|
|
A BILL TO BE ENTITLED
|
|
AN ACT
|
|
|
relating to 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) to read 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 10 U.S.C. Section 987 and any |
|
regulations adopted under that law, to the extent applicable. |
|
SECTION 3. Subchapter M, Chapter 342, Finance Code, is |
|
amended by adding Sections 342.606 and 342.607 to read as follows: |
|
Sec. 342.606. REQUIREMENTS FOR DEFERRED PRESENTMENT |
|
TRANSACTIONS. (a) The provisions of Subchapter F apply to a |
|
deferred presentment transaction made under this subchapter. |
|
(b) As an alternative to the rate provided by Sections |
|
342.252, 342.253, and 342.259, the combined interest and fees for 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 not |
|
exceed 15 percent of the amount advanced. |
|
(c) A lender may not enter into a deferred presentment |
|
transaction in which the amount of cash advanced exceeds 35 percent |
|
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 transaction is made and is |
|
not subject to refund. |
|
(e) A lender must accept partial payment of the outstanding |
|
principal balance at any time during regular business hours. |
|
(f) A lender may not for a fee renew, roll over, or otherwise |
|
consolidate a deferred presentment transaction. For purposes of |
|
this subsection, "roll over" means the refinancing or paying of all |
|
or part of the finance charges and advance of a deferred presentment |
|
transaction with a new deferred presentment transaction. |
|
(g) In this subsection, "consecutive loan" means a new |
|
deferred presentment transaction that a lender enters into with a |
|
borrower not later than the seventh day after the date a previous |
|
deferred presentment transaction made to the same borrower is paid |
|
in full. If a borrower enters into a third consecutive loan, a |
|
lender must automatically convert the loan at no additional cost |
|
under a written repayment plan as authorized by this subsection |
|
under which the borrower must be allowed to repay the loan in not |
|
less than four substantially equal installments. A lender is not |
|
required to enter into a repayment plan with a borrower more |
|
frequently than once every 12 months. The borrower must agree not |
|
to enter into an additional deferred presentment transaction during |
|
the repayment plan term. |
|
(h) A lender may not impose a default charge in connection |
|
with a deferred presentment transaction. |
|
(i) The finance commission by rule may require a lender to |
|
provide to a borrower materials approved by the commissioner that |
|
are designed to: |
|
(1) inform the borrower of the duties, rights, and |
|
responsibilities of the parties to a deferred presentment |
|
transaction; and |
|
(2) educate a borrower about matters of financial |
|
literacy. |
|
(j) A lender may not charge or receive in addition to the |
|
interest and charges provided for by this section any additional |
|
amount, whether in the form of broker fees, placement fees, or |
|
another fee or charge, except costs and disbursements in connection |
|
with any suit to collect a deferred presentment transaction, |
|
including reasonable attorney's fees that are incurred by a lender |
|
as a result of the suit and to which the lender is entitled by law. |
|
(k) As part of the annual report required under Section |
|
342.559, a lender that engages in deferred presentment transactions |
|
shall submit the following information to the commissioner covering |
|
the preceding calendar year: |
|
(1) the amount of cash advanced under each deferred |
|
presentment transaction made, serviced, or brokered by the lender; |
|
(2) the total number of deferred presentment |
|
transactions made, serviced, or brokered by the lender; |
|
(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, if the lender collects that information from |
|
individuals; |
|
(5) the total amount of interest, fees, or charges |
|
collected by the lender for making, servicing, or brokering |
|
deferred presentment transactions; and |
|
(6) any other information required by the |
|
commissioner. |
|
(l) For purposes of Subsections (c) and (k)(4), a lender is |
|
not responsible for an individual borrower's failure to provide |
|
accurate information relating to the borrower's income. |
|
(m) 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. This information must be disclosed in the contract |
|
with the borrower, immediately above the place where the borrower |
|
signs the contract, in at least 12-point, bold, and underlined type |
|
as follows: |
|
"YOU CANNOT BE PROSECUTED IN ANY CRIMINAL ACTION SIMPLY FOR |
|
THE COLLECTION OF THIS TRANSACTION. IT IS NOT A CRIMINAL OFFENSE TO |
|
DEFAULT ON THIS PAYDAY LOAN." |
|
Sec. 342.607. ATTEMPT TO EVADE LAW. This subchapter |
|
applies to a person who offers, makes, or brokers a deferred |
|
