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A BILL TO BE ENTITLED
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AN ACT
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relating to debt cancellation agreements. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Section 348.124, Finance Code, is amended to |
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read as follows: |
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Sec. 348.124. DEBT CANCELLATION AGREEMENTS. (a) In |
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connection with a retail installment transaction under this |
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chapter, a retail seller may offer to the retail buyer a debt |
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cancellation agreement, including but not limited to a guaranteed |
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asset protection waiver or other similarly named agreement. The |
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retail seller may not require that the purchase of a debt |
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cancellation agreement by the retail buyer be made in order to enter |
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into a retail installment transaction. |
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(b) A debt cancellation agreement, including a guaranteed |
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asset protection waiver, is not considered an insurance product. |
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(c) The commissioner may not promulgate rates, adopt rules, |
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or issue interpretation letters for debt cancellation agreements, |
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including guaranteed asset protection waivers, that include |
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insurance coverage as part of retail buyer's responsibility to |
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holder sold in this state. [The amount charged for a debt
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cancellation agreement made in connection with a retail installment
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contract must be reasonable.] |
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SECTION 2. Chapter 348, Finance Code, is amended by adding |
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Subchapter G to read as follows: |
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SUBCHAPTER G. GUARANTEED ASSET PROTECTION WAIVERS |
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Sec. 348.601. DEFINITIONS. |
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(A) "Creditor" means: |
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(i) the lender in a loan or credit transaction; |
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(ii) the lessor in a lease transaction; |
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(iii) any retail seller, as defined in 348.001(8), of |
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motor vehicles that provides credit to "retail buyers," as defined |
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in 348.001(5), of such motor vehicles provided that such entities |
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comply with the provisions of this section; |
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(iv) the seller in commercial retail installment |
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transactions; or |
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(v) the assignees of any of the foregoing to whom the |
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credit obligation is payable. |
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(B) "Finance agreement" means a loan, lease or retail |
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installment sales contract for the purchase or lease of a motor |
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vehicle. |
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(C) "Free look period" means the period of time from the |
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effective date of the guaranteed asset protection waiver until the |
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date the borrower may cancel the contract without penalty, fees or |
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costs to the borrower. This period of time must not be shorter than |
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30 days. |
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(D) "Guaranteed asset protection waiver" or "GAP waiver" |
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means a contractual agreement, regardless of how the agreement is |
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titled, wherein a creditor agrees for a separate charge to cancel or |
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waive all or part of amounts due on a borrower's finance agreement |
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in the event of a total physical damage loss or unrecovered theft of |
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the motor vehicle, which agreement must be part of, or a separate |
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addendum to, the finance agreement. |
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(E) For purposes of this subchapter, "Motor vehicle" means |
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self-propelled or towed vehicles designed for personal or |
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commercial use, including but not limited to automobiles, trucks, |
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motorcycles, recreational vehicles, all-terrain vehicles, |
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snowmobiles, campers, boats, personal watercraft, and personal |
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watercraft trailers. |
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Sec. 348.6011. SCOPE OF SUBCHAPTER. This subchapter only |
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applies to debt cancellation agreements, including guaranteed |
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asset protection waivers, that include insurance coverage as part |
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of retail buyer's responsibility to holder sold in this state. |
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Sec. 348.602. REQUIREMENTS FOR OFFERING GUARANTEED ASSET |
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PROTECTION WAIVERS. |
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(A) A guaranteed asset protection waiver maybe offered, |
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sold or provided to borrowers in this state in compliance with this |
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Act. |
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(B) A guaranteed asset protection waiver may, at the option |
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of the creditor, be sold for a single payment or may be offered with |
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a monthly or periodic payment option. |
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(C) Notwithstanding any other provision of law, any cost to |
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the borrower for a guaranteed asset protection waiver entered into |
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in compliance with The Truth in Lending Act (15 USC 1601 et. seq.) |
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and its implementing regulations, as they may be amended from time |
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to time, must be separately stated and is not to be considered a |
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finance charge or interest. |
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(D) A guaranteed asset protection waiver remains a part of |
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the finance agreement upon the assignment, sale or transfer of such |
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finance agreement by the creditor. |
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(E) Neither the extension of credit, the term of credit, nor |
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the term of the related motor vehicle sale or lease may be |
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conditioned upon the purchase of a GAP waiver. |
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Sec. 348.603. DISCLOSURES FOR GUARANTEED ASSET PROTECTION |
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WAIVER. |
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(A) A guaranteed asset protection waiver must disclose, as |
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applicable, in writing and in clear, understandable language that |
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is easy to read, the following: |
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(1) The name and address of the initial creditor and |
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the borrower at the time of sale, and the identity of any |
