Part 2. TEXAS DEPARTMENT OF BANKING

Chapter 25. PREPAID FUNERAL CONTRACTS

Subchapter B. REGULATION OF LICENSES

7 TAC §25.10

The Texas Department of Banking (the department) proposes to amend §25.10 concerning record-keeping requirements for insurance-funded prepaid funeral benefit contracts to clarify the requirements and promote compliance with the intent of Finance Code, Chapter 154. The proposed amendment simplifies and clarifies record-keeping requirements by eliminating obsolete requirements, adding explanations and other details, providing alternative methods of meeting existing requirements, and rewording certain specifications.

The changes are considered necessary based upon the experience the department has acquired in conducting examinations of insurance funded permit holders. Experience has shown that some of the original requirements are unnecessary for effective regulation while other requirements need to be added or modified.

Under the proposed amendment, an insurance funded permit holder is no longer required to maintain the initial permit application, and only contract forms in use for the past three years need to be maintained. In addition, the proposed amendment provides increased flexibility in meeting existing requirements by specifying that either a copy of the certified death certificate or the original will suffice in circumstances in which the present rule requires the original, and by allowing substitution of an annual statement filed with any state insurance regulatory body in lieu of the financial statement of a permit holder. Furthermore, the proposal allows for alternative pricing documentation to be maintained in lieu of funeral provider merchandise and service price lists.

The proposal also eliminates the requirement that the individual contract file contain the certificate of performance of contract services signed by the decedent's personal representative if the service provider was not the contracted provider, a provider related to the contracted provider through common ownership, or a successor provider agreed to by all parties. Instead, in such instances, the proposal requires the file to contain a signed statement from the contract purchaser or the purchaser's representative requesting delivery of the funds to the alternative service provider, evidence of payments of those funds, an original or copy of the certified death certificate, and documentation of the premium payment history and death benefits paid. The proposal further simplifies record-keeping requirements by requiring the maintenance of a quarterly "out-of-force policy report" rather than the separate reports required by the present rule for lapsed policies, policies surrendered, reduced paid-up policies, and death maturity claims.

The proposed amendment also clarifies certain provisions of the existing rule. The proposal makes clear that the correspondence relating to the contract which is required to be maintained in a file includes documentation to evidence that the executed preneed contract and related insurance policy were delivered to the contract purchaser or policy owner within 30 days of receipt of the down payment and insurance application. Additionally, with respect to the file of a matured contract, the proposal allows for the use of a claim form prepared by the insurance company in lieu of a departmental withdrawal form if the form contains the same information as required on the department's form. The proposal also requires that an itemization of services and merchandise provided, in lieu of the completed at-need contract, must be signed by the decedent's personal representative. Additionally, if the contract relates only to the opening and closing of a grave, either a cemetery interment order or other documents signed by the decedent's representative will suffice, provided that the documents indicate the balance due on the contract at the time of death, if any, and the amount of any preneed discount. Lastly, system verification documentation will be allowed to support benefit amounts paid out on both maturity and cancellation claims in lieu of maintaining actual payment histories in all withdrawal files.

Additional changes noted in the proposal include the deletion of the quarterly reconcilements of the in-force register and individual ledgers requirements to a requirement for the reconcilement at each calendar year-end and at the close of each examination period. Also, these reconcilements may now be maintained in hard-copy form, or on microfiche or in an electronic database from which a hard copy can be reproduced.

Other clarifications specify that the contract register is historical and may be maintained either chronologically, by policy number, or by contract number, and more fully develop the manner of balancing the individual policy ledgers to the summary policy register and insurance company policy records. Also, the proposal allows all contracts disposed of over three years ago to be removed from the register. Other minor changes are made to data required to be maintained as part of the in-force policy register and the individual ledgers to alleviate unnecessary or duplicated information.

Finally, the proposal sets out those records that must be maintained to fulfill record-keeping requirements relating to the final disposition of the contract and provides alternative ways to satisfy this record-keeping requirement. The department notes that although the amendment in certain areas adds to the records required to be maintained, in most cases these records are already maintained by permit holders. The amendment will therefore not result in a significant increase in record-keeping burdens for permit holders. In those instances where the files are not presently maintained, the increased burden, in the department's experience, will be more than offset by increased examination efficiency.

Stephanie Newberg, Deputy Commissioner, Texas Department of Banking, has determined that, for each year of the first five years that the section is in effect, there will be no fiscal implication for state or local government as a result of enforcing or administering the section as amended.

Ms. Newberg also has determined that, for each of the first five years the section as amended is in effect, the public benefit anticipated as a result of the adoption of this section will be an increased effectiveness in enforcing the consumer protection provisions of Finance Code, Chapter 154, relating to Prepaid Funeral Services, and assuring that the price paid by members of the public for prepaid funeral services is not unnecessarily increased by the costs to providers related to maintaining unnecessary records or increased costs of regulation. No economic cost will be incurred by a person required to comply with this section, and there will be no deleterious effect on small businesses.

Comments on the proposed amendment may be submitted to Loren E. Svor, Assistant General Counsel, Texas Department of Banking, 2601 North Lamar Blvd., Austin, Texas 78705-4294, or by email to loren.svor@banking.state.tx.us.

The amendment is proposed pursuant to rule-making authority under Finance Code, §154.051, which authorizes the department to prescribe reasonable rules concerning all matters relating to the enforcement and administration of Finance Code, Chapter 154.

Finance Code, Chapter 154, is affected by the proposed amendment.

§25.10.Record Keeping Requirements for Insurance-Funded Contracts.

(a)

Application. This section applies to a permit holder who sells or maintains insurance-funded prepaid funeral benefit contracts. Unless the Department of Banking (the department) is petitioned for and agrees to a different location under subsection (i) [ (g)(3) ] of this section, all specified records must be made available to the department for examination at the physical location in Texas that the permit holder has designated in written notice to the department on file at the time of the examination.

(b)

General files. A permit holder subject to this section must maintain general files regarding its prepaid funeral benefits operations. Such files may be maintained in hard-copy form or on microfiche or in an electronic database from which they may be reasonably retrieved in hard-copy form. These files must contain the original or a copy of the following:

(1)

[ the initial permit application and ] the latest approved renewal permit application for the permit holder and its last filed annual report [ if any ];

(2)

the current permit issued to the permit holder by the department;

(3)

each contract form approved for sales transacted within the last three years unless no outstanding contracts exist using such form [ after the effective date of this section for so long as there are outstanding contracts using such form ];

(4)

all department-approved insurance depository letters received within the last three years and all insurance depository letters pertaining to active contracts;

(5)

the most current consolidated financial statement, or the most recent annual statement filed with the insurance regulatory agency of any state in which the permit holder is required to file [ of the permit holder ] or, if not available, of the parent corporation;

(6)

each department-approved agent appointment made and resignation given within the last three years and all appointments that are still active;

(7)

all examination reports made by the department within the last three years [ for the previous three years ];

(8)

all Texas Department of Insurance approved insurance policies used in conjunction with the sale of prepaid funeral contracts or the conversion of trust-funded contracts for the last three years and all insurance policies used for such purposes that are funding new contracts or contracts that are outstanding;

(9)

a list of insurance conversions performed for the last three years, a copy of each Order [ order ] approving each such conversion [ conversions ], and a copy of the post-conversion summary provided to the department for each conversion;

(10)

all correspondence with the department for [ within ] the last [ past ] three years;

(11)

if the permit holder is an insurance company or an entity that controls or is controlled by an insurance company, a copy of all state insurance regulatory agency examination reports for the last three years; and

(12)

general, casket and outer burial container price lists for corresponding or contracted funeral providers for the last three years or alternative documentation which will demonstrate compliance with required casket, outer-burial container and urn descriptions detailed on contracts.

(c)

Individual files.

(1)

Each permit holder subject to this section shall maintain a prepaid funeral benefits contract file on each purchaser. These files must be either maintained separately or capable of retrieval separately for outstanding contracts (including reduced paid-up policy contracts), matured contracts, and canceled contracts. Files may be maintained either chronologically or alphabetically in hard-copy form or on microfiche or in an electronic database from which they may be reasonably retrieved in hard-copy form. Each individual file should contain all correspondence pertaining to the contract for that file including documentation to evidence that the executed preneed contract has been issued to the contract purchaser and the funding policy has been issued to the contract purchaser or policy owner within 30 days of the receipt of the initial down payment and insurance application .

(2)

Each file pertaining to an outstanding contract must contain a copy [ copies ] of the prepaid funeral benefits contract, any revocable and irrevocable assignment [ assignments ], and the data face sheet of the insurance policy or annuity contract funding the contract.

