82R9662 MAW-F

By: Hamilton H.B. No. 2377

A BILL TO BE ENTITLED

AN ACT

relating to the regulation of providers, administrators, and sellers of service contracts and identity recovery service contracts; providing penalties.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

ARTICLE 1. SERVICE CONTRACTS

SECTION 1.01. Section 1304.002, Occupations Code, is amended by adding Subdivision (8-a) to read as follows:

(8-a) "Seller" means a person, other than the provider or administrator of a service contract, who markets, sells, offers to sell, negotiates, or issues a service contract on behalf of a provider, but who is not contractually obligated to a service contract holder under the terms of a service contract.

SECTION 1.02. Chapter 1304, Occupations Code, is amended by adding Subchapter B to read as follows:

SUBCHAPTER B. POWERS AND DUTIES OF DEPARTMENT

AND COMMISSION

Sec. 1304.052. RULES. The commission shall adopt rules necessary to implement and administer this chapter.

SECTION 1.03. Section 1304.007, Occupations Code, is transferred to Subchapter B, Chapter 1304, Occupations Code, as added by this Act, redesignated as Section 1304.051, Occupations Code, and amended to read as follows:

Sec. 1304.051 [1304.007]. GENERAL INVESTIGATIVE POWER OF EXECUTIVE DIRECTOR. (a) The executive director may investigate a provider, administrator, seller, or other person as necessary to enforce this chapter and protect service contract holders in this state.

(b) On request of the executive director, a provider shall make the records required by Section 1304.155 available to the executive director as necessary to enable the executive director to reasonably determine compliance with this chapter.

SECTION 1.04. Section 1304.101, Occupations Code, is amended to read as follows:

Sec. 1304.101. REGISTRATION REQUIRED; EXEMPTION FROM OTHER LICENSING REQUIREMENTS. (a) A person may not offer to sell or operate as a provider or administrator of service contracts sold or issued in this state unless the person is registered with the department.

(b) Except for the registration requirement of this chapter [subchapter], a provider, [service contract] seller, administrator, or other person who markets, sells, issues, or offers to sell service contracts is exempt from any licensing requirement of this state that relates to an activity regulated under this chapter.

(c) A person who offers to sell or operates as a provider or administrator of a service contract sold or issued in this state may only contract with or use the services of a service contract provider or administrator that is registered with the department.

SECTION 1.05. Section 1304.102(c), Occupations Code, is amended to read as follows:

(c) The department may refuse to issue or renew a registration, suspend or revoke a registration, or take any other disciplinary action under Subchapter E, if the applicant or a controlling person of the applicant:

(1) has violated this chapter or a rule adopted or order issued by the commission or executive director under this chapter;

(2) has made a material misrepresentation or false statement in an application or in any document accompanying an application;

(3) has had a license issued under Title 13, Insurance Code, revoked as provided by that code;

(4) has had a license or registration as a provider, administrator, or seller revoked in this state or another state; or

(5) has committed fraud or been deceptive or dishonest in any activity subject to regulation by the department.

SECTION 1.06. Sections 1304.1025(a) and (c), Occupations Code, are amended to read as follows:

(a) In addition to the requirements of Section 1304.102, an applicant for issuance or renewal of a provider registration must file with the application:

(1) the reimbursement insurance policy, if the provider is using a reimbursement insurance policy to meet the requirements of Section 1304.151; [and]

(2) the proof necessary to demonstrate the applicant has at least $100 million net worth, if the applicant is using net worth to meet the financial security requirements of Section 1304.151; and

(3) information about each controlling person of the applicant [a biographical affidavit,] in a form prescribed by the executive director[, for each controlling person of the provider].

(c) Not later than the 30th day after the date of a provider's initial registration, the provider must provide to the department a list of any Internet website address through which a consumer may purchase the provider's service contracts and the name, assumed name, street address, and telephone number of:

(1) any administrator appointed by the provider under Section 1304.153; and

(2) any seller of the provider's service contracts, other than a seller that is[:

[(A)] an employee of the provider[; or

[(B) a business with a physical location in this state at which a consumer may purchase a service contract].

SECTION 1.07. Sections 1304.103(a) and (b), Occupations Code, are amended to read as follows:

(a) The executive director shall develop a tiered schedule of registration and renewal fees under which a provider's fee is based on the number of service contracts the provider sold or issued in this state during the preceding 12-month period.

(b) The commission shall set [the amounts of] fees to cover the costs of administering this chapter, including registration and renewal fees for administrators.

