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AN ACT
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relating to the regulation of providers, administrators, and |
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sellers of service contracts and identity recovery service |
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contracts; providing penalties. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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ARTICLE 1. SERVICE CONTRACTS |
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SECTION 1.01. Section 1304.002, Occupations Code, is |
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amended by adding Subdivision (8-a) to read as follows: |
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(8-a) "Seller" means a person, other than the provider |
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or administrator of a service contract, who markets, sells, offers |
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to sell, negotiates, or issues a service contract to a consumer on |
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behalf of a provider, but who is not contractually obligated to a |
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service contract holder under the terms of a service contract. |
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SECTION 1.02. Chapter 1304, Occupations Code, is amended by |
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adding Subchapter B to read as follows: |
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SUBCHAPTER B. POWERS AND DUTIES OF DEPARTMENT |
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AND COMMISSION |
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Sec. 1304.052. RULES. The commission shall adopt rules |
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necessary to implement and administer this chapter. |
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SECTION 1.03. Section 1304.007, Occupations Code, is |
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transferred to Subchapter B, Chapter 1304, Occupations Code, as |
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added by this Act, redesignated as Section 1304.051, Occupations |
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Code, and amended to read as follows: |
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Sec. 1304.051 [1304.007]. GENERAL INVESTIGATIVE POWER OF |
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EXECUTIVE DIRECTOR. (a) The executive director may investigate a |
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provider, administrator, seller, or other person as necessary to |
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enforce this chapter and protect service contract holders in this |
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state. |
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(b) On request of the executive director, a provider shall |
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make the records required by Section 1304.155 available to the |
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executive director as necessary to enable the executive director to |
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reasonably determine compliance with this chapter. |
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SECTION 1.04. Section 1304.101, Occupations Code, is |
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amended to read as follows: |
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Sec. 1304.101. REGISTRATION REQUIRED; EXEMPTION FROM OTHER |
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LICENSING REQUIREMENTS. (a) A person may not operate as a |
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provider or administrator of service contracts sold or issued in |
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this state unless the person is registered with the department. |
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(b) Except for the registration requirement of this chapter |
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[subchapter], a provider, [service contract] seller, |
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administrator, or other person who markets, sells, issues, or |
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offers to sell service contracts is exempt from any licensing |
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requirement of this state that relates to an activity regulated |
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under this chapter. |
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(c) A provider or administrator may not contract with or use |
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the services of a person to perform an activity that requires |
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registration with the department as a provider or administrator |
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unless that person is appropriately registered. |
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SECTION 1.05. Subsection (c), Section 1304.102, |
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Occupations Code, is amended to read as follows: |
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(c) The department may refuse to issue or renew a |
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registration, suspend or revoke a registration, or take any other |
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disciplinary action under Subchapter E if the applicant or a |
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controlling person of the applicant: |
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(1) has violated this chapter or a rule adopted or |
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order issued by the commission or executive director under this |
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chapter; |
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(2) has made a material misrepresentation or false |
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statement in an application or in any document accompanying an |
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application; |
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(3) has had a license issued under Title 13, Insurance |
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Code, revoked as provided by that code; or |
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(4) has had a license or registration as a provider, |
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administrator, or seller revoked in this state or another state. |
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SECTION 1.06. Subsection (a), Section 1304.1025, |
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Occupations Code, is amended to read as follows: |
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(a) In addition to the requirements of Section 1304.102, an |
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applicant for issuance or renewal of a provider registration must |
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file with the application: |
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(1) the reimbursement insurance policy, if the |
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provider is using a reimbursement insurance policy to meet the |
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financial security requirements of Section 1304.151; [and] |
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(2) the financial security deposit and the |
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documentation required by the department demonstrating adequate |
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funding of the reserve account, if the provider is using a funded |
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reserve account and financial security deposit to meet the |
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financial security requirements of Section 1304.151; |
