HBA-JLV H.B. 1166 77(R)BILL ANALYSIS Office of House Bill AnalysisH.B. 1166 By: Denny Financial Institutions 7/18/2001 Enrolled BACKGROUND AND PURPOSE Selling checks can generally be characterized as the practice of accepting money in exchange for issuing a payment instrument that the purchaser can then use to make a payment, in lieu of using the purchaser's personal check or sending cash. Traditional non-bank check sellers are licensed in Texas under the Sale of Checks Act. The rapidly changing business environment due to the emerging electronic economy raised concerns that the Sale of Checks Act does not extend its traditional protections beyond paper checks to electronic transactions that are substantively the same. House Bill 1166 provides regulatory license requirements for check sellers and expands the definition of "check" to include electronic checks. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Finance Commission of Texas in SECTION 2 (Sections 152.102 and 152.103, Finance Code), in SECTION 3 (Sections 152.202, 152.204, 152.205, and 152.207, Finance Code) and in SECTION 5 (Section 152.304, Finance Code) of this bill. ANALYSIS House Bill 1166 amends the Finance Code to modify provisions regulating the business of selling checks, including electronic checks. The bill expands the definition of check to include an instrument, service, or device by which money may be conveyed from one person to another. The bill requires the banking commissioner of Texas (commissioner) to examine each license holder annually on a periodic basis, or as often as the commissioner considers necessary. The bill also sets guidelines for the examination and for the confidentiality of the information being examined (Sec. 152.103). The bill authorizes the commissioner to enter into cooperative information sharing agreements with another federal, state, or foreign governmental agency that has concurrent regulatory or supervisory jurisdiction with respect to license holders to share certain regulatory duties and any supervisory or examination fees assessed in regulating the business of selling checks (Sec. 152.104). The bill requires a person to hold a license to engage in the business of selling checks to purchasers located within this state or wherever located if the seller is located in this state (Sec. 152.201). The bill further extends the exemption from licensing to local, state, and federal agencies, to a person who incidentally engages in the sale of checks only to the extent of accomplishing a primary business objective that is unrelated to the sale of checks, and any other person exempted by rule (Sec. 152.202). The bill provides additional factors which may disqualify a person from receiving a license. These factors include being convicted during the preceding 10 years of an offense under state, federal, or foreign country law that involves deception, dishonesty, or defalcation or under state or federal law that relates to currency exchange, transportation, or transmission, money laundering, or a reporting requirement of the Bank Secrecy Act (Sec. 152.203). The bill modifies the contents of the application for a license and provides for an application fee, rather than an investigation fee (Secs. 152.204 and 152.205). The bill sets parameters for a surety bond posted by a license holder at not less than $100,000 and not more than $1 million (Sec. 152.206). An applicant whose application for a license was derived is entitled to a hearing on the denial of the application, to be held not later than the 60th day after the date the commissioner receives the request (Sec. 152.209). The bill requires the commissioner to give a license holder the opportunity for a hearing before a license may be revoked (Sec. 152.307). The bill changes the date from April 15 to June 30 by which a license renewal fee is required to be paid and when a license holder is required to file an annual audited unconsolidated financial statement. Additionally, the bill changes the renewal fee from $500 to an amount established by rule (Sec. 152.304). The bill authorizes a license holder to conduct the business of selling checks from any location within or outside of this state, either directly or through an agent appointed by the license holder. The bill authorizes a license holder or the license holder's agent to sell checks through physical facilities, electronic facilities, including the Internet, or telephone facilities and to charge a different price for checks based on the type of facility used in the transaction. The bill provides that a price differential based on the type of facility used does not constitute a surcharge if the price charged for checks paid for by credit card is not greater than the price charged for checks paid for by another form of payment accepted within the same type of facility, and if the license holder or agent does not refuse to sell checks to a customer who intends to pay by credit card through one type of facility, at which credit cards are ordinarily accepted, by redirecting the customer to use a credit card at another type of facility (Sec. 152.401). The bill provides that with respect to a check that is designated as a money order and that contains on the front or the back of the check a written disclosure that the purchaser has the right to stop payment, the license holder is considered to be a drawee and the purchaser of the check is considered to be a drawer of a negotiable instrument for purposes of a stop-payment order and liability to the holder of the check (Sec. 152..405). The bill provides that the license holder must include on or in connection with the sale of the check, certain identifying information of the license holder (Sec. 152.402). The bill authorizes the Finance Commission of Texas to adopt rules necessary to enforce and administer provisions regulating the business of selling checks (Sec. 152.102). EFFECTIVE DATE September 1, 2001.