SECTION 1.08. Section 1304.104, Occupations Code, is amended to read as follows:

Sec. 1304.104. INFORMATION CONCERNING NUMBER OF SERVICE CONTRACTS SOLD OR ISSUED. Information concerning the number of service contracts sold or issued by a provider that is submitted under Section 1304.103[:

[(1)] is a trade secret to which Section 552.110, Government Code, applies[; and

[(2) may be used only by the executive director and the department in developing the tiered fee schedule under Section 1304.103].

SECTION 1.09. The heading to Subchapter D, Chapter 1304, Occupations Code, is amended to read as follows:

SUBCHAPTER D. PRACTICE BY SERVICE CONTRACT PROVIDERS,

[AND] ADMINISTRATORS, AND SELLERS

SECTION 1.10. Sections 1304.151(a) and (c), Occupations Code, are amended to read as follows:

(a) To ensure the faithful performance of a provider's obligations to its service contract holders, each provider must:

(1) insure the provider's service contracts under a reimbursement insurance policy issued by an insurer authorized to transact insurance in this state or by a surplus lines insurer eligible to place coverage in this state under Chapter 981, Insurance Code; or

(2) [maintain a funded reserve account covering the provider's obligations under its service contracts that are issued and outstanding in this state and place in trust with the executive director a financial security deposit consisting of:

[(A) a surety bond issued by an authorized surety;

[(B) securities of the type eligible for deposit by an authorized insurer in this state;

[(C) a statutory deposit of cash or cash equivalents;

[(D) a letter of credit issued by a qualified financial institution; or

[(E) another form of security prescribed by rules adopted by the commission; or

[(3)] maintain, or have a parent company that maintains, a net worth or stockholders' equity of at least $100 million.

(c) If the provider ensures its obligations under Subsection (a)(2) [(a)(3)], the provider must give to the executive director on request:

(1) a copy of the provider's or the provider's parent company's most recent Form 10-K or Form 20-F filed with the Securities and Exchange Commission within the preceding calendar year; or

(2) if the provider or the provider's parent company does not file with the Securities and Exchange Commission, a copy of the provider's or the provider's parent company's audited financial statements showing a net worth of the provider or its parent company of at least $100 million.

SECTION 1.11. Subchapter D, Chapter 1304, Occupations Code, is amended by adding Sections 1304.1521 and 1304.1531 to read as follows:

Sec. 1304.1521. FINANCIAL SECURITY TRANSITION. (a) In this section, "provider that maintained a funded reserve account" means a provider that, in order to ensure the faithful performance of the provider's obligations to service contract holders, maintained a funded reserve account covering the provider's obligations under service contracts that were issued and outstanding in this state and placed in trust with the executive director a financial security deposit consisting of:

(1) a surety bond issued by an authorized surety;

(2) securities of the type eligible for deposit by an authorized insurer in this state;

(3) a statutory deposit of cash or cash equivalents;

(4) a letter of credit issued by a qualified financial institution; or

(5) another form of security prescribed by commission rules.

(b) This section applies only to a provider that maintained a funded reserve account on August 31, 2011.

(c) Not later than September 1, 2012, a provider that maintained a funded reserve account shall submit to the executive director documentation that the provider is in compliance with the financial security requirements provided by Section 1304.151 for service contracts sold or issued in this state on or after September 1, 2012. A provider that maintained a funded reserve account may not sell or issue a service contract on or after September 1, 2012, unless the provider is in compliance with this subsection.

(d) A provider that maintained a funded reserve account shall:

(1) continue to maintain the funded reserve account and security deposit at appropriate levels for service contracts that were sold or issued in this state before September 1, 2012, until the contracts are no longer in effect; or

(2) provide financial security for service contracts sold or issued before September 1, 2012, by obtaining a reimbursement insurance policy or maintaining a net worth of at least $100 million as provided by Section 1304.151.

(e) If a provider provides financial security for service contracts sold or issued before September 1, 2012, under Subsection (d)(2), the provider shall give to the executive director satisfactory documentation that the reimbursement insurance policy or net worth covers all outstanding service contracts issued before September 1, 2012.

(f) A service contract that is sold or issued before September 1, 2012, and is covered under a funded reserve account and security deposit may not be extended or renewed at the end of the service contract term.