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(3) the proof necessary to demonstrate the applicant |
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or its parent company maintains at least $100 million net worth, if |
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the applicant is using net worth to meet the financial security |
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requirements of Section 1304.151; and |
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(4) information about each controlling person of the |
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applicant [a biographical affidavit,] in a form prescribed by the |
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executive director[, for each controlling person of the provider]. |
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SECTION 1.07. Subsections (a) and (b), Section 1304.103, |
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Occupations Code, are amended to read as follows: |
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(a) The executive director shall develop a tiered schedule |
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of registration and renewal fees under which a provider's fee is |
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based on the number of service contracts the provider sold or issued |
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in this state during the preceding 12-month period. |
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(b) The commission shall set [the amounts of] fees to cover |
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the costs of administering this chapter, including registration and |
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renewal fees for administrators. |
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SECTION 1.08. Section 1304.104, Occupations Code, is |
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amended to read as follows: |
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Sec. 1304.104. INFORMATION CONCERNING NUMBER OF SERVICE |
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CONTRACTS SOLD OR ISSUED. Information concerning the number of |
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service contracts sold or issued by a provider that is submitted |
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under Section 1304.103[:
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[(1)] is a trade secret to which Section 552.110, |
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Government Code, applies[; and
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[(2)
may be used only by the executive director and the
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department in developing the tiered fee schedule under Section
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1304.103]. |
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SECTION 1.09. The heading to Subchapter D, Chapter 1304, |
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Occupations Code, is amended to read as follows: |
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SUBCHAPTER D. PRACTICE BY SERVICE CONTRACT PROVIDERS, |
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[AND] ADMINISTRATORS, AND SELLERS |
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SECTION 1.10. The heading to Section 1304.151, Occupations |
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Code, is amended to read as follows: |
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Sec. 1304.151. FINANCIAL SECURITY REQUIREMENTS; |
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DISTRIBUTION OF FUNDS HELD IN TRUST. |
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SECTION 1.11. Section 1304.151, Occupations Code, is |
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amended by amending Subsections (a) and (b) and adding Subsection |
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(f) to read as follows: |
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(a) To ensure the faithful performance of a provider's |
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obligations to its service contract holders, each provider must: |
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(1) insure the provider's service contracts under a |
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reimbursement insurance policy issued by an insurer authorized to |
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transact insurance in this state or by a surplus lines insurer |
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eligible to place coverage in this state under Chapter 981, |
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Insurance Code; |
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(2) maintain a funded reserve account covering the |
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provider's obligations under its service contracts that are issued |
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and outstanding in this state and place in trust with the executive |
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director a financial security deposit consisting of: |
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(A) [a surety bond issued by an authorized
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surety;
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[(B)
securities of the type eligible for deposit
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by an authorized insurer in this state;
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[(C)] a statutory deposit of cash [or cash
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equivalents]; |
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(B) [(D)] a letter of credit issued by a |
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qualified financial institution; or |
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(C) a certificate of deposit issued by a |
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qualified financial institution [(E)
another form of security
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prescribed by rules adopted by the commission]; or |
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(3) maintain, or have a parent company that maintains, |
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a net worth or stockholders' equity of at least $100 million. |
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(b) If the provider ensures its obligations under |
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Subsection (a)(2), the amount maintained in the reserve account may |
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not be less than an amount equal to 40 percent of the gross |
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consideration the provider received from consumers from the sale of |
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all service contracts issued and outstanding in this state, minus |
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any claims paid. The executive director may review and examine the |
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reserve account. The amount of the security deposit may not be less |
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than $250,000. The provider must submit to the executive director |
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on request a copy of the provider's financial statements that must |
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be prepared in accordance with generally accepted accounting |
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principles, be without qualification as to the going concern status |
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of the provider, and be audited by an independent certified public |
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accountant. The commission by rule may require the provider to |
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submit additional financial reports [the greater of:
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[(1) $25,000; or
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[(2)
an amount equal to five percent of the gross
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consideration the provider received from consumers from the sale of
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all service contracts issued and outstanding in this state, minus
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any claims paid]. |
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(f) In the event of a provider's bankruptcy or a similar |
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event affecting the ability of the provider to faithfully perform |
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its obligations to its service contract holders, the executive |
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director may distribute any funds held in trust as financial |
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security for the provider under this section to eligible service |
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contract holders as payment for claims. The executive director |
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must distribute the funds in an equitable and cost-effective manner |
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as determined by the executive director. |
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SECTION 1.12. Subchapter D, Chapter 1304, Occupations Code, |
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is amended by adding Sections 1304.1521 and 1304.1531 to read as |
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follows: |
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Sec. 1304.1521. FINANCIAL SECURITY TRANSITION. (a) In |
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this section, "provider that maintained a funded reserve account" |
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means a provider that, in order to ensure the faithful performance |
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of the provider's obligations to service contract holders, |
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maintained a funded reserve account covering the provider's |
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obligations under service contracts that were issued and |
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outstanding in this state and placed in trust with the executive |
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director a financial security deposit consisting of: |
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(1) a surety bond issued by an authorized surety; |
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(2) securities of the type eligible for deposit by an |
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authorized insurer in this state; |
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(3) a statutory deposit of cash or cash equivalents; |
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(4) a letter of credit issued by a qualified financial |
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institution; or |
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(5) another form of security prescribed by commission |
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rules. |
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(b) This section applies only to a provider that maintained |
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a funded reserve account on August 31, 2011. |
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(c) Not later than September 1, 2012, a provider that |
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maintained a funded reserve account shall submit to the executive |
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director documentation that the provider is in compliance with the |
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financial security requirements provided by Section 1304.151 for |
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service contracts sold or issued in this state on or after September |
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1, 2012. A provider that maintained a funded reserve account may |
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not sell or issue a service contract on or after September 1, 2012, |
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unless the provider is in compliance with this subsection. |
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(d) A provider that maintained a funded reserve account |
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shall: |
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(1) continue to maintain the funded reserve account |
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and security deposit at appropriate levels for service contracts |
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that were sold or issued in this state before September 1, 2012, |
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until the contracts are no longer in effect; or |
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(2) provide financial security for service contracts |
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sold or issued before September 1, 2012, by complying with the |
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financial security requirements of Section 1304.151. |
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(e) If a provider provides financial security for service |
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contracts sold or issued before September 1, 2012, by complying |
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with the financial security requirements of Section 1304.151, the |
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provider shall give to the executive director satisfactory |
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documentation that the reimbursement insurance policy, funded |
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reserve account and security deposit, or net worth covers all |
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outstanding service contracts issued before September 1, 2012. |
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(f) A service contract that is sold or issued before |
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September 1, 2012, and is covered under a funded reserve account and |
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security deposit may not be extended or renewed at the end of the |
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service contract term unless the provider provides financial |
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security for those service contracts by complying with the |
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financial security requirements of Section 1304.151 before the |
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extension or renewal. |
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Sec. 1304.1531. SERVICE CONTRACT SELLERS; |
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RESPONSIBILITIES. (a) A provider may employ or contract with a |
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seller to be responsible for: |
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(1) all or any part of the sale or marketing of service |
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contracts for the provider; and |
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(2) compliance with this chapter in connection with |
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the sale or marketing of service contracts. |
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(b) The hiring of or contracting with a seller under this |
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section does not affect a provider's responsibility to comply with |
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this chapter. |
