance carrier's settlement due to prior damages; and

·         any loss occurring outside the United States or outside the United States and Canada.

C.S.H.B. 2931 authorizes an exclusion of loss or damage not listed in the preceding provision to be included in a debt cancellation agreement only if the exclusion is disclosed in plain, easy to read language. The bill requires a debt cancellation agreement to state the following:

·         the contact information of the retail seller, the holder, and any administrator of the agreement;

·         the name and address of the retail buyer;

·         the cost and term of the debt cancellation agreement;

·         the procedure the retail buyer must follow to obtain benefits under the terms of the debt cancellation agreement, including a telephone number and address where the retail buyer may provide notice under the debt cancellation agreement;

·         the period during which the retail buyer is required to notify the retail seller, holder, or any administrator of the agreement of any potential loss under the debt cancellation agreement for total loss or theft of the motor vehicle;

·         that in order to make a claim, the retail buyer must provide or complete some or all of the following documents and provide those documents to the retail seller, the holder, or any administrator of the agreement: a debt cancellation request form; proof of loss and settlement payment from the retail buyer's primary comprehensive, collision, or uninsured or underinsured motorist policy or other parties' liability insurance policy for the settlement of the insured total loss of the motor vehicle; verification of the retail buyer's primary insurance deductible; a copy of any police report filed in connection with the total loss or theft of the motor vehicle; and a copy of the damage estimate;

·         that documentation not described in the preceding statement of required documents or required by the retail seller, the holder, or any administrator of the agreement is not required to substantiate the loss or determine the amount of debt to be canceled;

·         that on reasonable advance notice the retail seller, the holder, or any administrator of the agreement may inspect the retail buyer's motor vehicle;

·         that the retail seller or holder will cancel all or part of the retail buyer's obligation as provided in the debt cancellation agreement on the occurrence of total loss or theft of the motor vehicle;

·         the method to be used to calculate refunds;

·         the method for calculating the amount to be canceled under the debt cancellation agreement on the occurrence of total loss or theft of a motor vehicle;

·         that purchase of a debt cancellation agreement is not required for the retail buyer to obtain an extension of credit and will not be a factor in the credit approval process;

·         that in order to cancel the debt cancellation agreement and receive a refund, the retail buyer must provide a written request to cancel to the retail seller, the holder, or any administrator of the agreement;

·         that if total loss or theft of the motor vehicle has not occurred, the retail buyer has 30 days from the date of the retail installment contract or the issuance of the debt cancellation agreement, whichever is later, or a longer period as provided under the debt cancellation agreement, to cancel the agreement and receive a full refund; and

·         that the retail buyer may file a complaint with the commissioner, including the address, phone number, and Internet website of the Office of Consumer Credit Commissioner.

C.S.H.B. 2931 requires debt cancellation agreement forms to be submitted to the commissioner for approval and authorizes the forms to include additional language to supplement the terms of the debt cancellation agreement as required by the bill's provisions. The bill establishes that, if a debt cancellation agreement form is provided to the commissioner for approval, the commissioner has 45 days to approve the form or deny approval of the form.  The bill establishes that the agreement is considered approved if after the 45th day the commissioner does not deny the form.

C.S.H.B. 2931 establishes that the terms of debt cancellation agreement are considered to be in compliance with the bill's provisions if the debt cancellation agreement form is approved or considered approved. The bill authorizes the commissioner to deny approval of a form only if the form excludes any of the required language or contains any inconsistent or misleading provisions and authorizes an appeal of any form denial to the finance commission. The bill requires debt cancellation agreement forms that have been approved or considered approved to be posted on the commissioner's Internet website and establishes that the forms are not confidential under the state's open records law or other law.

C.S.H.B. 2931 requires a retail seller, if a retail buyer purchases a debt cancellation agreement, to provide to the retail buyer a true and correct copy of the agreement not later than the 10th day after the date of the retail installment contract. The bill requires a holder to comply with the terms of a debt cancellation agreement not later than the 60th day after the date of receipt of all necessary information required by the holder or administrator of the agreement to process the request. The bill prohibits a retail seller from knowingly offering a debt cancellation agreement if the retail installment contract already is protected by gap insurance or the purchase of the debt cancellation agreement is required for the retail buyer to obtain the extension of credit. The bill exempts a debt cancellation agreement offered in connection with the purchase of a commercial vehicle from the bill's provisions relating to additional requirements for debt cancellation agreements.

C.S.H.B. 2931 requires the sale of a debt cancellation agreement to be for a single payment and requires a holder that offers a debt cancellation agreement to report the sale of and forward money received on all such agreements to any designated party as prescribed in any applicable administrative services agreement, contractual liability policy, other insurance policy, or other specified program documents. The bill requires money received or held by a holder or any administrator of a debt cancellation agreement and belonging to an insurance company, holder, or administrator under the terms of a written agreement to be held by the holder or administrator in a fiduciary capacity.

