By: Woolley H.B. No. 2931

A BILL TO BE ENTITLED

AN ACT

relating to debt cancellation agreements.

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

SECTION 1. Section 348.124, Finance Code, is amended to read as follows:

Sec. 348.124. DEBT CANCELLATION AGREEMENTS. (a) In connection with a retail installment transaction under this chapter, a retail seller may offer to the retail buyer a debt cancellation agreement, including but not limited to a guaranteed asset protection waiver or other similarly named agreement. The retail seller may not require that the purchase of a debt cancellation agreement by the retail buyer be made in order to enter into a retail installment transaction.

(b) A debt cancellation agreement, including a guaranteed asset protection waiver, is not considered an insurance product.

(c) The commissioner may not promulgate rates, adopt rules, or issue interpretation letters for debt cancellation agreements, including guaranteed asset protection waivers, that include insurance coverage as part of retail buyer's responsibility to holder sold in this state. [The amount charged for a debt cancellation agreement made in connection with a retail installment contract must be reasonable.]

SECTION 2. Chapter 348, Finance Code, is amended by adding Subchapter G to read as follows:

SUBCHAPTER G. GUARANTEED ASSET PROTECTION WAIVERS

Sec. 348.601. DEFINITIONS.

(A) "Creditor" means:

(i) the lender in a loan or credit transaction;

(ii) the lessor in a lease transaction;

(iii) any retail seller, as defined in 348.001(8), of motor vehicles that provides credit to "retail buyers," as defined in 348.001(5), of such motor vehicles provided that such entities comply with the provisions of this section;

(iv) the seller in commercial retail installment transactions; or

(v) the assignees of any of the foregoing to whom the credit obligation is payable.

(B) "Finance agreement" means a loan, lease or retail installment sales contract for the purchase or lease of a motor vehicle.

(C) "Free look period" means the period of time from the effective date of the guaranteed asset protection waiver until the date the borrower may cancel the contract without penalty, fees or costs to the borrower. This period of time must not be shorter than 30 days.

(D) "Guaranteed asset protection waiver" or "GAP waiver" means a contractual agreement, regardless of how the agreement is titled, wherein a creditor agrees for a separate charge to cancel or waive all or part of amounts due on a borrower's finance agreement in the event of a total physical damage loss or unrecovered theft of the motor vehicle, which agreement must be part of, or a separate addendum to, the finance agreement.

(E) For purposes of this subchapter, "Motor vehicle" means self-propelled or towed vehicles designed for personal or commercial use, including but not limited to automobiles, trucks, motorcycles, recreational vehicles, all-terrain vehicles, snowmobiles, campers, boats, personal watercraft, and personal watercraft trailers.

Sec. 348.6011. SCOPE OF SUBCHAPTER. This subchapter only applies to debt cancellation agreements, including guaranteed asset protection waivers, that include insurance coverage as part of retail buyer's responsibility to holder sold in this state.

Sec. 348.602. REQUIREMENTS FOR OFFERING GUARANTEED ASSET PROTECTION WAIVERS.

(A) A guaranteed asset protection waiver maybe offered, sold or provided to borrowers in this state in compliance with this Act.

(B) A guaranteed asset protection waiver may, at the option of the creditor, be sold for a single payment or may be offered with a monthly or periodic payment option.

(C) Notwithstanding any other provision of law, any cost to the borrower for a guaranteed asset protection waiver entered into in compliance with The Truth in Lending Act (15 USC 1601 et. seq.) and its implementing regulations, as they may be amended from time to time, must be separately stated and is not to be considered a finance charge or interest.

(D) A guaranteed asset protection waiver remains a part of the finance agreement upon the assignment, sale or transfer of such finance agreement by the creditor.

(E) Neither the extension of credit, the term of credit, nor the term of the related motor vehicle sale or lease may be conditioned upon the purchase of a GAP waiver.

Sec. 348.603. DISCLOSURES FOR GUARANTEED ASSET PROTECTION WAIVER.

