HBA-JLV H.B. 1809 77(R)    BILL ANALYSIS


Office of House Bill AnalysisH.B. 1809
By: Deshotel
Financial Institutions
3/30/2001
Introduced



BACKGROUND AND PURPOSE 

Currently, state law does not provide for the regulation of check cashing
and deferred deposit facilities regarding the amount of interest they can
charge to a customer for a payday loan.  Payday loans are shortterm,
higher-interest loans that use a customer's personal check as collateral.
There is concern that payday lenders are avoiding the limitations placed
through usury or other lending statutes and rules, by way of service
charges and other related fees.  As a result, borrowers may be paying as
much as 300 percent interest on such loans.  House Bill 1809 sets
guidelines  for the business of deferred deposits and payday loans. 

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. 

ANALYSIS

House Bill 1809 amends the Finance Code to provide that certain
transactions are subject to regulation as loans.  The bill provides that a
transaction is a loan subject to loan regulations if the transaction
involves a cash advance made in exchange for a check and an agreement to
delay or defer deposit or negotiation of the check for a fixed period.  The
bill provides that a charge or other amount received by the person making a
cash advance in a transaction, other than repayment of the amount of the
cash advance, is interest subject to regulation.   

The bill prohibits a person from avoiding the application of these
provisions by any subterfuge or device, including a claim or contract,
providing that a transaction is a retail sale or involves a service fee.  

The bill provides that a sale or purported sale of personal property used
primarily for personal, family, or household use is a loan subject to
regulation if: 

_the buyer agrees to lease the property back to the seller for lease
payments that in the aggregate equal or exceed the price paid for the
property  by the buyer; 

_the buyer agrees to resell the property to the seller for an amount that
equals or exceeds the price paid for the property of the buyer; or 

_the seller gives the buyer a check, negotiable order of withdrawal, or
share draft for an amount that equals or exceeds the price paid for the
property by the buyer and agrees that the instrument may be deposited or
negotiated if the seller does not exercise a  purchase option or make lease
payments. 

The bill provides that if the total amount received by the buyer exceeds
the price paid for the property by the buyer, then the excess amount is
interest subject to regulation.  The bill provides that the purported
taking of title to or a security interest or other lien in property by a
buyer in connection with a transaction  is a deceptive trade practice. 

The bill sets forth that these provisions do not apply to a  sale or
purported sale of personal property used for business, commercial,
investment, agricultural, or similar purposes. 

The bill prohibits a person from filing or threatening to file a charge,
complaint, or a criminal prosecution of theft based on nonpayment of a
check if the person from whom the collection is sought gave the check in
exchange for a cash advance and the person making the advance received
compensation exceeding five percent of the amount of the check or another
certain seller in a transaction. 

EFFECTIVE DATE

September 1, 2001.