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A BILL TO BE ENTITLED
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AN ACT
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relating to debt management services and the regulation of debt |
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management services providers. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Section 394.202, Finance Code, is amended by |
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adding Subdivisions (3-a), (9-a), and (11-a) and amending |
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Subdivisions (6) and (10) to read as follows: |
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(3-a) "Concession" means assent to repayment of a debt |
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on terms more favorable to a consumer than the terms of the |
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agreement under which the consumer became indebted to the creditor. |
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(6) "Debt management service" means a service in which |
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a provider obtains or seeks to obtain a concession from one or more |
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creditors on behalf of a consumer[: |
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[(A) the receiving of money from a consumer for |
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the purpose of distributing that money to or among one or more of |
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the creditors of the consumer in full or partial payment of the |
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consumer's obligations; |
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[(B) arranging or assisting a consumer to arrange |
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for the distribution of one or more payments to or among one or more |
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creditors of the consumer in full or partial payment of the |
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consumer's obligations; or |
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[(C) exercising control, directly or indirectly, |
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or arranging for the exercise of control over funds of a consumer |
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for the purpose of distributing payments to or among one or more |
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creditors of the consumer in full or partial payment of the |
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consumer's obligations].
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(9-a) "Principal amount of the debt" means the amount |
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of a debt owed by a consumer at the time the consumer enters into a |
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debt management service agreement. |
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(10) "Provider" means a person that acts as an |
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intermediary between a consumer and one or more creditors and that
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provides or offers to provide [to a consumer in this state] a debt
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management service to a consumer in this state.
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(11-a) "Settlement fee" means a charge that is imposed |
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on or paid by a consumer in connection with a debt management |
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service agreement after a creditor agrees to accept in full |
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satisfaction of a debt an amount that is less than the principal |
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amount of the debt. |
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SECTION 2. Subsection (k), Section 394.204, Finance Code, |
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is amended to read as follows: |
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(k) In addition to the power to refuse an initial |
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application as specified in this section, the commissioner may |
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suspend or revoke a provider's registration after notice and |
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hearing if the commissioner finds that any of the following |
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conditions are met: |
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(1) a fact or condition exists that if it had existed |
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when the provider applied for registration would have been grounds |
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for denying registration; |
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(2) a fact or condition exists that the commissioner |
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was not aware of when the provider applied for registration and |
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would have been grounds for denying registration; |
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(3) the provider violates this subchapter or rule or |
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order of the commissioner under this subchapter; |
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(4) the provider is insolvent; |
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(5) the provider refuses to permit the commissioner to |
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make an examination authorized by this subchapter; |
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(6) the provider fails to respond within a reasonable |
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time and in an appropriate manner to communications from the |
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commissioner; |
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(7) the provider has received money from or on behalf |
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of a consumer for disbursement to a creditor under a debt management |
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plan that provides for regular periodic payments to creditors and
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the provider has failed to disburse money to the creditor
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[creditors] on behalf of the consumer [consumers] within a
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reasonable time, normally 30 days; |
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(8) the commissioner determines that the provider's |
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trust account is not materially in balance with and reconciled to |
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the consumer's account; or |
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(9) the provider fails to warrant the belief that the |
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business will be operated lawfully and fairly and within the |
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provisions and purposes of this subchapter. |
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SECTION 3. Subsection (b), Section 394.206, Finance Code, |
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is amended to read as follows: |
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(b) The bond or insurance must: |
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(1) run concurrently with the period of registration; |
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(2) be available to pay damages and penalties to |
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consumers directly harmed by a violation of this subchapter; |
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(3) be in favor of this state for the use of this state |
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and the use of a person who has a cause of action under this |
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subchapter against the provider; |
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(4) if a bond: |
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(A) be in an amount equal to the average daily
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balance of the provider's trust account serving Texas consumers |
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over the six-month period preceding the issuance of the bond, or in |
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the case of an initial application, in an amount determined by the |
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commissioner, but not less than $25,000 or more than $100,000, if |
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the provider receives and holds money paid by or on behalf of a |
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consumer for disbursement to the consumer's creditors; or |
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(B) be in the amount of $50,000, if the provider |
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does not receive and hold money paid by or on behalf of a consumer |
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for disbursement to the consumer's creditors;
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(5) if an insurance policy: |
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(A) provide coverage for professional liability, |
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employee dishonesty, depositor's forgery, and computer fraud in an |
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amount not less than $100,000; |