(A) A guaranteed asset protection waiver must disclose, as applicable, in writing and in clear, understandable language that is easy to read, the following:

(1) The name and address of the initial creditor and the borrower at the time of sale, and the identity of any administrator if different from the creditor.

(2) The purchase price and the terms of the guaranteed asset protection waiver, including without limitation, the requirements for protection, conditions, or exclusions associated with the Debt cancellation agreement.

(3) That the borrower may cancel the guaranteed asset protection waiver within a free look period as specified in the waiver, and will be entitled to a full refund of the purchase price, so long as no benefits have been provided. In the event benefits have been provided, the borrower may receive a full or partial refund pursuant to the terms of the waiver.

(4) The procedure the borrower must follow, if any, to obtain the guaranteed asset protection waiver benefits under the terms and conditions of the waiver, including a telephone number and address where the borrower may apply for waiver benefits.

(5) Whether or not the guaranteed asset protection waiver is cancellable after the free look period and the conditions under which it may be cancelled or terminated including the procedures for requesting any refund due.

(6) In order to receive any refund due in the event of a borrower's cancellation of the guaranteed asset protection waiver or early termination of the finance agreement after the free look period of the guaranteed asset protection waiver, the borrower, in accordance with terms of the waiver, must provide a written request to cancel to the creditor, administrator or such other party, within ninety days of the occurrence of the event terminating the finance agreement.

(7) The methodology for calculating any refund of the unearned purchase price of the guaranteed asset protection waiver due, in the event of cancellation of the guaranteed asset protection waiver or early termination of the finance agreement.

(8) That neither the extension of credit, the terms of the credit, nor the terms of the related motor vehicle sale or lease, may be conditioned upon the purchase of the guaranteed asset protection waiver.

Sec. 348.604. CANCELLATION OF GUARANTEED ASSET PROTECTION WAIVER.

(A) A guaranteed asset protection waiver may be cancellable or non-cancellable after a free look period. A guaranteed asset protection waiver must provide that if a borrower cancels a waiver within the free look period, the borrower will be entitled to a full refund of the purchase price, so long as no benefits have been provided; or in the event benefits have been provided, the borrower may receive a full or partial refund pursuant to the terms of the waiver.

(B) In the event of a borrower's cancellation of the guaranteed asset protection waiver or early termination of the finance agreement, after the agreement has been in effect beyond the free look period, the borrower may be entitled to a refund of any unearned portion of the purchase price of the waiver unless the waiver provides otherwise. In order to receive a refund, the borrower, in accordance with any applicable terms of the waiver, must provide a written request to the creditor, administrator or other party, within ninety days of the event terminating the finance agreement.

(C) If the cancellation of the guaranteed asset protection waiver occurs as a result of a default under the finance agreement or the repossession of the motor vehicle associated with the finance agreement, or any other termination of the finance agreement, any refund due may be paid directly to the creditor or administrator and applied as set forth in paragraph (D).

(D) Any cancellation refund under this section may be applied by the creditor as a reduction of the amount owed under the finance agreement, unless the borrower can show that the finance agreement has been paid in full.

Sec. 348.605. ENFORCEMENT. A guaranteed asset protection waivers that meets the requirements of this section is presumed compliant. The Commissioner may, after proper notice and opportunity for hearing:

(A) Order the creditor, administrator or any other person not in compliance with this section to cease and desist from further guaranteed asset protection waiver related operations that are in violation of this section.

(B) Impose a penalty of not more than five hundred dollars ($500.00) per violation and no more than ten thousand dollars ($10,000) in the aggregate for all violations of similar nature. For purposes of this section, violations must be of a similar nature if the violation consists of the same or similar course of conduct, action or practice, irrespective of the number of times the section, conduct or practice which is determined to be a violation of the Section occurred.

SECTION 3. This Act applies to all guaranteed asset protection waivers entered info on and after September 1, 2011.

SECTION 4. This Act takes effect September 1, 2011.