Sec. 1304.1531. SERVICE CONTRACT SELLERS; RESPONSIBILITIES. (a) A provider may employ or contract with a seller to be responsible for:

(1) all or any part of the sale or marketing of service contracts for the provider; and

(2) compliance with this chapter in connection with the sale or marketing of service contracts.

(b) The hiring of or contracting with a seller under this section does not affect a provider's responsibility to comply with this chapter.

(c) Unless registered as a provider or administrator, a seller is prohibited from engaging in activities that would require registration as a provider or administrator.

(d) A seller shall process a service contract application and a payment from a consumer in accordance with this chapter and with any sales agreement or contract between the provider and the seller.

SECTION 1.12. Sections 1304.156(a), (b), and (d), Occupations Code, are amended to read as follows:

(a) A service contract marketed, sold, offered for sale, issued, made, proposed to be made, or administered in this state must:

(1) be written, printed, or typed in clear, understandable language that is easy to read;

(2) state the name and address of the provider;

(3) state the purchase price of the contract and the terms under which the contract is sold;

(4) state the terms and restrictions governing cancellation of the contract by the provider or the service contract holder before the expiration date of the contract;

(5) identify:

(A) any administrator and any registration number issued to the administrator under this chapter;

(B) the [contract] seller; and

(C) the service contract holder, if the service contract holder provides the holder's name;

(6) state the amount of any deductible;

(7) specify the products and services to be provided under the contract and any limitation, exception, or exclusion;

(8) specify any restriction governing the transferability of the contract;

(9) state the duties of the service contract holder, including any duty to protect against any further damage and any requirement to follow the instructions in the owner's manual; and

(10) state whether the contract provides for or excludes consequential damages or preexisting conditions, if applicable.

(b) The identity and, if applicable, registration number issued under this chapter, of a person described by Subsection (a)(5) is not required to be preprinted on the service contract and may be added to the contract at the time of sale.

(d) A service contract insured under a reimbursement insurance policy under Section 1304.152 [1304.151(a)(1)] must:

(1) state the name and address of the insurer;

(2) state that the service contract holder may apply for reimbursement directly to the insurer if:

(A) a covered service is not provided to the service contract holder by the provider before the 61st [not later than the 60th] day after the date of proof of loss; or

(B) a refund or credit is not paid before the 46th day after the date on which the contract is canceled [returned to the provider] under Section 1304.1581 [1304.158]; and

(3) contain a statement substantially similar to the following: "Obligations of the provider under this service contract are insured under a service contract reimbursement insurance policy."

SECTION 1.13. Subchapter D, Chapter 1304, Occupations Code, is amended by adding Section 1304.1581 to read as follows:

Sec. 1304.1581. CANCELLATION BY SERVICE CONTRACT HOLDER; REFUND. (a) A service contract must allow the service contract holder to cancel the service contract at any time.

(b) If a service contract holder cancels a service contract before the 31st day after the date of purchase and a claim has not been made under the contract, the provider:

(1) shall refund to the service contract holder or credit to the account of the service contract holder the full purchase price of the contract; and

(2) may not impose a cancellation fee.

(c) If a service contract holder cancels a service contract on or after the 31st day after the date of purchase and a claim has not been made under the contract, the provider:

(1) shall refund to the service contract holder or credit to the account of the service contract holder the prorated purchase price of the contract reflecting the remaining term of the service contract based on a reasonably applicable measure of the remaining term that must be disclosed in the service contract; and

(2) may impose a reasonable cancellation fee not to exceed $50.

(d) A provider may allow a service contract holder to cancel a service contract on other terms included in the contract, provided the terms do not conflict with this section.

(e) A provider who does not pay the refund or credit the service contract holder's account before the 46th day after the date notice of cancellation is received by the provider is liable to the service contract holder for a penalty for each month an amount remains outstanding equal to 10 percent of the amount outstanding. The penalty is in addition to the full or prorated purchase price of the contract that is owed to the service contract holder under this section or the terms of the service contract.

(f) The right to cancel a service contract is not transferable to a subsequent holder of the service contract.

SECTION 1.14. The heading to Section 1304.159, Occupations Code, is amended to read as follows:

Sec. 1304.159. CANCELLATION BY PROVIDER; REFUND [CANCELING A SERVICE CONTRACT].

SECTION 1.15. Section 1304.159, Occupations Code, is amended by amending Subsection (b) and adding Subsection (c) to read as follows:

(b) The provider is not required to provide prior notice of cancellation if the service contract is canceled because of:

(1) nonpayment of the consideration for the contract;

(2) fraud or a material misrepresentation by the service contract holder to the provider or the provider's administrator; or

(3) a substantial breach of a duty by the service contract holder relating to the covered product or its use.

