HBA-NLM H.B. 3622 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 3622 By: Tillery Financial Institutions 3/27/1999 Introduced BACKGROUND AND PURPOSE Under current law, there are no provisions regulating check-holding operations. These operations allow for a person to exchange a post-dated check for cash provided that the cash is given for some sort of consideration in addition to the agreement to pay the lender back. If the post-dated check is not redeemed within the time agreed, the quick cash business will cash the check; and if the check is returned due to insufficient funds, the business turns the check over for criminal prosecution. H.B. 3622 prohibits a person from engaging in a deferred presentment transaction as the lender unless the person holds a license. This bill establishes that the annual fee for such a license is $200. In addition, this bill requires the lender to provide the borrower a written disclosure, in clear, understandable language, itemizing all fees to be charged in relation to the transaction and the date on which presentment or negotiation of the check will be made, before consummation of the agreement for a deferred presentment transaction. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the consumer credit commissioner in SECTION 1 (Sections 342.702 and 342.705, Finance Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 342, Finance Code, by adding Subchapter M, as follows: SUBCHAPTER M. DEFERRED PRESENTMENT TRANSACTIONS Sec. 342.701. DEFINITIONS. Defines "check," "deferred presentment transaction," "fee," and "renewal." Sec. 342.702. RULES. Authorizes the consumer credit commissioner (commissioner) to adopt reasonable rules to enforce this subchapter. Sec. 342.703. LICENSE REQUIRED. Prohibits a person from engaging in a deferred presentment transaction as the lender unless the person holds a license issued under this chapter (Certain Cash Advance Loans). Provides that the annual license fee for a license issued under this chapter to a person who engages in a deferred presentment transaction is $200. Sec. 342.704. WRITTEN AGREEMENT REQUIRED. Provides that the agreement for a deferred presentment transaction must be in writing and signed by the borrower. Sec. 342.705. DISCLOSURE. (a) Requires the lender to provide the borrower a written disclosure, in clear, understandable language, itemizing all fees to be charged in relation to the transaction and the date on which presentment or negotiation of the check will be made, before consummation of the agreement for a deferred presentment transaction. (b) Requires the commissioner to adopt rules establishing a standardized disclosure form and procedure for execution of the form that must be used under Subsection (a). Provides that the form and procedure for execution must be designed to conform to federal truth-inlending laws and to ensure that the borrower, before entering the transaction, receives and acknowledges notice of all fees that could be charged in relation to the transaction. (c) Authorizes the commissioner to adopt rules establishing additional requirements to ensure complete and accurate disclosure. Sec. 342.706. LOAN AMOUNT, NUMBER, AND FEE LIMIT. (a) Prohibits the principal amount of the loan under a deferred presentment transaction from exceeding $500. (b) Prohibits a lender from being a party to more than one deferred presentment transaction with the same borrower at one time. Prohibits a deferred presentment transaction from being renewed more than twice. (c) Authorizes the lender to charge fees as specified in this subsection on a deferred presentment transaction. (d) Provides that nothing in this chapter prohibits a lender from being a party, with the same borrower at the same time, to a deferred presentment transaction and a loan authorized by this chapter other than a deferred presentment transaction. Sec. 342.707. PRESENTMENT, NEGOTIATION, REDEMPTION. (a) Prohibits a lender from making presentment or negotiation of a check received in a deferred payment transaction unless the lender endorses the check with the name under which the lender does business. (b) Entitles the borrower to redeem the check before the date of presentment or negotiation stated in the agreement on payment to the lender of the amount of the check in cash or its equivalent. (c) Authorizes the lender, except as provided by Section 342.710, on dishonor of the check because of insufficient funds, a closed account, or a stop payment order, to use all means available under law to collect the amount of the check and is entitled to recover any amounts charged the lender by a financial institution related to dishonor of the check. Sec. 342.708. LENDER CONDUCT. Requires a lender to comply with all state and federal laws regarding cash transactions and reporting of cash transactions, in relation to a deferred presentment transaction. Prohibits a lender from altering or deleting the date on any check or accepting a check that is undated or dated with a date other than the date the lender received the check, and from requiring a borrower to provide security or obtain a guaranty for the deferred presentment transaction, in relation to a deferred presentment transaction. Sec. 342.709. RECORDS. Requires a license holder to keep, and use in its business, books and other records the commissioner requires to carry out this subchapter and rules adopted under this subchapter. Requires the license holder to preserve its books and other records for at least four years. Sec. 342.710. LIMITATION ON ACTION AGAINST BORROWER. Prohibits a borrower from being prosecuted under Section 31.03 (Theft), 31.04 (Theft of Service), or 32.41 (Issuance of Bad Check), Penal Code, for nonpayment of a check drawn as part of a deferred presentment transaction. Provides that a statement of the prohibition of prosecution described by this section must be included in bold-faced print in English and Spanish in the disclosure required under Section 342.705. SECTION 2. Effective date: September 1, 1999. SECTION 3. Emergency clause.