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(B) be issued by a company rated at least "A-" or |
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its equivalent by a nationally recognized rating organization; and |
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(C) provide for 30 days advance written notice of |
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termination of the policy to be provided to the commissioner; |
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(6) be issued by a bonding, surety, or insurance |
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company that is authorized to do business in the state; and |
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(7) be conditioned on the provider and its agents |
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complying with all state and federal laws, including regulations, |
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governing the business of debt management services. |
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SECTION 4. Subsections (a), (d), and (f), Section 394.208, |
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Finance Code, are amended to read as follows: |
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(a) A provider may not enroll a consumer in a debt |
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management plan unless, through the services of a counselor |
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certified by an independent accreditation organization, the |
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provider [has]:
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(1) has provided the consumer individualized
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counseling and educational information that at a minimum addresses |
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the topics of managing household finances, managing credit and |
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debt, and budgeting; |
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(2) has prepared an individualized financial analysis
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and an initial debt management plan for the consumer's debts with |
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specific recommendations regarding actions the consumer should |
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take; |
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(3) has determined that the consumer has a reasonable
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ability to make payments under the proposed debt management plan |
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based on the information provided by the consumer; |
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(4) if the proposed debt management plan does not |
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provide for a reduction of principal as a concession: |
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(A) has a reasonable expectation, provided that
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the consumer has provided accurate information to the provider, |
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that each creditor of the consumer listed as a participating |
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creditor in the plan will accept payment of the consumer's debts as |
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provided in the initial plan; and |
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(B) has [(5)] prepared, for all creditors
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identified by the consumer or identified through additional |
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investigation by the provider, a list, which must be provided to the |
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consumer in a form the consumer may keep, of the creditors that the |
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provider reasonably expects to participate in the plan; and |
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(5) has [(6)] provided a written document to the
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consumer in a form the consumer may keep that clearly and |
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conspicuously contains the following statements: |
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(A) that debt management services are not |
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suitable for all consumers and that consumers may request |
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information about other ways, including bankruptcy, to deal with |
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indebtedness; |
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(B) that if the provider is a nonprofit or |
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tax-exempt organization the provider cannot require donations or |
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contributions; and |
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(C) if applicable, that some of the provider's |
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funding comes from contributions from creditors who participate in |
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debt management plans, except that a provider may substitute for |
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"some" the actual percentage of creditor contributions it received |
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during the most recent reporting period. |
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(d) A provider may provide the information required by |
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Subsections (a)(2), (4)(B), and (5)[, and (6)] through its Internet
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website if the provider: |
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(1) has complied with the federal Electronic |
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Signatures in Global and National Commerce Act (15 U.S.C. Section |
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7001 et seq.); |
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(2) informs the consumer that, on electronic, |
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telephonic, or written request the provider will make available to |
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the consumer a paper copy or copies; and |
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(3) discloses on its Internet website: |
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(A) the provider's name and each name under which |
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it does business; |
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(B) the provider's principal business address |
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and telephone number; and |
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(C) the names of the provider's principal |
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officers. |
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(f) A provider who receives and disburses money to creditors |
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on behalf of consumers for debt management services shall provide
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each consumer to [for] whom those services were provided [it |
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provides debt management services] a written report accounting for:
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(1) the amount of money received from the consumer |
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since the last report; |
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(2) the amount and date of each disbursement made on |
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the consumer's behalf to each creditor listed in the agreement |
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since the last report; |
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(3) any amount deducted from amounts received from the |
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consumer; and |
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(4) any amount held in reserve. |
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SECTION 5. Subsection (b), Section 394.209, Finance Code, |
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is amended to read as follows: |
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(b) Each debt management services agreement must: |
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(1) be dated and signed by the consumer; |
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(2) include the name and address of the consumer and |
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the name, address, and telephone number of the provider; |
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(3) describe the services to be provided; |
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(4) state all fees, individually itemized, to be paid |
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by the consumer; |
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(5) if the proposed debt management plan does not |
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provide for a reduction of principal as a concession, list in the
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agreement or accompanying document, to the extent the information |
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is available to the provider at the time the agreement is executed, |
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each participating creditor of the consumer to which payments will |
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be made and, based on information provided by the consumer, the |