C.S.H.B. 2931 requires a refund or credit of the debt cancellation agreement fee to be based on the earliest date of any of the following: the prepayment of the retail installment contract in full before the original maturity date; a demand by the holder for payment in full of the unpaid balance or acceleration; a request by the retail buyer for cancellation of the debt cancellation agreement; or the total denial of a debt cancellation request based on one of the exclusions contained in the bill's provisions, except in the case of a partial loss of the covered motor vehicle.

C.S.H.B. 2931 authorizes rounding of the refund or credit for the debt cancellation agreement to the nearest whole dollar and establishes that a refund or credit is not required if the amount of the refund or credit calculated is less than $5. The bill authorizes the retail buyer, if total loss or theft has not occurred, to cancel the debt cancellation agreement not later than the 30th day after the date of the retail installment contract or the issuance of the debt cancellation agreement, whichever is later, or a later date as provided under the debt cancellation agreement. The bill requires the holder or any administrator of the agreement, on cancellation, to refund or credit the entire debt cancellation agreement fee and prohibits a retail buyer from canceling the debt cancellation agreement and subsequently receiving any benefits under the agreement.

C.S.H.B. 2931 authorizes a holder to rely in good faith on a computation by the administrator of the agreement of the balance waived unless the holder has knowledge that the computation is not correct. The bill requires the holder, if a computation by the administrator of the balance waived is not correct, to make the necessary corrections or cause the corrections to be made to the retail buyer's account within a reasonable time of learning that the computation is incorrect. The bill establishes that these provisions do not prevent the holder from obtaining reimbursement from the administrator or another responsible for the debt cancellation agreement or computation.

C.S.H.B. 2931 makes its provisions applicable only to a debt cancellation agreement that includes insurance coverage as part of a retail buyer's responsibility to the holder entered into on or after September 1, 2011.

EFFECTIVE DATE

September 1, 2011.

COMPARISON OF ORIGINAL AND SUBSTITUTE

C.S.H.B. 2931 differs from the original by specifying that a debt cancellation agreement offered to a retail buyer by a retail seller in connection with a retail installment transaction for a motor vehicle installment sale includes a guaranteed asset protection waiver or similarly named agreement, whereas the original specifies that such debt cancellation agreement includes but is not limited to a guaranteed asset protection waiver or other similarly named agreement.

C.S.H.B. 2931 differs from the original by prohibiting the consumer credit commissioner, in a provision establishing limitations on a debt cancellation agreement that includes insurance coverage as part of the retail buyer's responsibility to the holder, from directly or indirectly setting rates for such a debt cancellation agreement, whereas the original, in a provision authorizing the offer of a debt cancellation agreement in connection with a retail installment transaction for a motor vehicle installment sale, prohibits the commissioner from promulgating rates, adopting rules, or issuing interpretation letters for debt cancellation agreements, including guaranteed asset protection waivers, that include insurance coverage as part of a retail buyer's responsibility to the holder sold in Texas.

C.S.H.B. 2931 omits a provision included in the original removing the requirement that the amount charged for a debt cancellation agreement made in connection with a retail installment contract be reasonable.

C.S.H.B. 2931 omits provisions included in the original defining "creditor," "finance agreement," "free look period," "guaranteed asset protection waiver" or "GAP waiver," and "motor vehicle." 

C.S.H.B. 2931 differs from the original by making the substitute's added provisions relating to certain debt cancellation agreements applicable to a debt cancellation agreement that includes insurance coverage as part of the retail buyer's responsibility to the holder, whereas the original makes the original's added provisions relating to guaranteed asset protection waivers applicable to debt cancellation agreements, including such guaranteed asset protection waivers, that include insurance coverage as part of the retail buyer's responsibility to the holder sold in Texas.

C.S.H.B. 2931 omits provisions included in the original relating to requirements for offering guaranteed asset protection waivers, disclosure requirements for such waivers, provisions for cancellation of such waivers, and enforcement of the original's provisions.

C.S.H.B. 2931 contains provisions not included in the original relating to limitations on certain debt cancellation agreements, exclusion language required in debt cancellation agreements, required debt cancellation agreement statements, approval of forms for debt cancellation agreements, additional requirements for debt cancellation agreements, and refund or credit for debt cancellation agreement fees.

C.S.H.B. 2931 differs from the original by making its provisions relating to a debt cancellation agreement that includes insurance coverage as part of the retail buyer's responsibility to the holder applicable only to such an agreement entered into on or after September 1, 2011, whereas the original makes its provisions applicable to all guaranteed asset protection waivers entered into on and after September 1, 2011.