(c) A service contract holder whose contract is canceled by the provider in accordance with this section is entitled to a prorated refund of the purchase price of the service contract reflecting the remaining term of the service contract based on a reasonably applicable measure of the remaining term that must be disclosed in the service contract. A provider who cancels a contract under this section may not impose a cancellation fee.

SECTION 1.16. Section 1304.161, Occupations Code, is amended to read as follows:

Sec. 1304.161. [MISLEADING STATEMENTS] PROHIBITED ACTS. (a) A provider, administrator, seller, or other [or the provider's] representative of the provider may not, in the provider's service contracts or literature or in any oral or written communication:

(1) make, permit, or cause to be made any false, deceptive, or misleading statement; or

(2) deliberately omit a material statement if the omission would be considered misleading.

(b) A provider, administrator, seller, or other representative of the provider may not commit fraud in any activity subject to regulation by the department.

(c) A person, including a bank, a savings and loan association, a lending institution, or the manufacturer or seller of a product, may not require the purchase of a service contract as a condition of a loan or the sale of property.

SECTION 1.17. Section 1304.201, Occupations Code, is amended to read as follows:

Sec. 1304.201. DISCIPLINARY ACTION. [(a)] On a finding that a ground for disciplinary action exists under this chapter, the commission or executive director may impose an administrative sanction or[, including an] administrative penalty or seek a civil penalty or any other remedy as provided by this chapter and [Subchapter F,] Chapter 51.

SECTION 1.18. Subchapter E, Chapter 1304, Occupations Code, is amended by adding Section 1304.205 to read as follows:

Sec. 1304.205. RESTITUTION FOR SERVICE CONTRACT HOLDERS. (a) The commission or executive director may order a person who has operated as a provider or administrator in this state without holding the appropriate registration under this chapter to:

(1) rescind a service contract sold or issued during the period that the person was not registered under this chapter; and

(2) refund to a service contract holder the full purchase price of a service contract sold or issued during the period that the person was not registered under this chapter.

(b) If a seller fails to process a service contract application or a payment from a consumer in accordance with this chapter and any sales agreement or contract between the provider and the seller, the commission or executive director may order the seller to refund the full purchase price of the service contract to the consumer.

(c) The remedies described in this section are in addition to any administrative penalty, administrative sanction, civil penalty, or other disciplinary or enforcement action sought under this chapter or Chapter 51.

SECTION 1.19. The following provisions of the Occupations Code are repealed:

(1) Section 1304.006;

(2) Section 1304.102(d);

(3) Section 1304.151(b);

(4) Section 1304.157; and

(5) Section 1304.158.

SECTION 1.20. (a) Not later than April 1, 2012, the Texas Commission of Licensing and Regulation shall adopt rules necessary to implement Chapter 1304, Occupations Code, as amended by this Act.

(b) Sections 1304.102 and 1304.1025, Occupations Code, as amended by this Act, apply only to an application for a registration or renewal of a registration filed with the Texas Department of Licensing and Regulation on or after the effective date of this Act. An application filed before that date is governed by the law in effect on the date the application was filed, and the former law is continued in effect for that purpose.

(c) Sections 1304.156 and 1304.159, Occupations Code, as amended by this Act, and Section 1304.1581, Occupations Code, as added by this Act, apply only to a service contract sold or issued on or after January 1, 2012. A service contract sold or issued before that date is governed by the law in effect on the date the contract was sold or issued, and the former law is continued in effect for that purpose.

(d) Notwithstanding Subsection (c) of this section, a service contract sold or issued before January 1, 2012, may not be extended or renewed at the end of the service contract term unless the contract complies with Sections 1304.156 and 1304.159, Occupations Code, as amended by this Act, and Section 1304.1581, Occupations Code, as added by this Act.

(e) Section 1304.201, Occupations Code, as amended by this Act, applies only to a disciplinary action initiated by the Texas Department of Licensing and Regulation on or after the effective date of this Act. An action initiated before the effective date of this Act is governed by the law in effect on the date the action was initiated, and the former law is continued in effect for that purpose.

(f) Section 1304.205, Occupations Code, as added by this Act, applies only to an act or omission of a person operating as a provider, administrator, or seller of a service contract that occurs on or after the effective date of this Act. An act or omission that occurs before that date is governed by the law in effect on the date the act or omission occurred, and the former law is continued in effect for that purpose.

