HBA-TYH C.S.H.B. 3515 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3515 By: Marchant Financial Institutions 4/15/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Historically, a service contract sold by the retail seller of a motor vehicle has not been considered insurance and is not subject to regulation by the Texas Department of Insurance. Buyers and sellers have long relied on this interpretation of the law. C.S.H.B. 3515 codifies this interpretation by establishing that a warranty or service contract sold by the retail seller of a motor vehicle to a retail buyer is not insurance. When a motor vehicle is rendered a total loss while the owner owes more against the vehicle than the vehicle is worth, the owner still owes the lienholder the difference. With the recent lengthening of the of the term of motor retail vehicle installment sales contracts, this may become a severe hardship for owners in a total loss situation. A debt cancellation contract can provide an owner of a vehicle with protection by guaranteeing that the owner would owe nothing on the vehicle rendered a total loss, even if the vehicle was worth less than the amount owed on it at the time of the loss. Current law does not specifically authorize the seller of a motor vehicle to offer this kind of debt cancellation contract. C.S.H.B. 3515 authorizes the buyer and seller of a motor vehicle to agree on contractual provisions for the cancellation of any outstanding obligation the buyer may have over and above the insurance settlement in the event that the vehicle is rendered a total loss. This bill also provides that such a debt cancellation contract is not insurance. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 345.005, Finance Code, to provide that an amount charged to a retail buyer in a retail installment contract or retail charge agreement is an itemized charge if the amount is not included in the cash price and is the amount of debt cancellation contracts or waivers authorized by Subchapter E (Insurance), among other fees and charges. SECTION 2. Amends Chapter 345, Finance Code, by adding Section 345.216, as follows: Sec. 345.216. CHARGE FOR DEBT CANCELLATION PROVISION INCLUDED IN RETAIL INSTALLMENT CONTRACT. (a) Authorizes a buyer and seller, notwithstanding other law, to agree to include in a retail installment contract for the sale of a motor scooter, moped, motorcycle, trailer to carry such vehicles, or all-terrain vehicle a separate charge for a debt cancellation contract or waiver by which the seller or holder agrees that, if the goods are rendered a total loss because of theft or collision, the seller or holder will waive the difference, if any between the actual cash value of the goods immediately before the loss and the amount owed on the goods. (b) Authorizes a seller or holder, in addition to other liability incurred under a debt cancellation contract or waiver included in a contract, to agree to waive the deductible amount, if any, the buyer is required to pay under the buyer's personal insurance policy. (c) Provides that a debt cancellation contract or waiver included in a contract as provided by this section is not insurance or an insurance product or service and is not subject to regulation by the commissioner of insurance (commissioner) or the Texas Department of Insurance (department). SECTION 3. Amends Section 348.005, Finance Code, to make a conforming change. SECTION 4. Amends Section 348.202(a), Finance Code, by adding a new Subsection (b), to authorize a seller, as additional protection for the contract, to offer involuntary unemployment insurance to the buyer at the time the contract is executed, and to redesignate the current Subsection (b) to Subsection (c) and makes a conforming change. SECTION 5. Amends Section 348.208, Finance Code, by adding Subsections (c) and (d), as follows: (c) Provides that notwithstanding other law, a warranty or service contract sold by the retail seller of a motor vehicle to a retail buyer is not insurance. (d) Authorizes a buyer and seller, notwithstanding other law, to agree to include in a retail installment contract for the sale of a motor vehicle a separate charge for a debt cancellation contract or waiver by which the seller or holder agrees that, if the vehicle is rendered a total loss because of theft or collision, the seller or holder will waive the difference, if any, between the actual cash value of the vehicle immediately before the loss and the amount owed on the vehicle. (e) Authorizes a seller or holder, in addition to other liability incurred under a debt cancellation contract or waiver, to agree to waive the deductible amount, if any, the buyer is required to pay under the buyer's personal auto policy. SECTION 6. Emergency clause. Effective date: upon passage. COMPARISON OF ORIGINAL TO SUBSTITUTE The substitute modifies the original bill by adding SECTIONS 1, 2, 3, and 4, and redesignating proposed SECTIONS 1 and 2 (Emergency Clause) to SECTIONS 5 and 6. The substitute modifies the original bill as by setting out the new sections as follows: SECTION 1. Amends Section 345.005, Finance Code, to provide that an amount charged to a retail buyer in a retail installment contract or retail charge agreement is an itemized charge if the amount is not included in the cash price and is the amount of debt cancellation contracts or waivers authorized by Subchapter E (Insurance), among other fees and charges. SECTION 2. Amends Chapter 345, Finance Code, by adding Section 345.216, as follows: Sec. 345.216. CHARGE FOR DEBT CANCELLATION PROVISION INCLUDED IN RETAIL INSTALLMENT CONTRACT. (a) Authorizes a buyer and seller, notwithstanding other law, to agree to include in a retail installment contract for the sale of a motor scooter, moped, motorcycle, trailer to carry such vehicles, or all-terrain vehicle a separate charge for a debt cancellation contract or waiver by which the seller or holder agrees that, if the goods are rendered a total loss because of theft or collision, the seller or holder will waive the difference, if any between the actual cash value of the goods immediately before the loss and the amount owed on the goods. (b) Authorizes a seller or holder, in addition to other liability incurred under a debt cancellation contract or waiver included in a contract, to agree to waive the deductible amount, if any, the buyer is required to pay under the buyer's personal insurance policy. (c) Provides that a debt cancellation contract or waiver included in a contract as provided by this section is not insurance or an insurance product or service and is not subject to regulation by the commissioner or the department. SECTION 3. Amends Section 348.005, Finance Code, to make a conforming change. SECTION 4. Amends Section 348.202(a), Finance Code, by adding a new Subsection (b), to authorize a seller, as additional protection for the contract, to offer involuntary unemployment insurance to the buyer at the time the contract is executed. Redesignates the current Subsection (b) to Subsection (c). Makes a conforming change. SECTION 5. Amends proposed Section 348.208 to create Subsection (e) (authorizing a seller or holder to agree to waive the deductible amount) from the proposed Subsection (d). Specifies that the contract referred to in proposed Subsection (d) is a retail installment contract. Deletes proposed text providing that debt cancellation is not insurance and is not regulated by the department. Makes conforming changes.