(3)

Each file pertaining to a matured contract must be retained for three years. Each such file must contain copies of all documents required for an outstanding contract and a completed department withdrawal form , or evidence of department withdrawal approval, or a proof of claim form prepared and completed by the permit holder which contains all the required information included on the Department's prescribed withdrawal form [ where required ]. In addition [ Each matured contract file must also contain a copy of ]:

(A)

a matured-contract file for which services were provided by the contracted funeral provider, a funeral provider related by common ownership to the contracted funeral provider, or a successor provider accepted by all contracting parties must contain: [ the at-need contract or itemization of services performed and merchandise transferred; or, if the preneed funeral contract relates only to the opening and closing of a grave, the cemetery internment order; ]

(i)

the original or a copy of the completed at-need contract or funeral purchase agreement, or an itemization of services performed and merchandise transferred signed by the decedents personal representative; or, if the preneed funeral contract relates only to the opening and closing of a grave, the cemetery interment order and/or other documents signed by the decedent's representative, provided the interment order or other documents must denote the balance, if any, that was due on the preneed contract at the time of death and any preneed discount;

(ii)

[ (B) ] a [ the ] certified death certificate or a copy of a certified original death certificate;

(iii)

[ (C) ] the certificate of performance of contract services executed by the decedents personal representative;

(iv)

[ (D) ] evidence of payment to the servicing funeral provider [ home ], e.g., a copy of payment check or check stub[ . ] ; and

(v)

documentation of premium payment history and death benefits paid.

(B)

a matured contract file for which services were provided by an entity other than the contracted funeral provider, a funeral provider related by common ownership to the contracted funeral provider, or a successor funeral provider accepted by all contracting parties must contain:

(i)

a signed statement from the purchaser or purchaser's representative requesting the delivery of funds to the servicing funeral provider;

(ii)

evidence of payment to the servicing funeral provider;

(iii)

a certified death certificate or a copy of a certified original death certificate; and

(iv)

documentation of premium payment history for annuity contracts and death benefits paid.

(4)

Each file pertaining to a canceled contract must be retained for three years. Each such file must contain copies of all documents required for an outstanding contract , [ and ] a completed departmental [ department ] withdrawal form or evidence of departmental [ department ] withdrawal approval, [ where required. ] documentation of premium payment history to support available cash surrender value, and evidence of payment of cancellation benefit, e.g., a copy of payment check or check stub. [ Each canceled contract file must also contain a copy of: ]

[ (A)

the purchasers original notice of cancellation; and ]

[ (B)

evidence of payment of cancellation benefit, e.g., a copy of payment check or check stub. ]

(5)

Each file pertaining to a reduced paid-up policy must be retained for three years. Each reduced paid-up policy file must contain copies of all documents required for an outstanding contract and a copy of the permit holder's letter to the purchaser informing the purchaser of contract status. Each reduced paid-up policy file must also include copies of an election form indicating the purchaser has chosen reduced paid-up status, unless the policy has automatic reduced paid-up provisions.

(d)

Document Maintenance. A document will be considered to be maintained in a file if the specified information can be expeditiously retrieved electronically and printed for review.

(e)

[ (d) ] Consolidated records. Each permit holder subject to this section shall maintain the following records regarding its prepaid funeral benefits operations for both new and conversion sales in hard copy form or on microfiche or in an electronic database from which they may be reasonably retrieved in hard-copy form:

(1)

an historical contract register maintained chronologically or by policy number or by contract number reflecting all prepaid funeral contracts and policies, and a notation of the status of the contracts and policies as outstanding, matured, canceled, or reduced paid-up. Contracts may be removed from the register when three years or more has elapsed from the date of final disposition. The contract register should contain columns indicating:

(A)

the contract and corresponding policy number(s);

(B)

the contract issue date or purchase date;

(C)

the purchaser's name;

(D)

the beneficiary's name (if different from the purchaser's name);

(E)

the face amount of the contract; and

(F)

the final disposition of the contract, including notations as to whether the contract and policy are matured, canceled, surrendered, lapsed, reduced paid-up, extended term, voided, or not taken. The notation must also include the date of withdrawal claim and the amount of funds paid; or, in lieu thereof, a record separate from the register, listing matured, canceled, surrendered, lapsed, reduced paid-up, extended term, voided, or not taken contracts and policies for the examination period and setting out the contract and/or policy number, contract purchaser, date of the withdrawal claim paid, and amount of the withdrawal claim paid;

(2)

payment-receipt records which detail individual payment histories indicating payments collected;

(3)

an in-force policy register maintained either chronologically by date of policy issuance , [ or ] alphabetically by the insured's name , or serially by policy number , balanced at least each calendar year-end and at the close of each Department examination period [ quarterly ] to the individual files and insurance company records relating to the active preneed contracts. The reconciliations should be retained in hard-copy form or on microfiche or in an electronic database from which they may be reasonably retrieved in hard-copy form for review by the examiner for a period of three years. The in-force register must accumulate to grand totals for all policies with respect to the information required under this subparagraphs (C) [ (D) ], (E), (F), and (G) [ and (H) ] of this paragraph and contain the following information for each policy or contract at a minimum:

(A)

the insured's name;

(B)

the policy number or numbers;

[ (C)

age or date of birth of insured; ]

(C)

[ (D) ] the face amount of prepaid funeral contract;

[ (E)

outstanding balance owed under all provisions of the prepaid funeral contract; ]

(D)

[ (F) ] the date of policy issuance;

[ (G)

premium amount; ]

[ (H)

premiums collected to date; and ]

(E)

[ (I) ] the death benefit, [ face amount of policy, ] or insurance in force, whichever is applicable; [ and ]

(F)

growth, e.g., dividends and interest, attributable to outstanding policies for the reporting period; and

(G)

cumulative growth totals for each outstanding policy; and

(4)

out-of-force policy reports identified by status codes for death maturity, canceled, surrendered, lapsed, reduced paid-up, extended term, voided, not taken, or such other codes which may be used to designate policies no longer in force, [ the lapsed policy report, cash surrender policy report, death maturity claim report, and reduced paid-up report, ] maintained either chronologically by date of policy issuance , [ or ] alphabetically by the insured's name , or serially by policy number . This report must be prepared at each calendar year-end and at the close of each department examination period. Each of these reports must be retained for a period of three years and contain at a minimum:

(A)

the insured's name;

(B)

the date of policy issuance;

(C)

the policy number or numbers;

(D)

the date the policy matured, lapsed, or was surrendered or cancelled; and

(E)

the amount of in-force coverage or face value of insurance [ which ] that has been paid, reduced, deleted, or transferred.

(5)

individual policy ledgers for each contract purchaser, balanced at least each calendar year-end and at the close of each Department examination period to the in-force policy register and to the records of the insurance depository. These ledgers should be retained in hard-copy form, or on microfiche or in an electronic database from which they may be reasonably retrieved in hard-copy form, for review by the examiner for a period of three years, and should reflect:

(A)

the insured's name;

(B)

the date of policy issuance;

(C)

the policy number(s);

(D)

the contract amount;

(E)

the policy face amount;

(F)

the premium amount;

(G)

the premiums collected to date for annuity policies only;

(H)

the death benefit, or insurance in force, whichever is applicable; and

(I)

cumulative growth, e.g., dividends and interest, attributable to policies.

(f)

[ (e) ] Conversions. A permit holder subject to this section shall maintain a file copy of the original trust-funded prepaid funeral contracts that have been converted to insurance funding and the payment history records for each converted contract prior to conversion.

(g)

[ (f) ] Corporate records. Corporate records of a permit holder subject to this section pertaining to actual or anticipated regulatory action or litigation that could result in the permit holder's insolvency and all corporate minutes must be maintained and made available to the department at each examination.

(h)

[ (g) ] Exceptions.

(1)

A permit holder that sells only insurance-funded contracts is not required to maintain records that are applicable only to trust-funded contracts.

(2)

With respect to contracts sold prior to the effective date of this section, a permit holder will not violate this section if it cannot produce records required under this section which were not previously required by statute or rule. However, basic reporting of in-force benefit amounts and policy activity from the last examination date to the current examination date will be required of all permit holders from insurance depositories which hold insurance policies funding preneed funeral contracts in Texas.

(3)

A permit holder may apply to the Commissioner for an exception to the record keeping requirements [ other than ] as provided under this subsection. An exception may be granted for good cause only by prior written approval of the Commissioner.

(i)

[ (h) ] Relocation of Records. Prior to changing the location where required records are maintained or where the examination is to be performed pursuant to Section 154.053(a) of the Texas Finance Code , a permit holder must notify the department, specifying the new address in writing, and, if the change in location requires the granting of an exception, comply with subsection (h) [ (g) ] (3) of this section before required records are moved to the new location .