ARTICLE 2. IDENTITY RECOVERY SERVICE CONTRACTS

SECTION 2.01. Section 1306.002, Occupations Code, is amended by adding Subdivision (11) to read as follows:

(11) "Seller" means a person, other than the provider or administrator of an identity recovery service contract, who markets, sells, offers to sell, negotiates, or issues an identity recovery service contract on behalf of a provider, but who is not contractually obligated to a service contract holder under the terms of an identity recovery service contract.

SECTION 2.02. Chapter 1306, Occupations Code, is amended by adding Subchapter A-1 to read as follows:

SUBCHAPTER A-1. POWERS AND DUTIES OF DEPARTMENT

AND COMMISSION

Sec. 1306.022. RULES. The commission shall adopt rules necessary to implement and administer this chapter.

SECTION 2.03. Section 1306.008, Occupations Code, is transferred to Subchapter A-1, Chapter 1306, Occupations Code, as added by this Act, redesignated as Section 1306.021, Occupations Code, and amended to read as follows:

Sec. 1306.021 [1306.008]. GENERAL INVESTIGATIVE POWER OF EXECUTIVE DIRECTOR. (a) The executive director may investigate a provider, administrator, seller, or other person as necessary to enforce this chapter and protect identity recovery service contract holders in this state.

(b) On request of the executive director, a provider shall make the records required by Section 1306.105 available to the executive director as necessary to enable the executive director to reasonably determine compliance with this chapter.

SECTION 2.04. Section 1306.051, Occupations Code, is amended by amending Subsections (a) and (b) and adding Subsection (d) to read as follows:

(a) A person may not offer to sell or operate as a provider or administrator of identity recovery service contracts sold or issued in this state unless the person is registered with the department.

(b) Except for the registration requirement of this chapter [subchapter], a provider, [identity recovery service contract] seller, administrator, or other person who markets, sells, issues, or offers to sell identity recovery service contracts is exempt from any licensing requirement of this state that relates to an activity regulated under this chapter.

(d) A person who offers to sell or operates as a provider or administrator of an identity recovery service contract sold or issued in this state may only contract with or use the services of an identity recovery service contract provider or administrator that is registered with the department.

SECTION 2.05. Section 1306.052(c), Occupations Code, is amended to read as follows:

(c) The department may refuse to issue or renew a registration, suspend or revoke a registration, or take any other disciplinary action under Subchapter D, if the applicant or a controlling person of the applicant:

(1) has violated this chapter or a rule adopted or order issued by the commission or executive director under this chapter;

(2) has made a material misrepresentation or false statement in an application or in any document accompanying an application;

(3) has had a license issued under Title 13, Insurance Code, revoked as provided by that code;

(4) has had a license or registration as a provider, administrator, or seller revoked in this state or another state; or

(5) has committed fraud or been deceptive or dishonest in any activity subject to regulation by the department.

SECTION 2.06. Section 1306.053(a), Occupations Code, is amended to read as follows:

(a) In addition to the requirements of Section 1306.052, an applicant for issuance or renewal of a provider registration must file with the application:

(1) the reimbursement insurance policy required by Section 1306.102, if the provider is using a reimbursement insurance policy; [and]

(2) the proof necessary to demonstrate the applicant has at least $100 million net worth, if the applicant is using net worth to meet the financial security requirements of Section 1306.101; and

(3) information about each controlling person of the applicant [a biographical affidavit], in a form prescribed by the executive director[, for each controlling person of the provider].

SECTION 2.07. Sections 1306.054(b) and (d), Occupations Code, are amended to read as follows:

(b) To register or renew a registration, a provider or administrator must pay the appropriate fee. The commission shall set by rule the [amounts of the registration and renewal] fees required to cover the costs of administering this chapter.

(d) The information concerning the number of identity recovery service contracts sold or issued by a provider that is submitted under Subsection (c)[:

[(1)] is a trade secret to which Section 552.110, Government Code, applies[; and

[(2) may be used only by the executive director and the department for the purposes of this section].