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amount owed to each creditor and the schedule of payments the |
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consumer will be required to make to the creditor, including the |
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amount and date on which each payment will be due; |
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(6) state the existence of a surety bond or insurance |
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for consumer claims; |
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(7) state that establishment of a debt management plan |
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may impact the consumer's credit rating and credit score either |
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favorably or unfavorably, depending on creditor policies and the |
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consumer's payment history before and during participation in the |
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debt management plan; and |
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(8) state that either party may cancel the agreement |
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without penalty at any time on 10 days' notice and that a consumer |
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who cancels an agreement is entitled to a refund of all money that |
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the consumer has paid to the provider that has not been disbursed. |
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SECTION 6. Subchapter C, Chapter 394, Finance Code, is |
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amended by adding Section 394.2095 to read as follows: |
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Sec. 394.2095. CANCELLATION OF AGREEMENT BY EITHER PROVIDER |
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OR CONSUMER. If a provider or a consumer cancels a debt management |
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service agreement, the provider shall immediately return to the |
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consumer: |
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(1) any money of the consumer held in trust by the |
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provider for the consumer's benefit; and |
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(2) 65 percent of any portion of the account set-up fee |
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received under Section 394.210(g)(1) that has not been credited |
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against settlement fees. |
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SECTION 7. Section 394.210, Finance Code, is amended by |
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amending Subsections (c) through (f) and adding Subsections (g) |
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through (n) to read as follows: |
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(c) A provider may not impose fees or other charges on a |
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consumer or receive payment for debt management services until the |
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consumer has entered into a debt management service agreement with |
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the provider that complies with Section 394.209. |
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(d) If a consumer enters into a debt management service |
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agreement with a provider, the provider may not impose a fee or |
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other charge for debt counseling, education services, or similar |
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services except as otherwise authorized by this section. The |
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commissioner may authorize a provider to charge a fee based on the |
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nature and extent of the counseling, education services, or other |
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similar services furnished by the provider. |
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(e) Subsections (f)-(j) apply subject to an adjustment made |
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under Section 394.2101. |
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(f) If a consumer is enrolled in a debt management plan that |
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provides for a reduction of finance charges or fees for late |
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payment, default, or delinquency as a concession from creditors, |
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the provider may charge: |
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(1) a fee not to exceed $100 for debt consultation or |
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education services, including obtaining a credit report, setting up |
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an account, and other similar services; and |
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(2) a monthly service fee, not to exceed the lesser of: |
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(A) $10 multiplied by the number of accounts |
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remaining in the plan on the day of the month the fee is assessed; or |
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(B) $50. |
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(g) If a consumer is enrolled in a debt management plan that |
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provides for settlement of debts for amounts that are less than the |
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principal amounts of the debts as a concession from creditors, the |
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provider may charge: |
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(1) a fee for debt consultation or education services, |
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including obtaining a credit report, setting up an account, and |
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other similar services, in an amount not to exceed the lesser of |
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$400 or four percent of the total amount of the outstanding debt |
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included in the plan at the time the plan is established; and |
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(2) a monthly service fee, not to exceed the lesser of: |
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(A) $10 multiplied by the number of accounts |
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remaining in the plan on the day of the month the fee is assessed; or |
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(B) $50; and |
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(3) one of the following: |
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(A) with respect to a debt management service |
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agreement in which a flat fee is charged based on the total amount |
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of debt that is included in a debt management plan, the total |
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aggregate amount of fees charged to a consumer under this |
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subchapter, including fees charged under Subdivisions (1) and (2), |
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may not exceed 17 percent of the total principal amount of debt |
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included in the debt management plan; or |
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(B) with respect to a debt management service |
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agreement in which fees are computed as a percentage of the amount |
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saved by a consumer as a result of a concession, in addition to fees |
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charged under Subdivisions (1) and (2), a settlement fee may not |
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exceed 30 percent of the excess of the outstanding amount of each |
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debt over the amount actually paid to the creditor, as computed at |
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the time of settlement. |
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(h) Settlement fees authorized under Subsection (g) may be |
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charged only as debts are settled, and the total aggregate amount of |
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fees charged to a consumer under this subchapter, including fees |
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charged under Subsections (g)(1) and (2), may not exceed 20 percent |
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of the principal amount of debt included in the debt management |
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plan. |
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(i) The flat fee authorized under this subchapter shall be |
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assessed in equal monthly payments for a period that is at least as |
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long as the term of the debt management plan, as estimated when the |
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debt management plan is established, unless: |
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(1) the fee payment period is voluntarily accelerated |
