By: Davis, West S.B. No. 1862
 
 
 
   
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the requirements for certain extensions of credit to
  consumers.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Subchapter A, Chapter 302, Finance Code, is
  amended by adding Section 302.003 to read as follows:
         Sec. 302.003.  PROHIBITION ON THIRD-PARTY FEES TO ARRANGE OR
  GUARANTEE CERTAIN EXTENSIONS OF CONSUMER CREDIT. (a) A fee paid or
  to be paid to a third party to assist a consumer in the transacting,
  arranging, guaranteeing, or negotiating of an extension of credit
  may not be contracted for, charged, or received by a creditor or
  third party in connection with the extension of credit if:
               (1)  the extension of credit is secured by a
  non-purchase money security interest in personal property or is
  unsecured; and
               (2)  the proceeds of the extension of credit are used
  for personal, family, or household purposes.
         (b)  The amount of a fee contracted for, charged, or received
  in violation of Subsection (a) is considered interest for usury
  purposes under state law.
         SECTION 2.  Section 342.604, Finance Code is amended by
  adding subsection (c) as follows:
         (c)  A creditor who extends consumer credit to a member of
  the United States military or a dependent of a member of the United
  States military must comply with Section 670, Public Law 109-364 or
  any regulation adopted pursuant thereto.
         SECTION 3.  Subchapter M, Chapter 342, Finance Code, is
  amended by adding Section 342.606 as follows:
         Sec. 342.606.  REQUIREMENTS FOR DEFERRED PRESENTMENT
  TRANSACTIONS. (a) The provisions of Subchapter F apply to a
  deferred presentment transaction made under the authority of this
  subchapter.
         (b)  As an alternative to the rate provided by Sections
  342.252, 342.253 and 342.259, a deferred presentment transaction
  made under this subchapter with a maximum cash advance computed
  under Subchapter C, Chapter 341, using a reference base amount that
  is not more than $200, may provide for a finance charge that does
  not exceed 15 percent of the cash advance.
         (c)  An authorized lender may not enter into a deferred
  presentment transaction in which the amount of cash advanced
  exceeds 35% of the borrower's gross monthly income.
         (d)  On the prepayment of a deferred presentment
  transaction, the finance charge authorized under this section is
  considered to be earned at the time the loan is made and is not
  subject to refund.
         (e)  An authorized lender must accept partial payment of the
  outstanding principal balance at any time during regular business
  hours.
         (f)  An authorized lender may not for a fee renew, rollover,
  or otherwise consolidate a deferred presentment transaction. For
  purposes of this subsection "rollover" means a transaction in which
  a borrower refinances or pays all or part of the finance charges and
  advance of a deferred presentment transaction with a new deferred
  presentment transaction.
         (g)  If a borrower enters into a third consecutive loan, an
  authorized lender must provide the borrower an option to repay the
  advance and each consecutive loan pursuant to a written repayment
  plan. For purposes of this subsection "consecutive loan" means a
  new deferred presentment transaction that any lender enters into
  with a debtor no later than seven days after the date on which a
  previous deferred presentment transaction made to the same borrower
  is paid in full. The authorized lender may assess a processing fee
  of ten percent of the principal amount of the loan per loan not to
  exceed Fifteen Dollars for administration of the payment plan. A
  lender is not required to enter into a payment plan with a borrower
  more frequently than once every 12 months. The borrower must:
               (1)  request the repayment plan, either orally or in
  writing;
               (2)  repay the loan in four equal installments with one
  installment due on each of the next four dates on which the borrower
  receives regular wages or compensation;
               (3)  agree not to enter into any additional deferred
  presentment transactions during the repayment plan term and for a
  period of fifteen days after termination of the repayment plan
  term.
         (h)  An authorized lender may not impose a default charge in
  connection with a deferred presentment transaction.
         (i)  The finance commission by rule may require a licensee to
  provide materials approved by the commissioner that are designed
  to:
               (1)  inform the borrower of the duties, rights, and
  responsibilities of parties to a deferred presentment transaction;
  and
               (2)  educate a borrower about matters of financial
  literacy.
         (j)  As part of the annual report required under Section
  342.559, a licensee that engages in deferred presentment
  transactions must submit the following to the commissioner:
               (1)  the amount of cash advanced under each deferred
  presentment transaction made, serviced, or brokered by the lender
  during the preceding calendar year;
               (2)  the total number of deferred presentment
  transactions made, serviced, or brokered by the lender during the
  preceding calendar year;
               (3)  data regarding extended payment plans and
  alternative payment arrangements offered by the lender;
               (4)  the gross monthly income reported by an individual
  to whom a cash advance was made under a deferred presentment
  transaction during the preceding calendar year, if the lender
  collects that information from individuals and provided that a
  lender that submits data provided by individuals is not responsible
  for an individual borrower's failure to provide accurate
  information;
               (5)  the total amount of interest, fees, or charges
  collected by the lender during the preceding calendar year for
  making, servicing, or brokering deferred presentment transactions;
  and
               (6)  any other information required by the
  commissioner.