SECTION 2.08. The heading to Subchapter C, Chapter 1306, Occupations Code, is amended to read as follows:

SUBCHAPTER C. PRACTICE BY IDENTITY RECOVERY SERVICE CONTRACT

PROVIDERS, [AND] ADMINISTRATORS, AND SELLERS

SECTION 2.09. Sections 1306.101(a) and (c), Occupations Code, are amended to read as follows:

(a) To ensure the faithful performance of a provider's obligations to its identity recovery service contract holders, each provider must:

(1) insure the provider's identity recovery service contracts under a reimbursement insurance policy issued by an insurer authorized to transact insurance in this state or by a surplus lines insurer eligible to place coverage in this state under Chapter 981, Insurance Code; or

(2) [maintain a funded reserve account covering the provider's obligations under its identity recovery service contracts that are issued and outstanding in this state and place in trust with the executive director a financial security deposit consisting of:

[(A) a surety bond issued by an authorized surety;

[(B) securities of the type eligible for deposit by an authorized insurer in this state;

[(C) a statutory deposit of cash or cash equivalents;

[(D) a letter of credit issued by a qualified financial institution; or

[(E) another form of security prescribed by rules adopted by the commission; or

[(3)] maintain, or have a parent company that maintains, a net worth or stockholders' equity of at least $100 million.

(c) If the provider ensures its obligations under Subsection (a)(2) [(a)(3)], the provider must give to the executive director on request:

(1) a copy of the provider's or the provider's parent company's most recent Form 10-K or Form 20-F filed with the Securities and Exchange Commission within the preceding calendar year; or

(2) if the provider or the provider's parent company does not file with the Securities and Exchange Commission, a copy of the provider's or the provider's parent company's audited financial statements showing a net worth of the provider or its parent company of at least $100 million.

SECTION 2.10. Subchapter C, Chapter 1306, Occupations Code, is amended by adding Sections 1306.1021 and 1306.1031 to read as follows:

Sec. 1306.1021. FINANCIAL SECURITY TRANSITION. (a) In this section, "provider that maintained a funded reserve account" means a provider that, in order to ensure the faithful performance of the provider's obligations to identity recovery service contract holders, maintained a funded reserve account covering the provider's obligations under identity recovery service contracts that were issued and outstanding in this state and placed in trust with the executive director a financial security deposit consisting of:

(1) a surety bond issued by an authorized surety;

(2) securities of the type eligible for deposit by an authorized insurer in this state;

(3) a statutory deposit of cash or cash equivalents;

(4) a letter of credit issued by a qualified financial institution; or

(5) another form of security prescribed by commission rules.

(b) This section applies only to a provider that maintained a funded reserve account on August 31, 2011.

(c) Not later than September 1, 2012, a provider that maintained a funded reserve account shall submit to the executive director documentation that the provider is in compliance with the financial security requirements provided by Section 1306.101 for identity recovery service contracts sold or issued in this state on or after September 1, 2012. A provider that maintained a funded reserve account may not sell or issue an identity recovery service contract on or after September 1, 2012, unless the provider is in compliance with this subsection.

(d) A provider that maintained a funded reserve account shall:

(1) continue to maintain the funded reserve account and security deposit at appropriate levels for identity recovery service contracts that were sold or issued in this state before September 1, 2012, until the contracts are no longer in effect; or

(2) provide financial security for identity recovery service contracts sold or issued before September 1, 2012, by obtaining a reimbursement insurance policy or maintaining a net worth of at least $100 million as provided by Section 1306.101.

(e) If a provider provides financial security for identity recovery service contracts sold or issued before September 1, 2012, under Subsection (d)(2), the provider shall give to the executive director satisfactory documentation that the reimbursement insurance policy or net worth covers all outstanding identity recovery service contracts issued before September 1, 2012.

(f) An identity recovery service contract that is sold or issued before September 1, 2012, and is covered under a funded reserve account and security deposit may not be extended or renewed at the end of the identity recovery service contract term.

Sec. 1306.1031. IDENTITY RECOVERY SERVICE CONTRACT SELLERS; RESPONSIBILITIES. (a) A provider may employ or contract with a seller to be responsible for:

(1) all or any part of the sale or marketing of identity recovery service contracts for the provider; and

(2) compliance with this chapter in connection with the sale or marketing of identity recovery service contracts.

(b) The hiring of or contracting with a seller under this section does not affect a provider's responsibility to comply with this chapter.

(c) Unless registered as a provider or administrator, a seller is prohibited from engaging in activities that would require registration as a provider or administrator.

(d) A seller shall process an identity recovery service contract application and a payment from a consumer in accordance with this chapter and with any sales agreement or contract between the provider and the seller.