(j)

[ (i) ] Maintenance of Files. Documents and records required to be maintained under this section must be filed within 30 days of receipt. Cash received must be posted within 30 days of receipt, and cash withdrawn on death maturity must be posted within 30 days of actual withdrawal.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on July 10, 2000.

TRD-200004752

Everette D. Jobe

Certifying Official

Texas Department of Banking

Earliest possible date of adoption: August 20, 2000

For further information, please call: (512) 475-1300

Chapter 85. RULES OF OPERATION FOR PAWNSHOPS

Subchapter A GENERAL PROVISIONS

7 TAC §85.102

The Office of Consumer Credit Commissioner (the agency) proposes the amendment of §85.102 concerning definitions for the Texas Pawnshop Act, Chapter 371, Texas Finance Code.

The amendment adds two new definitions to the existing rule. The new definitions are for the terms law enforcement agency and month. These terms are used in other rules and the addition of the definitions will aid in the understanding and application of other rules in this chapter.

Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period these rules will be in effect, the public benefit anticipated as a result of the adoption of the new rules will be to more adequately inform the public and the regulated entities of the duties and requirements for pawnshops.

Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period these rules will be in effect, there will be no fiscal implications for state or local government as a result of administering or enforcing these rules.

There is no additional cost associated with compliance with the rule. The agency believes that there will be no adverse economic impact to small businesses to comply with the rule.

Comments on the proposed adoption of the amended rule may be submitted in writing to Leslie L. Pettijohn, Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207.

The amendment is proposed under §371.006 of the Texas Pawnshop Act, which authorizes the Consumer Credit Commissioner to adopt rules to enforce the Act.

This rule affects the Texas Pawnshop Act, Chapter 371 of the Texas Finance Code.

§85.102.Definitions.

Words and terms used in this chapter that are defined in Texas Finance Code, Chapter 371, have the same meanings as defined in that chapter unless the context clearly indicates otherwise. The following words and terms, when used in this chapter, shall have the following meanings unless the context clearly indicates otherwise.

(1)

Bank deposits - Cash on deposit in banks or in other federally insured depository institutions. The value of deposits shall be reduced by any taxes or penalties that would be due and payable if the funds were withdrawn on the date of valuation.

(2)

Book value - The dollar amount assigned to assets using generally accepted accounting principles (GAAP). In evaluating merchandise inventory, the lower of the cost or the market value of the asset method is generally used when determining book value.

(3)

Commissioner - The Commissioner of the Office of Consumer Credit Commissioner of the State of Texas as defined in Chapter 14 of the Texas Finance Code.

(4)

Facility - The physical space used or proposed for the use of the operation of a pawnshop.

(5)

Law enforcement agency An agency of government having jurisdiction over ensuring compliance with the criminal statutes where the pawnshop is physically located.

(6)

[ (5) ] Merchandise inventory - Tangible personal property held by a pawnbroker or applicant for immediate sale in the pawnshop or proposed pawnshop.

(7)

Month The period from a date in one month to the corresponding date in the succeeding month. If the succeeding month does not have a corresponding date, the month ends on the last day of the succeeding month.

(8)

[ (6) ] Operator - A person or entity who manages the daily operations of a pawnshop. This term includes a party to a management agreement for oversight and supervision of the operations of the pawnshop on behalf of the owners of the pawnshop.

(9)

[ (7) ] Pawnbroker - A person who has an ownership interest in a pawnshop as shown in an application for a pawnshop license filed with the commissioner. When general duties and prohibitions are described, pawnbroker also includes a pawnshop employee unless the context indicates otherwise.

(10)

[ (8) ] Pledged goods - Tangible personal property held by a pawnbroker as collateral for a pawn loan and that has not become the property of the pawnbroker by a taking into inventory due to non-payment of the loan.

(11)

[ (9) ] Principal party - Each proprietor and adult individual with a substantial relationship to the proposed business of the applicant. An individual with a substantial relationship to the proposed business of the applicant shall include but is not limited to:

(A)

a general partner;

(B)

a voting member of a limited liability corporation;

(C)

a corporate officer, including the Chief Executive Officer or President, the Chief Financial Officer or Treasurer, and an officer with substantial responsibility for operations or compliance with the Texas Pawnshop Act;

(D)

a director of a corporation;

(E)

a shareholder owning 5% or more of the outstanding voting stock;

(F)

a trustee; and

(G)

an operator.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on July 10, 2000.

TRD-200004759

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 20, 2000

For further information, please call: (512) 936-7640

7 TAC §§85.401 - 85.422

The Office of Consumer Credit Commissioner (the agency) proposes the adoption of new §§85.401 - 85.422 concerning the operation of pawnshops.

Section 85.401 states the requirements for pawnshops concerning the hours and days of operations and procedures for non-scheduled closings of pawnshops. The rule is necessary to ensure that the public has adequate notice of when a pawnshop is open in order to redeem pledged items.

Section 85.402 specifies the records that must be maintained for pawn loans made under the authority of the Texas Pawnshop Act. The rule also provides the requirements for the approval of automated recordkeeping systems by the agency. The rule is necessary to ensure that the appropriate documentation is maintained by licensees to demonstrate compliance with applicable state and federal laws.

Section 85.403 sets the minimum requirements for maintenance of general liability and fire insurance for pawnshops. Section 371.154(a) of the Texas Pawnshop Act requires that a pawnbroker maintain general liability and fire insurance sufficient to protect pledged goods and that the commissioner determine a reasonable amount. The rule provides the minimum standard. Most pawnshops already maintain liability and property insurance in excess of the minimum standard prescribed by the rule. If a pawnshop does not have general liability or fire insurance they are not in compliance with statute. The rule is necessary to ensure that pledged goods are adequately protected.

Section 85.404 details appropriate methods for the protection and security of pledged goods. The rule is necessary to ensure that pledged goods are adequately protected.

Section 85.405 prescribes the procedures and requirements for documenting a pawn transaction. The rule is necessary to ensure that the transaction complies with applicable state and federal law. The description requirements are especially important in the event that the pledged goods become lost or destroyed in order to determine an adequate replacement for the pledged item. Furthermore, the description is important to aid law enforcement in the recovery of stolen property.

Section 85.406 concerns a pawnshop's reporting of transaction information to law enforcement. The section provides uniform guidelines for a voluntary program of electronic exchange of the transactional data. Uniform guidelines are suggested to ensure consistency , so that different jurisdictions do not have conflicting requirements. Compliance with the electronic reporting guidelines is optional.

Section 85.407 prescribes the procedures and requirements for documenting a memorandum of extension.

Section 85.408 outlines the procedures for handling the presentation of a pawn ticket by a pledgor for redemption.

Section 85.409 addresses the procedures that a pawnshop must follow when selling a portfolio of pawn transactions to another pawnshop.

Section 85.410 describes the procedures for dealing with a pledgor who desires to redeem pledged goods, but no longer possesses the pawn ticket. The section provides some advice upon handling an attempted redemption by someone other than the pledgor when the pawnshop has received oral notification from the pledgor that the ticket has been lost or destroyed. This advice is in the form of suggested guidelines. The agency has been requested to provide this advice on many occasions, so providing the same procedural advice in a rule will inform all parties of the suggested procedure.

Section 85.411 prohibits the use or modification of pledged goods. This section is necessary to protect the pledgor's property during the term of the pawn loan. The section prescribes the duty of reasonable care mandated by § 371.164 of the Texas Pawnshop Act.

Section 85.412 delineates the procedures for allowing redemption by mail. Section 371.166 of the Texas Pawnshop Act requires a pawnbroker to allow a pledger to redeem a pawn transaction by mail. This section is necessary to ensure that an authorized person is redeeming the item and permits the pawnbroker to recover shipping, handling, and insurance charges in the redemption by mail.

Section 85.413 provides the procedures for requests for redemption that involve pledged merchandise that has been lost or damaged. Section 85.414 details the process and recordkeeping requirement that the pawnbroker exercises when taking an item of pledged property into inventory because it has been forfeited.

Section 85.415 requires that forfeited property must be tagged if the retail value is $25 or greater. This section implements § 371.125 of the Texas Pawnshop Act and clarifies its application to forfeited property.

Section 85.416 concerns content and retention of advertising. This section requires that a pawnbroker maintain copies of advertising, so that compliance with applicable statutes on advertising may be verified during examinations.

Section 85.417 addresses prohibitions on false, misleading, or deceptive advertising.

Section 85.418 pertains to the monitoring and acceptance of goods in the pawnshop. This section is designed to assist the pawnbroker in identifying and prohibiting transactions involving stolen goods.