         (k)  A person may not threaten or pursue criminal charges
  against a borrower related to a check or other debit authorization
  provided by the borrower as part of a deferred presentment
  transaction.
         (l)  The commissioner shall prepare and publish a report no
  later than December 1, 2012 regarding the use of deferred
  presentment transactions in Texas. In preparing the study, the
  commissioner shall study the need for comprehensive data reporting
  and the value and feasibility of a real-time statewide database to
  provide data for policy development and to enhance a lender's
  evaluation of a borrower's ability to repay. In reviewing the value
  and feasibility of a real-time statewide database, the study should
  consider the use of a database verification fee collected from the
  borrower to recover the actual costs of the system.
         SECTION 4.  Subsection (a), Section 342.501, Finance Code,
  is amended to read as follows:
         (a)  An authorized lender may not induce or permit a person
  or a husband and wife to be directly or indirectly obligated under
  more than one loan contract at any time for the purpose or with the
  effect of obtaining an amount of interest greater than the amount of
  interest otherwise authorized under this chapter for a loan of that
  aggregate amount with a maximum interest charge computed under
  Section 342.201(a), Section 342.201(e), Section 342.252, Section
  342.259, 342.606, Section 342.654, or any combination of those
  sections.
         SECTION 5.  Chapter 342, Finance Code is amended by adding
  Subchapter N as follows:
                           SUBCHAPTER N. AUTO TITLE LOANS
         Sec. 342.651.  DEFINITION. (a) In this subchapter, "auto
  title loan" means an agreement in which an authorized lender agrees
  to make a loan of money to a borrower, and the borrower agrees to
  give the authorized lender a non-purchase money security interest
  in an unencumbered motor vehicle owned by the borrower.
         Sec. 342.652.  GENERAL REQUIREMENTS. An auto title loan
  must be in writing and have a loan term of 30 days.
         Sec. 342.653.  APPLICABILITY OF OTHER SUBCHAPTERS. (a) The
  provisions of Subchapter E and Subchapter F apply to an auto title
  loan made under this subchapter.
         Sec. 342.654.  AUTHORIZED FINANCE CHARGES. (a) As an
  alternative to the rate provided by Sections 342.201, 342.252,
  342.253 and 342.259, an auto title loan made under this subchapter
  may provide for a finance charge that does not exceed:
               (1)  20 percent per month on the portion of the cash
  advance that does not exceed $700;
               (2)  18 percent per month on the portion of the cash
  advance balance that is greater than $700 but less than $1,400; and
               (3)  15 percent per month on the portion of the cash
  advance that exceeds $1,400.
                      (b) On the prepayment of an auto title loan, the
  finance charge authorized under this section is considered to be
  earned at the time the loan is made and is not subject to refund.
         Sec. 342.655.  ACCEPTANCE OF PARTIAL PAYMENTS. A lender
  must accept partial payment of the principal loan balance of an auto
  title loan at any time during regular business hours.
         Sec. 342.656.  RENEWALS. (a) For purposes of this
  subsection, "renewal" means a transaction in which a borrower
  refinances or pays all or part of the finance charges and advance of
  an auto title loan with a new auto title loan.
         (b)  Beginning with the first renewal and at each successive
  renewal thereafter, the borrower must reduce the principal balance
  by at least ten percent of the original principal balance of the
  auto title loan. If the borrower fails to pay the amount necessary
  to reduce the principal balance by ten percent at any renewal, then
  the lender may renew the transaction, provided that the lender must
  calculate the finance charge as if the principal balance of the loan
  were reduced by 10 percent of the original principal balance. This
  reduction in principal continues to be due from the borrower in
  accordance with the auto title loan agreement, but that amount is
  not entitled to accrue interest or finance charges. Alternatively
  if the borrower fails to pay, the lender may declare the outstanding
  principal balance and any finance charge to be immediately due and
  payable.
         (c)  After three renewals of an auto title loan, if a
  borrower is unable to pay on the due date the amount owing, then the
  lender must offer a repayment plan to the borrower. A lender is not
  required to enter into a payment plan with a borrower more
  frequently than once every 12 months. If the borrower agrees to the
  repayment plan, then the borrower must repay the amount owed
  according to the following terms:
               (1)  the borrower must be allowed to repay the loan in
  not more than four substantially equal installments with one
  installment due on each of the next four dates on which the borrower
  receives regular wages or compensation; and
               (2)  the authorized lender may not charge a borrower
  any additional interest or fee for using the repayment plan.