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administrator if different from the creditor. |
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(2) The purchase price and the terms of the guaranteed |
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asset protection waiver, including without limitation, the |
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requirements for protection, conditions, or exclusions associated |
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with the Debt cancellation agreement. |
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(3) That the borrower may cancel the guaranteed asset |
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protection waiver within a free look period as specified in the |
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waiver, and will be entitled to a full refund of the purchase |
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price, so long as no benefits have been provided. In the event |
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benefits have been provided, the borrower may receive a full or |
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partial refund pursuant to the terms of the waiver. |
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(4) The procedure the borrower must follow, if any, to |
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obtain the guaranteed asset protection waiver benefits under the |
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terms and conditions of the waiver, including a telephone number |
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and address where the borrower may apply for waiver benefits. |
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(5) Whether or not the guaranteed asset protection |
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waiver is cancellable after the free look period and the conditions |
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under which it may be cancelled or terminated including the |
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procedures for requesting any refund due. |
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(6) In order to receive any refund due in the event of |
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a borrower's cancellation of the guaranteed asset protection waiver |
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or early termination of the finance agreement after the free look |
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period of the guaranteed asset protection waiver, the borrower, in |
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accordance with terms of the waiver, must provide a written request |
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to cancel to the creditor, administrator or such other party, |
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within ninety days of the occurrence of the event terminating the |
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finance agreement. |
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(7) The methodology for calculating any refund of the |
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unearned purchase price of the guaranteed asset protection waiver |
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due, in the event of cancellation of the guaranteed asset |
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protection waiver or early termination of the finance agreement. |
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(8) That neither the extension of credit, the terms of |
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the credit, nor the terms of the related motor vehicle sale or |
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lease, may be conditioned upon the purchase of the guaranteed asset |
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protection waiver. |
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Sec. 348.604. CANCELLATION OF GUARANTEED ASSET PROTECTION |
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WAIVER. |
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(A) A guaranteed asset protection waiver may be cancellable |
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or non-cancellable after a free look period. A guaranteed asset |
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protection waiver must provide that if a borrower cancels a waiver |
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within the free look period, the borrower will be entitled to a |
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full refund of the purchase price, so long as no benefits have been |
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provided; or in the event benefits have been provided, the borrower |
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may receive a full or partial refund pursuant to the terms of the |
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waiver. |
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(B) In the event of a borrower's cancellation of the |
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guaranteed asset protection waiver or early termination of the |
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finance agreement, after the agreement has been in effect beyond |
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the free look period, the borrower may be entitled to a refund of |
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any unearned portion of the purchase price of the waiver unless the |
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waiver provides otherwise. In order to receive a refund, the |
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borrower, in accordance with any applicable terms of the waiver, |
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must provide a written request to the creditor, administrator or |
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other party, within ninety days of the event terminating the |
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finance agreement. |
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(C) If the cancellation of the guaranteed asset protection |
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waiver occurs as a result of a default under the finance agreement |
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or the repossession of the motor vehicle associated with the |
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finance agreement, or any other termination of the finance |
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agreement, any refund due may be paid directly to the creditor or |
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administrator and applied as set forth in paragraph (D). |
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(D) Any cancellation refund under this section may be |
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applied by the creditor as a reduction of the amount owed under the |
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finance agreement, unless the borrower can show that the finance |
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agreement has been paid in full. |
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Sec. 348.605. ENFORCEMENT. A guaranteed asset protection |
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waivers that meets the requirements of this section is presumed |
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compliant. The Commissioner may, after proper notice and |
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opportunity for hearing: |
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(A) Order the creditor, administrator or any other person |
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not in compliance with this section to cease and desist from further |
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guaranteed asset protection waiver related operations that are in |
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violation of this section. |
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(B) Impose a penalty of not more than five hundred dollars |
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($500.00) per violation and no more than ten thousand dollars |
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($10,000) in the aggregate for all violations of similar nature. |
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For purposes of this section, violations must be of a similar nature |
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if the violation consists of the same or similar course of conduct, |
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action or practice, irrespective of the number of times the |
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section, conduct or practice which is determined to be a violation |
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of the Section occurred. |
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SECTION 3. This Act applies to all guaranteed asset |
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protection waivers entered info on and after September 1, 2011. |
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SECTION 4. This Act takes effect September 1, 2011. |