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by the consumer in an addendum to the agreement or other separate |
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agreement; and |
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(2) offers of settlement by creditors have been |
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obtained on at least half of the outstanding debt included in the |
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debt management plan. |
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(j) If a consumer is enrolled in a debt management plan that |
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provides for the settlement of debts for amounts that are less than |
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the principal amount of the debts as a concession from creditors, if |
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fees for debt management services will not be charged or collected |
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until the time a settlement agreement is reached with a creditor, |
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and if at least one payment has been made toward the settlement |
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agreement by or on behalf of the consumer, the fee limitations in |
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Subsection (g) do not apply and the provider may charge reasonable |
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settlement fees. The fee with respect to each debt included in the |
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plan must: |
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(1) bear the same proportional relationship to the |
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total fee for settling all debts included in the debt management |
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plan as the principal amount of the particular debt bears to the |
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total principal amount of the debt included in the plan; or |
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(2) be a percentage of the amount saved as a result of |
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the settlement, determined as the difference between the principal |
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amount of a debt and the amount actually paid to satisfy the debt. |
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The percentage charged cannot change from one debt to another. |
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(k) A provider may impose fees or other charges or receive |
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fees or payment under only one of Subsection (f), (g), or (j). |
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(l) If a consumer does not enter into a debt management |
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service agreement with a provider, the provider may receive payment |
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for debt counseling or education services provided to the consumer |
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in an amount not to exceed $100 or a greater amount, on approval of |
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the commissioner. The commissioner may approve a fee in an amount |
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greater than $100 if the nature and extent of the educational and |
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counseling services warrant the greater amount. |
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(m) If, before the expiration of the 90th day after the date |
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debt counseling or education services are completed or canceled, a |
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consumer enters into a debt management service agreement with a |
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provider, the provider shall refund to the consumer any payments |
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received under Subsection (l). |
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(n) Subject to an adjustment made under Section 394.2101, if |
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any payment made by a consumer to a provider under this subchapter |
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is dishonored, the provider may impose a reasonable charge on the |
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consumer not to exceed the lesser of $25 or an amount permitted by a |
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law other than this chapter [Any fee charged by a provider must be |
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fair and reasonable given the value of the products and services |
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provided to the consumer, including consideration of the amount |
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subject to debt management and the number of anticipated |
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payments. A fee or a portion of a fee that is specifically related |
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to a debt management plan may not be charged until the provider has |
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complied with Sections 394.208(a) and (b) and 394.209. |
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[(d) A provider may charge a monthly maintenance fee if the |
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fee is fair and reasonable. |
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[(e) A fee charged for a service other than a debt |
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management service must be fair and reasonable. |
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[(f) The finance commission may establish maximum fair and |
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reasonable fees under this section].
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SECTION 8. Subchapter C, Chapter 394, Finance Code, is |
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amended by adding Section 394.2101 to read as follows: |
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Sec. 394.2101. ADJUSTMENT OF AMOUNTS OF FEES OR OTHER |
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CHARGES. (a) The commissioner shall compute and publish the |
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dollar amounts of fees or other charges in amounts different from |
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the amounts of fees or other charges specified in Section 394.210 to |
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reflect inflation, as measured by the Consumer Price Index for All |
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Urban Consumers published by the Bureau of Labor Statistics of the |
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United States Department of Labor or, if that index is not |
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available, another index adopted by finance commission rule. The |
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commissioner shall adopt a base year and adjust the dollar amounts, |
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effective on July 1 of each year, if the change in the index from the |
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base year, as of December 31 of the preceding year, is at least 10 |
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percent. The dollar amounts must be rounded to the nearest $100, |
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except that the amounts of the fees and other charges specified in |
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Section 394.210 must be rounded to the nearest dollar. |
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(b) The commissioner shall notify registered providers of |
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any change in dollar amounts made under Subsection (a) and make that |
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information available to the public. |
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SECTION 9. Subsection (a), Section 394.211, Finance Code, |
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is amended to read as follows: |
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(a) A provider must use a trust account for the management |
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of all money paid by or on behalf of a consumer and received by the |
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provider for disbursement to the consumer's creditor. A provider
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may not commingle the money in a trust account established for the |
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benefit of consumers with any operating funds of the provider. A |
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provider shall exercise due care to appropriately manage the funds |
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in the trust account. |
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SECTION 10. Section 394.213, Finance Code, is amended to |
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read as follows: |
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Sec. 394.213. DUTIES OF PROPER MANAGEMENT. A provider has a |
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duty to a consumer who receives debt management services from the |
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provider to ensure that client money held by the provider is managed
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properly at all times. |
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SECTION 11. This Act takes effect September 1, 2011. |