presentment transaction, who assists a consumer in this state in |
|
obtaining a deferred presentment transaction, or who wholly or |
|
partly arranges a deferred presentment transaction for a third |
|
party, regardless of whether the third party is exempt from |
|
licensing under this subtitle or whether approval, acceptance, or |
|
ratification by the third party is necessary to create a legal |
|
obligation for the third party through any communication method, |
|
including mail, telephone, the Internet, or other electronic means. |
|
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, Section 342.606, Section 342.654, or any combination of |
|
those sections. |
|
SECTION 5. Chapter 342, Finance Code, is amended by adding |
|
Subchapter N to read as follows: |
|
SUBCHAPTER N. AUTO TITLE LOANS |
|
Sec. 342.651. DEFINITIONS. In this subchapter: |
|
(1) "Auto title loan" means an agreement in which a |
|
lender agrees to make a loan of money to a borrower, and the |
|
borrower agrees to give the lender a non-purchase money security |
|
interest in an unencumbered motor vehicle owned by the borrower. |
|
(2) "Lender" means a lender licensed under this |
|
chapter. |
|
Sec. 342.652. GENERAL REQUIREMENTS. An auto title loan |
|
must be in writing and have a loan term of at least one month. |
|
Sec. 342.653. APPLICABILITY OF OTHER LAW. (a) The |
|
provisions of Subchapters E and F apply to an auto title loan made |
|
under this subchapter. |
|
(b) A lender that 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 10 U.S.C. Section 987 and any |
|
regulations adopted under that law, to the extent applicable. |
|
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 in the |
|
aggregate: |
|
(1) 20 percent a month on the portion of the cash |
|
advance that does not exceed $700; |
|
(2) 18 percent a month on the portion of the cash |
|
advance that is greater than $700 but does not exceed $1,400; and |
|
(3) 15 percent a month on the portion of the cash |
|
advance that is greater than $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. |
|
(c) A lender may not charge or receive in addition to the |
|
interest and charges provided for by this section any additional |
|
amount, whether in the form of broker fees, placement fees, or |
|
another fee or charge, except fees authorized under Section |
|
342.657(c) and costs and disbursements in connection with any suit |
|
to collect an auto title loan, including reasonable attorney's fees |
|
that are incurred by a lender as a result of the suit and to which |
|
the lender is entitled by law. |
|
Sec. 342.655. ACCEPTANCE OF PARTIAL PAYMENT. 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) In this section: |
|
(1) "Consecutive loan" means a new auto title loan |
|
that a lender enters into with a borrower not later than the seventh |
|
day after the date a previous auto title loan made to the same |
|
borrower is paid in full. |
|
(2) "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 after the first renewal, the minimum required payment or |
|
finance charge must reduce the principal balance by at least 10 |
|
percent of the original principal balance of the auto title loan. |
|
Alternatively, if the borrower fails to pay on the due date, the |
|
lender may declare the outstanding principal balance and any |
|
finance charge to be immediately due and payable. |
|
(c) After three renewals or consecutive loans of an auto |
|
title loan, if a borrower is unable to pay on the due date the amount |
|
owing, then the lender must automatically convert the loan at no |
|
additional cost under a written repayment plan as authorized by |
|
this section. A lender is not required to enter into a repayment |
|
plan with a borrower more frequently than once every 12 months. The |
|
borrower must repay the amount owed according to the following |
|
terms: |
|
(1) the borrower must be allowed to repay the loan in |
|
not less than four substantially equal installments; and |
|
(2) the lender may not charge a borrower any |
|
additional interest or fee for using the repayment plan. |
|
(d) A 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 lender's keeping 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 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 term or at the end of any renewal or renewals of |
|
the agreement period, the lender is allowed to take possession of |
|
the motor vehicle. If after taking possession of the vehicle under |
|
this subsection the lender sells the vehicle for an amount that |
|
exceeds the amount owed to the lender by the borrower, the borrower |
|
is entitled to the excess amount. A lender may assess and collect |
|
reasonable fees to recover the costs of taking possession of and |
|
selling a motor vehicle under this section. |
|
(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 simply |
|
because the borrower defaulted on the loan. This information must |