Section 85.419 discusses hold orders placed by law enforcement on property within a pawnshop. The section provides suggested guidelines to encourage uniformity and consistency in the handling of these orders.

Section 85.420 applies various provisions of the rules to purchase transactions entered into by pawnshops in the same manner that similar rules applying to pawn transactions would apply. The section also designates a hold period of 20 days as authorized in § 371.182 of the Texas Pawnshop Act. The rule also permits a reduced hold period if the pawnbroker provides data electronically to the law enforcement agency.

Section 85.421 implements § 371.183 of the Texas Pawnshop Act and requires the pawnbroker to provide consumer information and crime victim assistance. These policies have been in place for several years and are being incorporated formally into the rule.

Section 85.422 details the procedures for handling unclaimed funds that are due to a borrower. The rule provides procedures that conform to Chapter 25 of the Texas Property Code.

Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period these rules will be in effect, the public benefit anticipated as a result of the adoption of the new rules will be to more adequately inform the public and the regulated entities of the duties and requirements, as well as standard penalties and enforcement provisions for pawnshops.

Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period these rules will be in effect, there will be no fiscal implications for state or local government as a result of administering or enforcing these rules.

There should be minimal additional cost for complying with rule if the pawnbroker is in compliance with the other provisions of the statute. Most of the rules proposed here are matters of practice and policy that have already been in place for most pawnshops for several years. Most pawnshops already carry insurance and most have policy limits in excess of that specified by the rule. If a licensee does not maintain insurance in violation of § 371.154, then a licensee may have to purchase insurance. An estimate of the premium for a general liability policy as specified in the rule would be $250. An estimate of the premium for a fire insurance policy to cover pledged goods in the amount of $100,000 would range from $300 to $1200.

The costs estimated for insurance are calculated based upon a small business and are typically assessed by the volume, size, and location of the business. Therefore, larger business would pay proportionally larger premiums for their insurance. The agency believes that the rule should not have an adverse economic effect on small businesses compared to large businesses. The agency specifically invites comments from the public on the issues of whether or not the proposed rules will have an adverse economic effect on small business. If the rule is believed to have such an effect, then comments are invited on how the agency may legally and feasibly reduce that effect considering the purpose of the statute under which the rule is adopted. Additionally, if the rule is believed to adversely impact small business, then comments are specifically requested on how the cost of compliance for a small business compares with the cost of compliance for the largest business affected by the rule under any of the following standards: (a) cost per employee; (b) cost for each hour of labor; or (c) cost for each $100 sales.

Comments on the proposed adoption of the new rules may be submitted in writing to Leslie L. Pettijohn, Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207.

The new rules are proposed under § 371.006 of the Texas Pawnshop Act, which authorizes the Consumer Credit Commissioner to adopt rules to enforce the Act.

These rules affect the Texas Pawnshop Act, Chapter 371 of the Texas Finance Code.

§85.401.Hours and Days of Operation.

(a)

Public posting. A pawnshop's normal operating schedule must be posted so it is visible from the main public entrance. The schedule must include the hours for each day the shop will normally be open for business. Normal hours may include regular periods of closing during a day, such as a lunch time closing. The pawnshop must be open for business according to its posted schedule unless there is an approved closing pursuant to subsection (b) of this section.

(b)

Approved closing.

(1)

Holiday closing.

(A)

A pawnshop may be closed on any national holiday without notice.

(B)

A pawnshop may close for a state or religious holiday after posting notice five (5) calendar days prior to the date of closing.

(2)

Non-holiday closing. Pledgors must be advised of a closing five (5) days in advance through use of a posted notice or the mailing of notices to pledgors prior to the date of a temporary, non-emergency closing. Any closing in excess of three (3) business days requires notification to the commissioner fifteen (15) days in advance. A notice of closing must be posted so it is visible from the main public entrance.

(3)

Emergency closing. A notice of closing must be posted so it is visible from the main public entrance if a pawnshop is closed during regular posted hours due to an emergency. If determinable, the notice must include the date and time when the pawnshop will reopen for business. As soon as reasonable, the commissioner should be notified in writing of closings extending over three (3) business days in duration.

(c)

Effect of closing.

(1)

Non-holiday closing. The amount of pawn service charge scheduled to accrue on each pawn transaction from the date of non-holiday closing until actual redemption must be waived for any person who states an attempt was made to redeem goods during the closing.

(2)

All closings. If a pawnshop is closed on the "last day of grace," the pledgor or holder of the pawn ticket must have until the close of business on the next normal business day the pawnshop is open to redeem the pledged goods, renew, or extend the pawn transaction.

§85.402.Recordkeeping.

(a)

Minimum records. Books and records must be sufficient to demonstrate compliance with Texas Finance Code, Chapter 371, and this chapter such that the books and records:

(1)

allow for the documentation of all transactions to the extent that any single transaction may be re-created; and

(2)

allow for the documentation of any set of transactions governed by the Texas Finance Code, Chapter 371, to the extent that the set of transactions may be re-created.

(b)

Record retention. Any required book, record, or instrument pertaining to a transaction, whether paper or electronic, must be available for a minimum of two (2) years from the date of the last recorded event for inspection during normal business hours by the commissioner's authorized representative. For purposes of this section, the date of the last recorded event is the date a pledged item is taken into inventory, redeemed, or renewed.

(c)

Compliance file. A separate file must be maintained for regulatory communications at each licensed location. This file must include, at a minimum, copies of the current Texas Finance Code, Chapter 371, the last three (3) examination reports, correspondence relating to compliance, compliance bulletins issued in the last two (2) years, and current rules issued by the commissioner.

(d)

Recordkeeping systems. An approved software system must be used unless a manual system that complies with subsection (f) of this section is used. All approved systems in place on the effective date of this rule are not required to submit to reapproval.

(e)

Approval documentation.

(1)

A licensee or vendor seeking approval of a system must make available a complete and detailed written description of the system proposed to be utilized, including:

(A)

a statement specifying whether the system will be used in its entirety;

(B)

operating manuals;

(C)

instructions;

(D)

a copy of the software to be used; and

(E)

a full description of backup systems in place that will ensure business continuity and the protection of pledged goods.

(2)

Amendments. Any change to a software system is required to meet the minimum reporting requirements as established by this section.

(3)

Who must file. A private vendor may make a filing on behalf of a pawnbroker. It is the pawnbroker's responsibility, however, to ensure approval is received before utilizing the system.

(4)

Withdrawal of approval by the commissioner. The commissioner may withdraw approval upon finding the system does not provide information as anticipated at the time of approval or does not comply with this section. Upon withdrawal of approval, the use of the system must cease unless the commissioner grants time to make modifications. Reasonable time to make modifications will be granted if it can be shown that the granting of time will not be detrimental to pledgors.

(f)

Requirements of a manual record system. In a manual record system, the pawn ticket must be a four-part form. Manual entries to the top copy must be legible and simultaneously reproduced on the remaining parts. The form must provide a perforated stub to be utilized in labeling and identifying pledged goods. Each part of the pawn ticket form must be numbered sequentially by the supplier of the pawn ticket form. The stub must be numbered simultaneously with the same sequential number. The portion of the pawn ticket made available to local law enforcement may, with the approval of the local law enforcement agency receiving it, omit the preprinted text of the pawn ticket. The portion of the pawn ticket maintained in the numerical pawn ticket file must provide an appropriately designated space for posting amounts paid on the pawn transaction.

§85.403.Insurance.

(a)

Insurance provisions. General liability and fire insurance must be maintained in an amount sufficient to protect pledged goods as provided in Texas Finance Code, §371.154. The insurance policy must specifically cover the loss of pledged goods including jewelry.

(1)

General liability.

(A)

At a minimum, the amount of general liability insurance coverage must be $100,000 per occurrence from an insurance company with an A.M. Best rating of B+ or better.

(B)

In addition, pawnshops operating more than one licensed location must purchase an additional $10,000 of general liability insurance coverage per each operating location, excluding the first location.

(2)

Fire insurance. Fire insurance coverage must be purchased from an insurance company with an A.M. Best rating of B+ or better for:

(A)

pawnshops not operating as part of a chain must purchase fire insurance in an amount not less than the lesser of:

(i)

the amount of pawn loans receivable due the pawnshop at the close of business on December 31st of the preceding year; or

(ii)

one hundred thousand dollars ($100,000);

(B)

pawnshop chains that operate more than one licensed location must purchase fire insurance in an amount not less than the lesser of:

(i)

one-half the outstanding amount of the total pawnshop chain's pawn loans receivable due on December 31st of the preceding year; or

(ii)

five million dollars ($5,000,000).