SECTION 2.11. Sections 1306.106(a), (b), and (d), Occupations Code, are amended to read as follows:

(a) An identity recovery service contract marketed, sold, offered for sale, issued, made, proposed to be made, or administered in this state must:

(1) be written, printed, or typed in clear, understandable language that is easy to read;

(2) state the name and address of the provider;

(3) state the purchase price of the contract and the terms under which the contract is sold;

(4) state the terms and restrictions governing cancellation of the contract by the provider or the identity recovery service contract holder before the expiration date of the contract;

(5) identify:

(A) any administrator and any registration number issued to the administrator under this chapter;

(B) the [contract] seller; and

(C) the identity recovery service contract holder, if the identity recovery service contract holder provides the holder's name;

(6) state the amount of any deductible;

(7) specify the services to be provided under the contract and any limitation, exception, or exclusion;

(8) specify any restriction governing the transferability of the contract; and

(9) state the duties of the identity recovery service contract holder, including any duty to protect against any further damage and any requirement to follow the instructions in the identity recovery service contract.

(b) The identity and, if applicable, registration number issued under this chapter, of a person described by Subsection (a)(5) is not required to be preprinted on the identity recovery service contract and may be added to the contract at the time of sale.

(d) An identity recovery service contract insured under a reimbursement insurance policy under Section 1306.102 must:

(1) state the name and address of the insurer;

(2) state that the identity recovery service contract holder may apply for reimbursement directly to the insurer if:

(A) a covered service is not provided to the identity recovery service contract holder by the provider before the 61st day after the date of proof of loss; or

(B) a refund or credit is not paid before the 46th day after the date on which the contract is canceled [returned to the provider] under Section 1306.1081 [1306.107]; and

(3) contain a statement substantially similar to the following: "Obligations of the provider under this identity recovery service contract are insured under an identity recovery service contract reimbursement insurance policy."

SECTION 2.12. Subchapter C, Chapter 1306, Occupations Code, is amended by adding Section 1306.1081 to read as follows:

Sec. 1306.1081. CANCELLATION BY IDENTITY RECOVERY SERVICE CONTRACT HOLDER; REFUND. (a) An identity recovery service contract must allow the identity recovery service contract holder to cancel the identity recovery service contract at any time.

(b) If an identity recovery service contract holder cancels an identity recovery service contract before the 31st day after the date of purchase and a claim has not been made under the contract, the provider:

(1) shall refund to the identity recovery service contract holder or credit to the account of the identity recovery service contract holder the full purchase price of the contract; and

(2) may not impose a cancellation fee.

(c) If an identity recovery service contract holder cancels an identity recovery service contract on or after the 31st day after the date of purchase and a claim has not been made under the contract, the provider:

(1) shall refund to the identity recovery service contract holder or credit to the account of the identity recovery service contract holder the prorated purchase price of the contract reflecting the remaining term of the identity recovery service contract based on a reasonably applicable measure of the remaining term that must be disclosed in the identity recovery service contract; and

(2) may impose a reasonable cancellation fee not to exceed $50.

(d) A provider may allow an identity recovery service contract holder to cancel an identity recovery service contract on other terms included in the contract, provided the terms do not conflict with this section.

(e) A provider who does not pay the refund or credit the identity recovery service contract holder's account before the 46th day after the date notice of cancellation is received by the provider is liable to the identity recovery service contract holder for a penalty for each month an amount remains outstanding equal to 10 percent of the amount outstanding. The penalty is in addition to the full or prorated purchase price of the contract that is owed to the identity recovery service contract holder under this section or the terms of the identity recovery service contract.

(f) The right to cancel an identity recovery service contract is not transferable to a subsequent holder of the identity recovery service contract.

SECTION 2.13. The heading to Section 1306.109, Occupations Code, is amended to read as follows:

Sec. 1306.109. CANCELLATION BY A PROVIDER; REFUND [CANCELING AN IDENTITY RECOVERY SERVICE CONTRACT].

SECTION 2.14. Section 1306.109, Occupations Code, is amended by amending Subsection (b) and adding Subsection (c) to read as follows:

(b) The provider is not required to provide prior notice of cancellation if the identity recovery service contract is canceled because of:

(1) nonpayment of the consideration for the contract;

(2) fraud or a material misrepresentation by the identity recovery service contract holder to the provider or the provider's administrator; or

(3) a substantial breach of a duty by the identity recovery service contract holder.

(c) An identity recovery service contract holder whose contract is canceled by the provider in accordance with this section is entitled to a prorated refund of the purchase price of the identity recovery service contract reflecting the remaining term of the identity recovery service contract based on a reasonably applicable measure of the remaining term that must be disclosed in the identity recovery service contract. A provider who cancels a contract under this section may not impose a cancellation fee.