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(c) Unless registered as a provider or administrator, a |
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seller is prohibited from engaging in activities that would require |
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registration as a provider or administrator. |
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(d) A seller shall process a service contract application |
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and a payment from a consumer in accordance with this chapter and |
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with any sales agreement or contract between the provider and the |
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seller. |
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SECTION 1.13. Subsections (a), (b), and (d), Section |
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1304.156, Occupations Code, are amended to read as follows: |
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(a) A service contract marketed, sold, offered for sale, |
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issued, made, proposed to be made, or administered in this state |
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must: |
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(1) be written, printed, or typed in clear, |
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understandable language that is easy to read; |
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(2) state the name and address of the provider; |
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(3) state the purchase price of the contract and the |
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terms under which the contract is sold; |
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(4) state the terms and restrictions governing |
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cancellation of the contract by the provider or the service |
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contract holder before the expiration date of the contract; |
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(5) identify: |
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(A) any administrator and any registration |
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number issued to the administrator under this chapter; |
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(B) the [contract] seller; and |
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(C) the service contract holder, if the service |
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contract holder provides the holder's name; |
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(6) state the amount of any deductible; |
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(7) specify the products and services to be provided |
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under the contract and any limitation, exception, or exclusion; |
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(8) specify any restriction governing the |
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transferability of the contract; |
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(9) state the duties of the service contract holder, |
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including any duty to protect against any further damage and any |
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requirement to follow the instructions in the owner's manual; and |
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(10) state whether the contract provides for or |
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excludes consequential damages or preexisting conditions, if |
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applicable. |
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(b) The identity and, if applicable, registration number |
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issued under this chapter of a person described by Subsection |
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(a)(5) is not required to be preprinted on the service contract and |
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may be added to the contract at the time of sale. |
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(d) A service contract insured under a reimbursement |
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insurance policy under Section 1304.152 [1304.151(a)(1)] must: |
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(1) state the name and address of the insurer; |
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(2) state that the service contract holder may apply |
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for reimbursement directly to the insurer if: |
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(A) a covered service is not provided to the |
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service contract holder by the provider before the 61st [not later
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than the 60th] day after the date of proof of loss; or |
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(B) a refund or credit is not paid before the 46th |
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day after the date on which the contract is canceled [returned to
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the provider] under Section 1304.1581 [1304.158]; and |
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(3) contain a statement substantially similar to the |
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following: "Obligations of the provider under this service |
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contract are insured under a service contract reimbursement |
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insurance policy." |
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SECTION 1.14. Subchapter D, Chapter 1304, Occupations Code, |
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is amended by adding Section 1304.1581 to read as follows: |
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Sec. 1304.1581. CANCELLATION BY SERVICE CONTRACT HOLDER; |
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REFUND. (a) A service contract must allow the service contract |
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holder to cancel the service contract at any time. |
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(b) If a service contract holder cancels a service contract |
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before the 31st day after the date of purchase, the provider: |
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(1) shall refund to the service contract holder or |
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credit to the account of the service contract holder the full |
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purchase price of the contract, decreased by the amount of any |
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claims paid under the contract; and |
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(2) may not impose a cancellation fee. |
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(c) If a service contract holder cancels a service contract |
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on or after the 31st day after the date of purchase, the provider: |
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(1) shall refund to the service contract holder or |
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credit to the account of the service contract holder the prorated |
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purchase price of the contract reflecting the remaining term of the |
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contract, based on mileage, time, or another reasonably applicable |
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measure of the remaining term that must be disclosed in the |
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contract, decreased by the amount of any claims paid under the |
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contract; and |