(b)

Variance. If a pawnshop's unique circumstances create a justifiable reason for not complying with subsection (a), the pawnshop may submit a written request for variance from this section. The request should explain in sufficient detail why compliance with the section is not feasible and the alternative measures that are proposed to manage the associated risk and protect pledged goods.

§85.404.Security of pledged goods.

(a)

Alarm system. Adequate security must be maintained to provide for the protection and security of pledged goods. Adequate information must be provided, at the time of examination, on the security system used by the pawnshop to determine the system's adequacy.

(b)

Security of jewelry. A pawnshop that accepts jewelry as pledged goods must have a vault or safe that provides an additional level of security above the required alarm system.

(c)

Exterior storage of pledged goods. If pledged goods are accepted and cannot reasonably be stored inside the pawnshop (e.g., motor vehicles, boats, trailers, construction equipment), the goods must be stored adjoining the pawnshop and must be securely enclosed by protective fencing unless those goods are stored in compliance with subsection (d) of this section. Any damage or deterioration of the pledged goods resulting from outdoor storage will be handled in accordance with §85.412 of this title.

(d)

Remote storage. A pawnshop that stores pledged goods in a remote location is subject to subsections (a) through (c) of this section. A remote location is defined as a location not immediately accessible from the pawnshop. If upon redemption a pledged item cannot be retrieved from the remote location within thirty (30) minutes, the pledgor, prior to the transaction, must be notified in writing that the goods may not be available immediately. The written notice must also state the maximum length of time it will take to retrieve the item from remote storage upon redemption.

(e)

Public display of pledged goods prohibited. Pledged goods must not be placed in a public area of the pawnshop.

§85.405.Pawn Transaction.

(a)

Pawn Ticket.

(1)

Prescribed form.

(A)

The front and back of the original pawn ticket are prescribed in Figures 1 and 2: 7 TAC 85.405(a)(1)(A). The original portion of the pawn ticket must be given to the pledgor when the pawn transaction is made.

Figure 1: 7 TAC §85.405(a)(1)(A)

Figure 2: 7 TAC §85.405(a)(1)(A)

(B)

The prescribed back of the printed copy of the pawn ticket, as shown in Figure: 7 TAC 85.405(a)(1)(B), must be maintained in the numerical pawn ticket file.

Figure: 7 TAC §85.405(a)(1)(B)

(2)

Modifications of the pawn ticket.

(A)

Spacing. Spacing of the forms prescribed may be modified.

(B)

Other changes. Any other changes to the prescribed forms must be approved, in writing, in advance, by the commissioner.

(3)

Information required on pawn ticket. The pawn ticket must contain all information required in the Texas Finance Code, §371.157, and satisfy the requirements of the Truth-in-Lending Act, 15 U.S.C. §1601 et seq., and Regulation Z, 12 CFR §226.1 et seq. The pawn ticket must disclose the date that is sixty (60) days following the maturity date, and it must be captioned "last day of grace." The system used to create and store information about pawn transactions must include alphabetical or numerical characters sufficient to identify the pawnshop employee or owner writing the pawn ticket and handling the renewal or redemption of the pawn transaction. All parts of the pawn ticket form must be sequentially numbered by the automated information system unless produced manually in accordance with the requirements of §85.402(f) of this title, of this chapter.

(4)

Legible information. Reasonable procedures must be in place to ensure that all information on the original pawn ticket and all copies of the pawn ticket is legible.

(5)

Proper identification. The pledgor must present a proper form of identification at the time of the pawn transaction. For purposes of this paragraph, any form of identification found in Texas Finance Code, §371.174(b), that is either current or has not been expired for more than one (1) year, will be considered acceptable.

(b)

Identification of pledged goods. A unique label for each item pledged must be produced in order to ensure that the correct item is returned to the pledgor.

(c)

Voided pawn tickets. Voided pawn tickets must be clearly marked "VOID." All printed parts of a voided pawn ticket except those produced for local law enforcement must be retained and filed with the fourth part of the pawn ticket. The printed part must be made available to a local law enforcement agency.

(d)

Standards for describing goods. Pledged goods and purchases must be accurately and fully described. All serial numbers, including vehicle identification numbers and boat hull numbers that are reasonably available, must be accurately entered on required documents. Any visible owner applied number or other identifying marks must be recorded on the original pawn ticket and all copies and entered in the system that produces the pawn ticket. As applicable, the item type, brand, make, model number, engraving, inscriptions, color, size, length, unique markings, and design must be recorded. In addition, a record of the additional descriptors in paragraphs (1) - (4) of this subsection, must be included as applicable.

(1)

Firearms. Descriptions of firearms must include caliber and type of firearm (e.g., handgun, rifle, shotgun, black powder weapon).

(2)

Jewelry. Descriptions of jewelry must include weight, type of metal including purity, style, stones, and the gender of the person for which the item was manufactured. Stones must be described as to type, including results of electronic testing, color as apparent to the untrained eye, shape, number, size, and approximate weight. Class ring descriptions must also include school name and class year.

(3)

Motor vehicles. Descriptions of motor vehicles must also include the year of manufacture, model, body style, license plate number, and state of registration.

(4)

Accessories. Descriptions of accessories must include the applicable information required within this subsection.

(e)

Titled goods.

(1)

Negotiation. Goods pledged on a pawn transaction, a motor vehicle, or other property having a certificate of title may be accepted. When entering into the pawn transaction, the pawnbroker must not permit or require the owner to endorse the title to effect transfer.

(2)

Limited power of attorney. If a pawn transaction involves titled property, the owner may be required to sign a power of attorney form appointing the pawnbroker as the owner's attorney-in-fact for the sole purpose of transferring the ownership of the property in the event the pledgor fails to pay the pawn transaction.

(3)

Documentation. A notation of the location of powers of attorney, certificates of title, and registration receipts must be made on the printed copy of the ticket in the numerical pawn ticket file or an alternative filing method must be provided to facilitate retrieval of these documents.

(f)

Items usually sold as a set in a retail transaction or pledged together with their accessories.

(1)

Items usually sold as a set in a retail transaction or pledged together with their accessories may not be required to be split into separate transactions or that they be pledged separately where the result would be a total pawn service charge over the legal maximum for the single transaction.

(2)

If items usually sold as a set in a retail transaction or pledged together with their accessories are split into separate transactions, the effective rate of the separate transactions must not be greater than the rate a single transaction would have produced.

(3)

Items that may usually sold as a set in a retail transaction or pledged together with their accessories, but which are pledged on separate days will not normally be considered to fall within the provisions in paragraph (2) of this subsection.

(4)

If a pledgor requests separate pawn transactions on items usually sold as a set in a retail transaction or pledged together with their accessories, a notation of that request in the description field of the pawn ticket must be made and will not normally be considered to fall within the provisions in paragraph (2) of this subsection.

(g)

Alphabetical file of pawn tickets. Either an automated or a manual system capable of allowing searches utilizing the pledgor's name in the case of a lost or destroyed pawn ticket must be maintained.

§85.406.Law enforcement reporting.

(a)

Reporting requirements. The information on the pawn ticket must be made available to the law enforcement agency electronically or through the production of a separate copy of the pawn ticket.

(b)

Suggested electronic reporting guidelines. These suggested guidelines are intended to give pawnshops considerable flexibility to fit individual needs while providing some guidance. Modifications to the guidelines may be made without the loss of protection from any liability defense. Electronic reporting is voluntary and should occur under mutually acceptable terms to the pawnbroker and the law enforcement agency. Information reported electronically should be transmitted by a method mutually acceptable to both the pawnshop and the law enforcement agency. The suggested guidelines are:

(1)

the transmission be made using a 3.5 inch reusable diskette, CD-ROM, modem access to secure sites maintained by law enforcement, or modem access to secure bulletin boards or web sites;

(2)

the information be provided in comma-delimited ASCII text with field titles as the first record of the transmission;

(3)

the information be sent in batches no smaller than the daily activity;

(4)

the information include all purchase and pawn transactions in a single transmission; and

(5)

the law enforcement agency not be given direct access to a pawnshop's computer system.

§85.407.Memorandum of Extension.

(a)

Prescribed form and content. If an extension of a pawn transaction is made, a written memorandum must be used to document the extension of the maturity date. The prescribed memorandum form is shown in Figure: 7 TAC 85.407(a). The printed portions of the memorandum must be legible and all the information must be reproduced on all parts.

Figure: 7 TAC §85.407(a)

(b)

Modification of prescribed form. Modification of the spacing of the form is allowed. Other changes to the form must be approved, in writing, in advance, by the commissioner.

