Office of House Bill AnalysisS.B. 707
By: Carona
Financial Institutions


Some creditors require debtors to obtain insurance on collateral and list
the creditor as the beneficiary of the insurance to ensure the repayment of
the principal of a loan.  Current law regulates the notice and payment
procedures of collateral protection insurance, but there are no laws
regulating liability, cancellation, and other aspects of collateral
protection insurance.  Senate Bill 707 establishes additional regulations
for collateral protection insurance. 


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. 


Senate Bill 707 amends the Finance Code to regulate the coverage, term of
policy, and conditions of purchase of collateral protection insurance
(insurance) (Sec. 307.051).  The insurance is for the principal purpose of
protecting the interest of the creditor if the debtor fails to insure
collateral as required by a credit agreement and the decision by the
creditor to require the insurance is optional (Sec. 307.057).  When a
creditor requires insurance that is paid for directly or indirectly by the
debtor, the bill authorizes the creditor to place insurance, under
stipulated conditions, with an authorized insurer or eligible surplus lines
insurer (Secs. 307.052 and 307.056). 

In a situation in which the creditor requires the debtor to obtain
insurance or if the debtor fails to do so and the creditor obtains the
insurance on behalf of the debtor at the debtor's expense, the bill
requires the creditor to notify the debtor and any person who is a cosigner
or guarantor to the debt by mail not later than the 31st day after the date
the insurance is charged the debtor.  The bill authorizes the creditor to
delegate these notice requirements to the insurer or the insurer's agent.
If this notice is returned to the creditor undelivered, the creditor is
required to locate the person using regular locating procedures and to mail
a second notice once the person is located. 

The terms for repayment to the creditor of the costs of the insurance must
include a balloon payment, full amortization, or any other repayment terms
agreed to by a debtor in the original credit transaction (Sec. 307.052).
If amortization is used by the creditor, the bill requires the creditor to
send the debtor a notice of its terms and any change in the debtor's
periodic payment (Sec. 307.053). 

A debtor may at any time cause the cancellation of the insurance obtained
by the creditor if the debtor has obtained insurance.  If a debtor provides
the creditor with proper evidence that the debtor has obtained insurance on
or before the date the insurance is effective, then the bill requires the
creditor to cancel the insurance it obtained and prohibits the creditor
from billing certain charges (Sec. 307.054). 

The bill provides that according to stipulated calculations, the amount of
unearned premiums that is required to be refunded to the creditor on the
date the insurance is canceled or expires.  The bill requires the creditor
to distribute this refund directly to the debtor by any method selected by
the creditor, including by check  or other means, within 14 days after the
creditor receives the refund (Sec. 307.055). 

A creditor, its insurer, or the insurer's agents that place insurance in
compliance with this bill are not directly or indirectly liable to a
debtor, cosigner, guarantor, or any other person in connection with the
placement of the insurance.  The bill does not impose a fiduciary
relationship between the creditor and the debtor. The bill does not create
a cause of action for damages on behalf of the debtor or any other person
in connection with the placement of insurance (Sec. 307.057). 


September 1, 2001.