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(2) may impose a reasonable cancellation fee not to |
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exceed $50. |
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(d) A provider may allow a service contract holder to cancel |
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a service contract on other terms included in the contract, |
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provided the terms do not conflict with this section. |
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(e) A provider who does not pay the refund or credit the |
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service contract holder's account before the 46th day after the |
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date notice of cancellation is received by the provider is liable to |
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the service contract holder for a penalty for each month an amount |
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remains outstanding equal to 10 percent of the amount outstanding. |
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The penalty is in addition to the full or prorated purchase price of |
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the contract that is owed to the service contract holder under this |
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section or the terms of the contract. |
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(f) The right to cancel a service contract is not |
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transferable to a subsequent holder of the contract. |
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SECTION 1.15. The heading to Section 1304.159, Occupations |
|
Code, is amended to read as follows: |
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Sec. 1304.159. CANCELLATION BY PROVIDER; REFUND [CANCELING
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A SERVICE CONTRACT]. |
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SECTION 1.16. Section 1304.159, Occupations Code, is |
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amended by amending Subsection (b) and adding Subsection (c) to |
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read as follows: |
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(b) The provider is not required to provide prior notice of |
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cancellation if the service contract is canceled because of: |
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(1) nonpayment of the consideration for the contract; |
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(2) fraud or a material misrepresentation by the |
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service contract holder to the provider or the provider's |
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administrator; or |
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(3) a substantial breach of a duty by the service |
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contract holder relating to the covered product or its use. |
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(c) A service contract holder whose contract is canceled by |
|
the provider in accordance with this section is entitled to a |
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prorated refund of the purchase price of the contract reflecting |
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the remaining term of the contract, based on mileage, time, or |
|
another reasonably applicable measure of the remaining term that |
|
must be disclosed in the contract, decreased by the amount of any |
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claims paid under the contract. A provider who cancels a contract |
|
under this section may not impose a cancellation fee. |
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SECTION 1.17. Section 1304.161, Occupations Code, is |
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amended to read as follows: |
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Sec. 1304.161. [MISLEADING STATEMENTS] PROHIBITED ACTS. |
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(a) A provider, administrator, seller, or other [or the
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provider's] representative of the provider may not, in the |
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provider's service contracts or literature or in any written |
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communication: |
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(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 person, including a bank, a savings and loan |
|
association, a lending institution, or the manufacturer or seller |
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of a product, may not require the purchase of a service contract as |
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a condition of a loan or the sale of property. |
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(c) A provider, administrator, seller, or other |
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representative of the provider may not make a telemarketing call to |
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a consumer as provided by Sections 304.002 and 304.003, Business & |
|
Commerce Code, unless the provider, administrator, seller, or |
|
representative has an established business relationship, as |
|
defined by Section 304.002, Business & Commerce Code, with the |
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consumer. |
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SECTION 1.18. Section 1304.201, Occupations Code, is |
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amended to read as follows: |
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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. |
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SECTION 1.19. Subchapter E, Chapter 1304, Occupations Code, |
|
is amended by adding Section 1304.205 to read as follows: |
|
Sec. 1304.205. REMEDY FOR SERVICE CONTRACT HOLDERS. |
|
(a) If the commission by order, including an agreed order, |
|
determines that a person has operated as a provider or |
|
administrator in this state without holding the appropriate |
|
registration under this chapter, the person shall offer to a |
|
service contract holder who holds a service contract sold or issued |
|
by the person during the period that the person was not registered |
|
under this chapter the right to: |
|
(1) cancel the contract and obtain a refund of the full |
|
purchase price of the contract; or |
|
(2) retain the contract. |
|
(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, by |
|
commission order, including an agreed order, require the seller to |
|
refund the full purchase price of the 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 1.20. (a) On the effective date of this Act, the |
|
following provisions of the Occupations Code are repealed: |
|
(1) Section 1304.006; and |
|
(2) Subsection (d), Section 1304.102. |
|
(b) On January 1, 2012, the following provisions of the |
|
Occupations Code are repealed: |
|
(1) Section 1304.157; and |
|
(2) Section 1304.158. |
|
SECTION 1.21. (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 to a consumer 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 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 provider or administrator may not contract with or use |
|
the services of a person to perform an activity that requires |
|
registration with the department as a provider or administrator |
|
unless that person is appropriately registered. |
|
SECTION 2.05. Subsection (c), Section 1306.052, |
|
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; or |
|
(4) has had a license or registration as a provider, |
|
administrator, or seller revoked in this state or another state. |
|
SECTION 2.06. Subsection (a), Section 1306.053, |
|
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 to meet the financial security requirements of |
|