(c)

Distribution of copies. The original memorandum must be given to the person paying for the extension or, if paid by mail, sent to the pledgor. The location of all memorandum copies relating to a particular pawn ticket must be documented:

(1)

in the electronic system; or

(2)

in the numerical pawn ticket file.

(d)

Procedure. The daily rate of finance charge may not exceed 1/30th of the finance charge shown on the pawn ticket. The amount a pledgor pays for the extension may not exceed the maximum of the total amount that could be charged divided by the daily rate. The pledgor and pawnshop may negotiate any amount of pawn service charge for the extension not to exceed the maximum amount authorized by the Texas Finance Code, Chapter 371, Subchapter D.

(e)

Early redemption. If a pledgor negotiates an extension and subsequently pays a pawn transaction in full prior to the original maturity date, the original terms of the original pawn transaction are restored. The maximum pawn service charge that may be collected is calculated from the date of the original transaction to the date of redemption. Any charge collected for the extension must be credited against the total pawn service charge. Any remaining balance may be collected from the pledgor.

(f)

Renewal or extension of open pawn transaction. Any open pawn transaction may be renewed by payment of pawn service charges accrued to the date of renewal or may be extended, unless the pawn ticket provides that the pawn transaction is not eligible for renewal or extension.

§85.408.Presentation of Pawn Ticket.

(a)

Record of payment. A record of an amount collected in connection with a pawn transaction must be made immediately upon receipt. In a manual system, the payment notation must be made in the numerical pawn ticket file. If the amount of money received includes any costs for packing, shipping, or insuring goods redeemed by mail, the costs must be itemized.

(b)

Identification of a person. The person presenting a pawn ticket for redemption must be identified by requiring the person to produce an acceptable form of identification unless the person is known and recognized as the pledgor. An acceptable form of identification for a person other than the pledgor must be any form of identification listed in Texas Finance Code, §371.174(b), that is either current or has not been expired more than one (1) year. A record in the electronic system or on the original pawn ticket must be made including the type of identification, the name on the identification, and the identifying number presented by any person other than the pledgor.

(c)

Receipt. A receipt for payment must be given upon request. A memorandum of extension form, properly completed as described in§85.407 of this title, may serve as a receipt for payment of charges.

(d)

Original pawn ticket. The original of each pawn ticket returned upon redemption must be promptly filed in the redemption and renewal file. For purposes of this subsection, the numerical file of redemptions and renewals is a file where the documents used to redeem pawn transactions are kept in sequential order. Separate lost pawn ticket statement forms or other documents taken to document a redemption or renewal must be filed with the numerical pawn ticket file or in the redemption and renewal file according to the sequential number of the related pawn ticket.

(e)

Power of attorney. In the event the original pledgor desires to designate another person to redeem the pledged goods and the original pledgor has lost the pawn ticket, a proper power of attorney, which must include the pledgor's notarized signature, is required from the original pledgor designating the person for redemption. A power of attorney must be filed in the numerical pawn ticket file or the numerical index of redemptions and renewals.

§85.409.Sale of Pawn Transactions.

If pawn receivables are sold or assigned and the location for redemption is changed, the seller must comply with §85.203(e) of this title. The buyer may agree to assume responsibility for compliance with this section.

§85.410.Lost or Destroyed Pawn Ticket.

(a)

Notice of lost pawn ticket. When oral notification is received from a pledgor that the pledgor's pawn ticket has been lost or stolen, the pledgor must be instructed to give the notice in writing and informed that pledged items may still be taken into inventory after the last day of grace if the pawn transaction is not renewed, redeemed, or extended. The date and time the oral notification was received must be documented. If the pledgor is present in the pawnshop at the time of giving oral notice, the pledgor must be provided with a form to give written notice. If the suggested guideline is employed in subsection (d) of this section, the pledgor who gives oral notification should be informed that without a written statement of the lost pawn ticket, the goods will be surrendered to someone who properly presents the pawn ticket for redemption. A lost pawn ticket statement must be filed in the numerical pawn ticket file.

(b)

Record of payment. If a payment is made in connection with the redemption of pledged goods or the renewal of a pawn transaction and a separate lost pawn ticket statement is used, the requirement may be satisfied by recording the payment on the front of the lost pawn ticket statement, as well as the date of the transaction and the amount of money actually received. The lost pawn ticket statement must be filed in the numerical pawn ticket file.

(c)

Procedure. Appropriate procedures must be employed to ensure that only a person with a valid claim to a pledged item is able to redeem that item. Upon receipt of written notice the original pawn ticket is void.

(d)

Suggested guidelines. These suggested guidelines are intended to give pawnshops considerable flexibility to fit individual needs while providing some guidance. Modifications to the guidelines may be made without the loss of protection from any liability defense. When oral notification that a pawn ticket has been lost or stolen is received, the pledgor is instructed to give the notice in writing within next two (2) business days. If a person other than the pledgor presents the pawn ticket in an attempt to redeem the item prior to timely receiving written notice, it is suggested that:

(1)

an immediate attempt to contact the pledgor by telephone be made in order to determine if the presenter has a valid claim to the item;

(2)

a record of identifying information be made in the numerical file of loans, including name, identification number, address, and phone, of the presenter of the pawn ticket;

(3)

when ownership cannot be immediately determined, a request is be made that the presenter of the pawn ticket return in a mutually agreeable time frame to redeem the merchandise and return the original pawn ticket to the holder; and

(4)

all actions taken relating to the situation be documented clearly enough to accurately record the events.

§85.411.Modification of Pledged Goods.

(a)

Use prohibited. Use of goods pledged in connection with any open pawn transaction is prohibited.

(b)

Character of goods. No modification or change of the characteristics of any goods held in connection with any open pawn transaction is allowed.

§85.412.Redemption by Mail.

(a)

Persons authorized. A pledgor may redeem by mail by providing:

(1)

the pawn ticket; and

(2)

a photocopy of the identification used in making the pawn transaction.

(b)

Acceptable alternatives. If the pawn ticket is unavailable, the pledgor may mail a request to redeem the pawn transaction. If a photocopy of the identification used in making the pawn transaction is unavailable, the pledgor may send a photocopy of any identification acceptable for redeeming pledged goods under Texas Finance Code, 371.174.

(c)

Redemption period. A request for redemption must be honored within five (5) business days unless prior written notice that the pawn ticket has been lost, destroyed, or stolen has been received.

(d)

Method of payment. Payment by cashier's check, certified check, or money order may be required for:

(1)

the principal amount of the pawn transaction;

(2)

all pawn service charges due on the pawn transaction; and

(3)

the charges authorized in subsection (e) of this section.

(e)

Shipping, handling, and insurance charges. The pawnbroker is entitled to recover the reasonable and necessary expenses involved in packaging and shipping of goods and any additional charges to insure the goods. Goods must be insured during shipment for an amount determined by the pledgor. The pledgor may choose the carrier to use for shipment. Goods may be shipped cash on delivery (C.O.D.).

(f)

Firearms. Shipments of firearms may only be made to a holder of a federal firearms license.

§85.413.Lost or Damaged Goods.

(a)

Responsibility. A pawnbroker must repair or replace, with like kind merchandise, pledged goods that are either lost or damaged while in the pawnshop's possession.

(b)

Acceptance of payments. Any payment may not be accepted from the pledgor and the original pawn ticket must be returned when pledged goods are:

(1)

lost and not replaced;

(2)

damaged and not restored to their condition at the time pledged; or

(3)

unavailable for redemption.

(c)

Accrual of pawn service charges. No pawn service charge may be earned after a pledgor offers to redeem, renew, or extend pledged goods through the date the pledged goods or their equivalent replacements are available for redemption and that fact is communicated to the pledgor.

(d)

Documentation. Certain information must be retained concerning pledged goods that have been lost or damaged. The information may be recorded in the numerical pawn ticket file or in the automated records of the pawn transaction, must be readily available for examination, and must include the following information:

(1)

the date of discovery of the loss or damage;

(2)

the pawn ticket number;

(3)

identification of the lost or damaged property;

(4)

evidence of delivery of the disclosure required in subsection (e), paragraph (6) of this section;

(5)

the date of resolution; and

(6)

the manner in which the matter was resolved.

(e)

Communications with pledgors.

(1)

A pledgor must not be misled as to the pawnbroker's liability whether through any posting, oral statements, or any other conduct.

(2)

A prompt attempt must be made to satisfy the pledgor by repairing or replacing the lost or damaged goods.

(3)

A pledgor may not be advised that the replacement of lost or damaged pledged goods will be accomplished in any manner that is more limited than replacement with like kind goods or restoration of damaged goods to their condition at the time pledged.

(4)

Replacement items must be made available for the pledgor's inspection at the same location where a pledgor would redeem, renew, or extend the pawn transaction.