         (d)  An authorized lender and a borrower may agree to enter a
  repayment plan described by Subsection (c) at any time during the
  term of an auto title loan or during the term of any renewal.
         (e)  An authorized lender may not impose a default charge in
  connection with an auto title loan.
         Sec. 342.657.  POSSESSION OF MOTOR VEHICLE OR CERTIFICATE OF
  TITLE. (a) In an auto title loan subject to this subchapter, the
  borrower shall agree to the authorized lender's possession of the
  certificate of title.
         (b)  The borrower shall have the exclusive right to redeem
  the certificate of title by repaying the auto title loan in full and
  by complying with the auto title loan agreement. When the
  certificate of title is redeemed, the authorized lender shall
  release the security interest in the motor vehicle, and return the
  certificate of title to the borrower.
         (c)  The auto title loan agreement must provide that, on
  failure by the borrower to redeem the certificate of title at the
  end of the original 30-day term period, or at the end of any 30-day
  renewal or renewals of the agreement period or extended payment
  plan agreements, the lender is allowed to take possession of the
  motor vehicle.
         (d)  The lender shall retain physical possession of the
  certificate of title for the entire term of the auto title loan
  agreement, but is not required to retain physical possession of the
  motor vehicle at any time.
         (e)  A lender may only hold unencumbered certificates of
  title for pledge.
         Sec. 342.658.  NO CRIMINAL PROSECUTION. A person may not
  threaten or pursue criminal charges against a borrower related to a
  check or other debit authorization provided by the borrower as part
  of an auto title loan.
         Sec. 342.659.  CONSIDERATION OF BORROWER'S ABILITY TO REPAY.
  When making or negotiating an auto title loan, the lender must
  consider, in determining the size, duration, and schedule of
  installments of the loan, the financial ability of the borrower to
  repay the loan, and specifically evaluate whether the borrower will
  be reasonably able to pay the loan in cash at the time and in the
  manner provided in the auto title loan agreement.
         Sec. 342.660.  CONSUMER INFORMATION. The finance commission
  by rule may require a licensee to provide materials approved by the
  commissioner that are designed to:
               (1)  inform the borrower of the duties, rights, and
  responsibilities of parties to an auto title loan; and
               (2)  educate a borrower about matters of financial
  literacy.
         Sec. 342.661.  INFORMATION REQUIRED FOR ANNUAL REPORT. As
  part of the annual report required under Section 342.559, a
  licensee that engages in auto title loans shall submit the
  following to the commissioner:
               (1)  the amount of cash advanced under each auto title
  loan made, serviced, or brokered by the lender during the preceding
  calendar year;
               (2)  the total number of auto title loans made,
  serviced, or brokered by the lender during the preceding calendar
  year;
               (3)  the total number of auto title loans renewed
  during the preceding calendar year;
               (4)  data regarding any alternative payment
  arrangements or extended payment plans offered by the lender;
               (5)  the gross monthly income reported by an individual
  to whom a cash advance was made under an auto title loan during the
  preceding calendar year, if the lender collects that information
  from individuals and provided that a lender that submits data
  provided by individuals is not responsible for an individual
  borrower's failure to provide accurate information;
               (6)  the total amount of interest, fees, or charges
  collected by the lender during the preceding calendar year for
  making, servicing, or brokering auto title loans;
               (7)  the total number of motor vehicles repossessed;
  and
               (8)  any other information required by the
  commissioner.
         SECTION 6.  Section 393.001(3), Finance Code, is amended to
  read as follows:
               (3)  "Credit services organization" means a person who
  provides, or represents that the person can or will provide, for the
  payment of valuable consideration any of the following services
  with respect to the extension of consumer credit by others:
                     (A)  improving a consumer's credit history or
  rating; or
                     (B)  [obtaining an extension of consumer credit
  for a consumer; or
                     [(C)]  providing advice or assistance to a
  consumer with regard to Paragraph (A) [or (B)].
         SECTION 7.  Subchapter D, Chapter 393, Finance Code, is
  amended by adding Section 393.308 to read as follows:
         Sec. 393.308.  OBTAINING EXTENSIONS OF CONSUMER CREDIT
  PROHIBITED. A credit services organization may not obtain an
  extension of consumer credit for a consumer or assist a consumer in
  obtaining an extension of consumer credit.
         SECTION 8.  Section 342.601(1), Finance Code, is repealed.
         SECTION 9.  This Act takes effect September 1, 2011.