SECTION 2.15. Section 1306.111, Occupations Code, is amended to read as follows:

Sec. 1306.111. [MISLEADING STATEMENTS] PROHIBITED ACTS. (a) A provider, administrator, seller, or other [or the provider's] representative of the provider may not, in the provider's identity recovery service contracts or literature or in any oral or written communication:

(1) make, permit, or cause to be made any false, deceptive, or misleading statement; or

(2) deliberately omit a material statement if the omission would be considered misleading.

(b) A provider, administrator, seller, or other representative of the provider may not commit fraud in any activity subject to regulation by the department.

(c) A person regulated by Chapter 2301 may not require the purchase of an identity recovery service contract as a condition of a loan or the sale of a vehicle.

SECTION 2.16. Section 1306.151, Occupations Code, is amended to read as follows:

Sec. 1306.151. DISCIPLINARY ACTION. On a finding that a ground for disciplinary action exists under this chapter, the commission or executive director may impose an administrative sanction or [, including an] administrative penalty or seek a civil penalty or any other remedy as provided by this chapter and [Subchapter F,] Chapter 51.

SECTION 2.17. Subchapter D, Chapter 1306, Occupations Code, is amended by adding Section 1306.155 to read as follows:

Sec. 1306.155. RESTITUTION FOR IDENTITY RECOVERY SERVICE CONTRACT HOLDERS. (a) The commission or executive director may order a person who has operated as a provider or administrator in this state without holding the appropriate registration under this chapter to:

(1) rescind an identity recovery service contract sold or issued during the period that the person was not registered under this chapter; and

(2) refund to an identity recovery service contract holder the full purchase price of an identity recovery service contract sold or issued during the period that the person was not registered under this chapter.

(b) If a seller fails to process an identity recovery service contract application or a payment from a consumer in accordance with this chapter and any sales agreement or contract between the provider and the seller, the commission or executive director may order the seller to refund the full purchase price of the identity recovery service contract to the consumer.

(c) The remedies described in this section are in addition to any administrative penalty, administrative sanction, civil penalty, or other disciplinary or enforcement action sought under this chapter or Chapter 51.

SECTION 2.18. The following provisions of the Occupations Code are repealed:

(1) Section 1306.007;

(2) Section 1306.052(d);

(3) Section 1306.101(b);

(4) Section 1306.107; and

(5) Section 1306.108.

SECTION 2.19. (a) Not later than April 1, 2012, the Texas Commission of Licensing and Regulation shall adopt rules necessary to implement Chapter 1306, Occupations Code, as amended by this Act.

(b) Sections 1306.052 and 1306.053, Occupations Code, as amended by this Act, apply only to an application for a registration or renewal of a registration filed with the Texas Department of Licensing and Regulation on or after the effective date of this Act. An application filed before that date is governed by the law in effect on the date the application was filed, and the former law is continued in effect for that purpose.

(c) Sections 1306.106 and 1306.109, Occupations Code, as amended by this Act, and Section 1306.1081, Occupations Code, as added by this Act, apply only to an identity recovery service contract sold or issued on or after January 1, 2012. An identity recovery service contract sold or issued before that date is governed by the law in effect on the date the contract was sold or issued, and the former law is continued in effect for that purpose.

(d) Notwithstanding Subsection (c) of this section, an identity recovery service contract sold or issued before January 1, 2012, may not be extended or renewed at the end of the contract term unless the contract complies with Sections 1306.106 and 1306.109, Occupations Code, as amended by this Act, and Section 1306.1081, Occupations Code, as added by this Act.

(e) Section 1306.151, Occupations Code, as amended by this Act, applies only to a disciplinary action initiated by the Texas Department of Licensing and Regulation on or after the effective date of this Act. An action initiated before the effective date of this Act is governed by the law in effect on the date the action was initiated, and the former law is continued in effect for that purpose.

(f) Section 1306.155, Occupations Code, as added by this Act, applies only to an act or omission of a person operating as a provider, administrator, or seller of an identity recovery service contract that occurs on or after the effective date of this Act. An act or omission that occurs before that date is governed by the law in effect on the date the act or omission occurred, and the former law is continued in effect for that purpose.

ARTICLE 3. EFFECTIVE DATE

SECTION 3.01. This Act takes effect September 1, 2011.