(5)

A pledgor must be informed that the pledgor has a right to have the like kind replacement or restoration reviewed by the Office of Consumer Credit Commissioner in accordance with subsection (h) of this section and that no judicial remedy may be sought until ninety-one (91) days after a complaint has been filed with the agency.

(6)

When an attempt or offer to redeem, renew, or extend a pawn transaction is made and it is known or learned that pledged goods have been lost or damaged, the pledgor must accurately be informed of the facts of the situation, the status of the pledged goods, the pawnbroker's responsibility under the Texas Finance Code, Chapter 371, and the pledgor's rights under paragraph (5) of this subsection. A model disclosure is provided in Figure: 7 TAC 85.413(e)(6).

Figure: 7 TAC §85.413(e)(6)

(f)

Alternative resolution. Once compliance with subsection (e) of this section is accomplished, at the pawnbroker's option, an offer of a cash settlement or a substitution as an alternative to replacing or repairing the lost or damaged goods may be made.

(g)

Partial redemption. If one or more items pledged on a pawn transaction are not lost or damaged and are available for redemption, the pledgor may redeem the available items by negotiating a partial, proportionate payment not to exceed the pawn service charge limitations in the Texas Finance Code, Subchapter D.

(h)

Replacement complaints. Upon request by the person attempting to redeem pledged goods, a complaint form issued by the commissioner must be provided. The complaint form is provided in Figure: 7 TAC 85.413(h). The agency will begin review of a complaint for lost or damaged items upon receipt of the written complaint.

Figure: 7 TAC §85.413(h)

(1)

Upon receipt of a written complaint, the commissioner may:

(A)

request copies of the pawn ticket and all related documentation;

(B)

analyze the complainant's authority to receive a replacement;

(C)

review additional information (e.g., appraisal, picture, insurance information) provided by either party;

(D)

provide a time frame for producing proposed like kind replacement merchandise.

(2)

When a replacement item is available, the pledgor and the commissioner must be informed that:

(A)

a replacement item is available for inspection; and

(B)

the replacement item has not been inspected by the commissioner to determine if it is like kind merchandise.

(3)

The commissioner may initiate an on-site inspection to review the replacement.

(4)

After conducting an on-site inspection, the commissioner may either:

(A)

direct another item be produced for replacement within a specified period of time for inspection; or

(B)

issue a letter of determination stating that the merchandise offered is like kind and the complaint is closed. At that time the pledgor may seek a court remedy at the pledgor's expense if the pledgor is dissatisfied with the determination of the commissioner.

§85.414.Forfeiture of Pledged Goods.

Documentation of the date that pledged goods have been forfeited and have become the property of the pawnshop must be made in the numerical pawn ticket file or in the electronic records. When the option is exercised to take pledged goods as the pawnshop's property, the property is not eligible to be returned to pledged goods status until another disposition of the property is made (e.g., sale, layaway). If goods have not been taken into inventory and documented, the pawn transaction is still considered an open pawn transaction even if the grace period has expired. The pledged goods on any open pawn transaction may be redeemed by payment of the amount financed and pawn service charges accrued to the actual date of redemption.

§85.415.Proper Identification Tags Required.

Each item of forfeited property located in a pawnshop must be tagged or otherwise marked to identify the pawn transaction that resulted in the item being taken into inventory. This section only applies to forfeited property with a retail value that equals or exceeds twenty-five dollars ($25).

§85.416.Advertisements.

(a)

File. A file must be maintained, either at the licensed office or at a principal Texas office designated to the commissioner, that contains a complete record of pawn advertising or other advertising material pertaining to lending money (e.g., radio broadcasts, billboards, signs not at the licensed place of business) for a period of not less than one year from the date of use, or until the next examination. The date or period of use of each advertisement must be indicated.

(b)

Content. Advertisements must comply with Texas Finance Code, §371.180(b).

(c)

Use of state agency name. Advertisements with the name of the Office of Consumer Credit Commissioner may only be used in connection with the following statement: "This office is licensed and examined by the Office of Consumer Credit Commissioner of the State of Texas."

§85.417.False, Misleading, or Deceptive Advertising.

(a)

Prohibitions. Advertising that is false, misleading, or deceptive and that directly relates to the making, arranging, or negotiating of a pawn transaction subject to Texas Finance Code, Chapter 371, is prohibited. No advertising may be made under any name that is not on the pawnshop license for the location advertised.

(b)

Unauthorized advertisers. No person may advertise the availability of pawn transactions or suggest by use of any sign or other advertisement that a location of business is a pawnshop unless that person holds a pawnshop license for that location of business. Use of the words or phrases "loan outlet" or "pawn outlet" constitute prohibited advertising under this subsection. Advertising under a heading, category, or title of "pawnbroker" or "pawnshop" or similar words shall constitute prohibited advertising under this subsection if the person does not hold a pawnshop license for that location of business.

§85.418.Acceptance of Goods.

(a)

Monitoring of transactions and customers.

(1)

Type of goods offered. An item on which the serial number has been defaced, altered, or removed may not be taken into pawn.

(2)

Written policy. A written policy must be established for the acceptance of pledged goods. The policy must expressly identify situations which may involve the attempted pawn of stolen goods and must list procedures to be followed in order to avoid the acceptance of stolen goods. A copy of the policy must be provided to each employee. Each employee must sign a document acknowledging receipt and understanding of the policy. A copy of each signed receipt must be placed in the compliance file. Alternatively, a pawnshop may employ another systematic method of filing receipts that allows for the appropriate retrieval of records for inspection. A model policy may be found in Figure: 7 TAC 85.418(a)(2).

Figure: 7 TAC §85.418(a)(2)

(3)

Acceptance of uniquely marked goods. An item may not be accepted into pawn that is marked in a manner that indicates ownership by a third party (e.g., rental company, motel, governmental body). An item marked in a manner that indicates ownership by a third party may, however, be accepted into pawn when the pledgor produces a valid receipt or other evidence of ownership of the item or the pawnshop obtains independent verification. The documentation of the exception must be attached to and retained with the goods while pledged.

(4)

Responsibility. The pawnbroker must monitor goods in order to identify and prohibit transactions involving stolen goods the acceptance of stolen goods and must make reasonable efforts to avoid accepting stolen goods.

(5)

Coordination with law enforcement. A pawnbroker must work with law enforcement agencies regarding matters relating to stolen goods and must aid in the prompt resolution of an official investigation by providing, if available:

(A)

information to appropriate law enforcement officers (e.g. additional description of pledged and purchased goods, a physical description of the pledgor or seller, copies of all documents surrounding the transaction);

(B)

physical inspection of the goods;

(C)

a copy of the surveillance tape relating to the transaction;

(D)

access to pawnshop employees for information; and

(E)

cooperation with any court order.

(b)

Documentation of goods not lawfully possessed by a pledgor. Certain information must be maintained concerning pledged goods that a pledgor did not have the right to possess. The information may be recorded in the numerical pawn ticket file or in the automated records of the pawn transaction. Each record must be readily identifiable and available for examination. The record must include:

(1)

the pawn ticket number;

(2)

the specific goods concerned;

(3)

the person to whom the goods were released; and

(4)

the terms and conditions under which possession of the goods was relinquished (e.g., redeemed by owner, voluntarily returned without compensation, seized by law enforcement officers, awarded to another following a judicial hearing).

§85.419.Hold Order.

(a)

A law enforcement agency may place a hold order on property.

(b)

Suggested guidelines. This section provides suggested guidelines for the placement of hold orders. These suggested guidelines are intended to give pawnshops considerable flexibility to fit individual needs while providing some guidance. Modifications to the guidelines may be made without the loss of protection from any liability defense.

(1)

A hold order should be placed in writing by a law enforcement agency. The term of a hold order should not exceed sixty (60) days from the receipt of the written hold order. The law enforcement agency may extend the term of the hold order for additional thirty (30) day increments by notifying the pawnshop in writing. The hold order and all applicable extensions automatically terminate upon expiration.

(2)

A hold order or extension should specify:

(A)

the name and address of the pawnshop;

(B)

the name, title, case number, and phone number of the responsible officer at the law enforcement agency;

(C)

a complete description of the property to be held, including model number and serial number, if applicable, and the related pawn or purchase ticket number;

(D)

the expiration date of the hold order or the extension; and

(E)

the name of the law enforcement agency that prepared the investigative report and the associated number.

(3)

A written hold order may be transmitted to the pawnshop by a mutually agreeable method.