|
be disclosed in the contract with the borrower, immediately above |
|
the place where the borrower signs the contract, in at least |
|
12-point, bold, and underlined type as follows: |
|
"YOU CANNOT BE PROSECUTED IN ANY CRIMINAL ACTION SIMPLY FOR |
|
THE COLLECTION OF THIS TRANSACTION. IT IS NOT A CRIMINAL OFFENSE TO |
|
DEFAULT ON THIS 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 lender to provide to a borrower materials |
|
approved by the commissioner that are designed to: |
|
(1) inform the borrower of the duties, rights, and |
|
responsibilities of the parties to an auto title loan transaction; |
|
and |
|
(2) educate a borrower about matters of financial |
|
literacy. |
|
Sec. 342.661. INFORMATION REQUIRED FOR ANNUAL REPORT. |
|
(a) As part of the annual report required under Section 342.559, a |
|
lender that engages in auto title loans shall submit the following |
|
information to the commissioner covering the preceding calendar |
|
year: |
|
(1) the amount of cash advanced under each auto title |
|
loan made, serviced, or brokered by the lender; |
|
(2) the total number of auto title loans made, |
|
serviced, or brokered by the lender; |
|
(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 an auto title loan, if the |
|
lender collects that information from individuals; |
|
(5) the total amount of interest, fees, or charges |
|
collected by the lender for making, servicing, or brokering auto |
|
title loans; |
|
(6) the total number of vehicles repossessed by the |
|
lender; and |
|
(7) any other information required by the |
|
commissioner. |
|
(b) For purposes of Subsection (a)(4), a lender is not |
|
responsible for an individual borrower's failure to provide |
|
accurate information relating to the borrower's income. |
|
Sec. 342.662. ATTEMPT TO EVADE LAW. This subchapter |
|
applies to a person who offers, makes, or brokers an auto title |
|
loan, who assists a consumer in this state in obtaining an auto |
|
title loan, or who wholly or partly arranges an auto title loan for |
|
a third party, regardless of whether the third party is exempt from |
|
licensing under this subtitle or whether approval, acceptance, or |
|
ratification by the third party is necessary to create a legal |
|
obligation for the third party through any communication method, |
|
including mail, telephone, the Internet, or other electronic means. |
|
SECTION 6. Subdivision (3), Section 393.001, 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. (a) The consumer credit commissioner shall |
|
prepare and publish a report not later than December 1, 2012, |
|
regarding the use of deferred presentment transactions in this |
|
state. In preparing the report, the commissioner shall study the |
|
need for comprehensive data reporting and the value and feasibility |
|
of a real-time statewide database system to provide data for policy |
|
development and to enhance a lender's evaluation of a borrower's |
|
ability to repay a deferred presentment transaction. In reviewing |
|
the value and feasibility of a real-time statewide database system, |
|
as part of the study, the commissioner should consider the use of a |
|
database verification fee collected from the borrower to recover |
|
the actual costs of the system. The commissioner shall also study |
|
the appropriateness of the rate structure provided by Section |
|
342.606, Finance Code, as added by this Act, in regard to the manner |
|
in which the deferred presentment transactions are used, and assess |
|
whether the protections included in that section are effectively |
|
addressing the cycle of ongoing debt that can be caused by high-cost |
|
single-payment loans. |
|
(b) The consumer credit commissioner shall prepare and |
|
publish a report not later than December 1, 2012, regarding the use |
|
of auto title loans in this state. In preparing the report, the |
|
commissioner shall study the need for comprehensive data reporting |
|
and the value and feasibility of a real-time statewide database |
|
system to provide data for policy development and to enhance a |
|
lender's evaluation of a borrower's ability to repay an auto title |
|
loan. In reviewing the value and feasibility of a real-time |
|
statewide database system, as part of the study, the commissioner |
|
should consider the use of a database verification fee collected |
|
from the borrower to recover the actual costs of the system. The |
|
commissioner shall also study the appropriateness of the rate |
|
structure provided by Section 342.654, Finance Code, as added by |
|
this Act, in regard to the manner in which the auto title loans are |
|
used, and assess whether the protections included in that section |
|
are effectively addressing the cycle of ongoing debt that can be |
|
caused by high-cost single-payment transactions. |
|
SECTION 9. This Act takes effect September 1, 2011. |
|
|
|
* * * * * |