Section 1306.101; [and] |
|
(2) the financial security deposit and the |
|
documentation required by the department demonstrating adequate |
|
funding of the reserve account, if the provider is using a funded |
|
reserve account and financial security deposit to meet the |
|
financial security requirements of Section 1306.101; |
|
(3) the proof necessary to demonstrate the applicant |
|
or its parent company maintains at least $100 million net worth, if |
|
the applicant is using net worth to meet the financial security |
|
requirements of Section 1306.101; and |
|
(4) 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. Subsections (b) and (d), Section 1306.054, |
|
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. The heading to Section 1306.101, Occupations |
|
Code, is amended to read as follows: |
|
Sec. 1306.101. FINANCIAL SECURITY REQUIREMENTS; |
|
DISTRIBUTION OF FUNDS HELD IN TRUST. |
|
SECTION 2.10. Section 1306.101, Occupations Code, is |
|
amended by amending Subsections (a) and (b) and adding Subsection |
|
(f) 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; |
|
(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]; |
|
(B) [(D)] a letter of credit issued by a |
|
qualified financial institution; or |
|
(C) a certificate of deposit issued by a |
|
qualified financial institution [(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. |
|
(b) If the provider ensures its obligations under |
|
Subsection (a)(2), the amount maintained in the reserve account may |
|
not be less than an amount equal to 40 percent of the gross |
|
consideration the provider received from consumers from the sale of |
|
all identity recovery service contracts issued and outstanding in |
|
this state, minus any claims paid. The executive director may |
|
review and examine the reserve account. The amount of the security |
|
deposit may not be less than $250,000. The provider must submit to |
|
the executive director on request a copy of the provider's |
|
financial statements that must be prepared in accordance with |
|
generally accepted accounting principles, be without qualification |
|
as to the going concern status of the provider, and be audited by an |
|
independent certified public accountant. The commission by rule |
|
may require the provider to submit additional financial reports |
|
[the greater of:
|
|
[(1) $25,000; or
|
|
[(2)
an amount equal to five percent of the gross
|
|
consideration the provider received from consumers from the sale of
|
|
all identity recovery service contracts issued and outstanding in
|
|
this state, minus any claims paid]. |
|
(f) In the event of a provider's bankruptcy or a similar |
|
event affecting the ability of the provider to faithfully perform |
|
its obligations to its identity recovery service contract holders, |
|
the executive director may distribute any funds held in trust as |
|
financial security for the provider under this section to eligible |
|
identity recovery service contract holders as payment for claims. |
|
The executive director must distribute the funds in an equitable |
|
and cost-effective manner as determined by the executive director. |
|
SECTION 2.11. 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 |
|
complying with the financial security requirements of Section |
|
1306.101. |
|
(e) If a provider provides financial security for identity |
|
recovery service contracts sold or issued before September 1, 2012, |
|
by complying with the financial security requirements of Section |
|
1306.101, the provider shall give to the executive director |
|
satisfactory documentation that the reimbursement insurance |
|
policy, funded reserve account and security deposit, 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 unless the |
|
provider provides financial security for those service contracts by |
|
complying with the financial security requirements of Section |
|
1306.101 before the extension or renewal. |
|
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 2.12. Subsections (a), (b), and (d), Section |
|
1306.106, 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 2.13. 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, 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, |
|
decreased by the amount of any claims paid under 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, 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 contract, based on mileage, |
|
time, or another reasonably applicable measure of the remaining |
|
term that must be disclosed in the contract, decreased by the amount |
|
of any claims paid under the 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 contract. |
|
(f) The right to cancel an identity recovery service |
|
contract is not transferable to a subsequent holder of the |
|
contract. |
|
SECTION 2.14. 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 2.15. 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 contract reflecting the remaining term of the contract, based |
|
on mileage, time, or another reasonably applicable measure of the |
|
remaining term that must be disclosed in the contract, decreased by |
|
the amount of any claims paid under the contract. A provider who |
|
cancels a contract under this section may not impose a cancellation |
|
fee. |
|
SECTION 2.16. 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 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 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. |
|
(c) A provider, administrator, seller, or other |
|
representative of the provider may not make a telemarketing call to |
|
a consumer as provided by Sections 304.002 and 304.003, Business & |
|
Commerce Code, unless the provider, administrator, seller, or |
|
representative has an established business relationship, as |
|
defined by Section 304.002, Business & Commerce Code, with the |
|
consumer. |
|
SECTION 2.17. 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 2.18. Subchapter D, Chapter 1306, Occupations Code, |
|
is amended by adding Section 1306.155 to read as follows: |
|
Sec. 1306.155. REMEDY FOR IDENTITY RECOVERY SERVICE |
|
CONTRACT HOLDERS. (a) If the commission by order, including an |
|
agreed order, determines that a person has operated as a provider or |
|
administrator in this state without holding the appropriate |
|
registration under this chapter, the person shall offer to an |
|
identity recovery service contract holder who holds an identity |
|
recovery service contract sold or issued by the person during the |
|
period that the person was not registered under this chapter the |
|
right to: |
|
(1) cancel the contract and obtain a refund of the full |
|
purchase price of the contract; or |
|
(2) retain the contract. |
|
(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, by commission order, including an agreed order, |
|
require the seller to refund the full purchase price of the 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 2.19. (a) On the effective date of this Act, the |
|
following provisions of the Occupations Code are repealed: |
|
(1) Section 1306.007; and |
|
(2) Subsection (d), Section 1306.052. |
|
(b) On January 1, 2012, the following provisions of the |
|
Occupations Code are repealed: |
|
(1) Section 1306.107; and |
|
(2) Section 1306.108. |
|
SECTION 2.20. (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. |
|
|
|
|
|
|
|
|
______________________________ |
______________________________ |
|
President of the Senate |
Speaker of the House |
|
|
I hereby certify that S.B. No. 1169 passed the Senate on |
|
April 21, 2011, by the following vote: Yeas 31, Nays 0; and that |
|
the Senate concurred in House amendment on May 25, 2011, by the |
|
following vote: Yeas 31, Nays 0. |
|
|
|
|
______________________________ |
|
Secretary of the Senate |
|
|
I hereby certify that S.B. No. 1169 passed the House, with |
|
amendment, on May 23, 2011, by the following vote: Yeas 142, |
|
Nays 0, one present not voting. |
|
|
|
|
______________________________ |
|
Chief Clerk of the House |
|
|
|
|
|
Approved: |
|
|
|
______________________________ |
|
Date |
|
|
|
|
|
______________________________ |
|
Governor |