HBA-SEP, JLV C.S.H.B. 690 77(R)BILL ANALYSIS


Office of House Bill AnalysisC.S.H.B. 690
By: Thompson
Financial Institutions
3/23/2001
Committee Report (Substituted)



BACKGROUND AND PURPOSE 

Under current law,  there is an established maximum interest charge
permitted on non-real property loans which varies depending on the loan
terms and borrowed amount.  The maximum interest rate for consumers who
qualify for larger loans is less than the maximum interest rate for
consumers who qualify for smaller loans.  There is concern that consumers
who only qualify for the minimum loan amounts may seek alternative means to
obtain additional funds, such as loans that originate outside the state.
C.S.H.B. 690 establishes an alternate maximum interest charge on a consumer
loan contract that is not secured by real property. 

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

C.S.H.B. 690 amends the Finance Code to establish an alternate maximum
interest charge on a consumer loan contract that is not secured by real
property.  The bill authorizes such a loan to provide for a rate or amount
of interest computed by using the daily earnings method or the scheduled
installment earnings method that does not exceed: 

_30 percent per year on that part of the cash advance provided that the
maximum cash advance is less than or equal to the amount computed by the
consumer credit commissioner by dividing the reference base index into the
consumer price index using the reference base amount of $1,250; and 

_24 percent per year on that part of the cash advance that is more than the
amount, but less than or equal to an amount computed by the consumer credit
commissioner by dividing the reference base index into the consumer price
index using the reference base amount of $2,500. 

The bill provides that for the purposes of refunding precomputed interest
on a contract, the simple annual rate is equal to the rate computed under
the scheduled installment earnings method, rather than the rate that the
contract would have  produced over its full term assuming that payments
were made on time. 

EFFECTIVE DATE

September 1, 2001.

COMPARISON OF ORIGINAL TO SUBSTITUTE


C.S.H.B. 690 modifies the original to provide that such a loan using the
alternative interest charge provide  for a rate or amount of interest
computed by using the daily earnings method or the scheduled installment
earnings method that does not exceed specified ceilings computed by the
consumer credit commissioner. 

The substitute modifies the original by removing provisions authorizing a
loan using the alternative interest charge to provide for an interest
charge on a cash advance that does not exceed 30 percent per year.  The
substitute no longer provides that on a loan using the alternative interest
charge, the maximum cash advance is the revised ceiling computed by the
consumer credit commissioner by dividing the reference base index into the
consumer price index using the reference base amount of $2,500.  The
substitute removes provisions prohibiting the interest from being
precomputed and requiring the interest to be computed by the actuarial
method. 

The substitute also adds provisions for the refunding of precomputed
interest on a  contract.