(4)

Except as provided by this subsection, the property subject to a hold order should not be released, sold, redeemed, or disposed of except under:

(A)

release authorization from the official placing the item on hold;

(B)

expiration of the hold order and the applicable extensions;

(C)

court order, including a search warrant; or

(D)

seizure by a law enforcement official.

(5)

Property may be released to the custody of a law enforcement agency for use in a criminal investigation if the officer has furnished a written receipt for the property. The release of the property to the custody of the law enforcement agency is not considered to be a waiver or release of the pawnbroker's rights or interest in the property. Upon the earlier of the completion of the criminal investigation or the expiration of the hold order and applicable extensions, the property should be returned to the pawnshop unless a court order provides for other disposition. If other disposition is ordered, the court may order the pledgor or seller to pay restitution in the amount received by the pledgor or seller for the property, plus accrued pawn service charges.

§85.420.Purchase Transactions.

(a)

Relevant pawn provisions. Accepting goods in a purchase transaction must be done in compliance with all relevant administrative rules, in the context of the purchase transaction in the same manner as if the transaction were a pawn transaction. These rules include:

(1)

§85.405(a)(4) of this title - Legible information;

(2)

§85.405(a)(5) of this title - Proper identification;

(3)

§85.405(b) of this title - Identification of pledged goods;

(4)

§85.405(d) of this title- Standards for describing goods;

(5)

§85.405(e) of this title - Titled goods;

(6)

§85.406 of this title - Law enforcement reporting;

(7)

§85.418 of this title- Acceptance of Goods; and

(8)

§85.419 of this title- Hold Orders.

(b)

Hold Period. Each item of personal property purchased from the general public must be held at the licensed pawnshop location for a period of at least twenty (20) calendar days from the purchase date before being modified, changed, sold, or disposed of in any manner. A reduced hold period, not less than ten (10) days, may be agreed upon by the pawnbroker and the law enforcement agency if the exchange of pawn and purchase ticket information is done electronically. The agreement for a reduced hold period must be submitted to the commissioner in writing by and through the chief local law enforcement officer for the jurisdiction.

§85.421.Consumer Information.

(a)

Consumer education. The commissioner will furnish each pawnshop, at the time of initial licensing, a display and printed materials that must be placed in a location clearly visible to the consumer from the register. The pawnshop must assist the commissioner by refilling the display as necessary.

(b)

Crime victim assistance.

(1)

Victim's request for assistance. A crime victim or the victim's representative may make an inquiry by presenting a copy of a law enforcement agency offense report that describes stolen property in a manner that would permit positive identification. The name of the department where the stolen property report was filed must be requested and a telephone number for the victim.

(2)

Property search. When a victim's request for assistance has been received, a search must be made of all records of purchases and pawn transactions made on or subsequent to the date of loss. From the time of receipt of the request until the records search is completed, no property of the type described in the offense report may be released without examining the property to determine if it is the property of the victim.

(3)

Report of findings. If the stolen property has come into the pawnshop's possession, the law enforcement agency that originated the report must be notified. The item must be placed on hold pursuant to §85.419 of this title unless the other instructions are received from the law enforcement agency. The pawnshop is not obligated to allow the redemption of items located pursuant to paragraph (2) of this subsection until the hold order has expired.

(4)

Victim inspection. A pawnbroker is not required to permit a victim to examine the records of a pawnshop, the pledged goods of a pawnshop, or any property purchased by a pawnshop which is not on public display.

(5)

Crime victim assistance recordkeeping. Documentation on the offense report or an attachment to the report must be made. The record of the report findings as required in paragraph (3) of this subsection must include the person to whom the report was given, the date and time of the report, and the nature of the report. The records must be retained in a manner which makes the reports readily available for examination.

§85.422.Unclaimed Funds.

An amount due a pledgor unclaimed for one (1) year must be transferred to an escheat suspense account. Reference to the transfer must be made on the printed copy in the numerical pawn ticket file.

(1)

Proof of attempt to pay refund. Evidence of a bona fide attempt to pay a refund to a pledgor must be maintained in a file readily available for examination. The minimum acceptable evidence is a registered or certified letter addressed to the last known address of the pledgor. The file must include any information that indicates the pledgor's whereabouts are unknown, the pledgor has left the community, or has died leaving no wills or heirs.

(2)

Use of unclaimed monies. Use of unclaimed monies within the business until such time as paid to the pledgor, the estate of the pledgor, or to the State of Texas is not prohibited; however, funds transferred to the escheat account must not be commingled with the funds of the business.

(3)

Payment of unclaimed funds. At the end of three (3) years, the unclaimed funds must be paid to the State of Texas Comptroller of Public Accounts, Treasury Division, as required by Texas Property Code, §72.101.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on July 10, 2000.

TRD-200004755

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 20, 2000

For further information, please call: (512) 936-7640

7 TAC §§85.501 - 85.503

The Office of Consumer Credit Commissioner (the agency) proposes the adoption of new §§85.501 - 85.503 concerning examinations of pawnshops.

Section 85.501 explains the accommodations required to permit an examiner of the agency to conduct an examination of the pawnshop's records. The rule is necessary to advise pawnshops of physical requirements for an examination. The examiner must be provided with a physical working space in order to review the appropriate records and access to an electrical outlet is required to prepare the licensee's examination report using the examiner's notebook computer.

Section 85.502 prescribes the requirements for an annual examination report. This information is necessary to ensure that the agency has the appropriate information to adequately schedule examinations. The volume of activity within a pawnshop is an important factor in assessing the compliance risk to determine the priority and frequency of pawnshop examinations. The agency may also summarize and aggregate the information for the use of public policy makers in evaluating the pawn industry.

Section 85.503 outlines the fee structure for examinations. The rule is necessary to recover the costs of examinations as required in the Texas Pawnshop Act §371.207. This fee structure is currently in place and has been in use since March, 1999.

Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period these rules will be in effect, the public benefit anticipated as a result of the adoption of the new rules will be to more adequately inform the public and the regulated entities of the duties and requirements for the examination of pawnshops.

Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period these rules will be in effect, there will be no fiscal implications for state or local government as a result of administering or enforcing these rules.

The cost for complying with the rule will not increase over the cost already required by the regulated entities. The average time to examine a pawnshop is approximately 4.5 hours. The examination fee prescribed by the rule for the average examination would be $420. This fee is designed to recover the direct and indirect expense associated with the examination as contemplated in §371.207 of the Texas Pawnshop Act. The agency believes that there will be no adverse economic impact to small businesses to comply with the rule.

Comments on the proposed adoption of the new rules may be submitted in writing to Leslie L. Pettijohn, Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207.

The new rules are proposed under §371.006 of the Texas Pawnshop Act, which authorizes the Consumer Credit Commissioner to adopt rules to enforce the Act.

These rules affect the Texas Pawnshop Act, Chapter 371 of the Texas Finance Code.

§85.501.Examination Accommodations.

When a representative of the commissioner appears at a pawnshop to make an examination, the pawnshop must make available a desk or table providing adequate working space. The pawnshop must also provide a suitable chair, adequate lighting, and convenient access to a 110 volt electrical outlet in an area reasonably suited for office and administrative work.

§85.502.Annual Examination Report.

As part of an annual examination, a report must be filed in conjunction with the pawnshop license renewal providing certain information on a form furnished by the commissioner. These submissions will be collected under the examination authority of Texas Finance Code, §371.201, and will be treated as confidential under the provisions of Texas Finance Code, §371.206. The commissioner may publish an aggregated report. A report for each licensed location must be filed for the period of January 1st to December 31st of the preceding year and include:

(1)

Number of pawn loans made during the year;

(2)

Amount advanced in connection with the pawn loans made during the year;

(3)

Number of pawn loans outstanding on the December 31st immediately preceding the due date of the report; and

(4)

Amount of pawn loans outstanding on the December 31st immediately preceding the due date of the report.

§85.503.Examination fees.

(a)

Assessment. The commissioner will assess and collect a nonrefundable examination fee designed solely to recover agency expenditures applicable to the examination function, according to the formula set out below:

(1)

General administrative fee per exam ($150.00) - The administrative and overhead costs necessary to cover agency expenditures related to an examination (e.g., computer support, examination function administration);

(2)

Administrative fee for each additional day ($100.00) - The administrative and overhead costs necessary to cover agency expenditures for each additional day required to conduct the examination; and

(3)

Hourly examination rate ($60.00) - The direct and indirect examiner cost including travel costs.

(b)

Calculation of a day. A day is measured as eight (8) business hours spent on site conducting an examination.

(c)

Due date. Unless specifically stated by the commissioner any examination fee is due at the time of billing.

(d)

Return Examinations. If a follow-up examination visit is required within ninety (90) days after a written deficiency report given as a result of a failure to comply with Texas Finance Code, Chapter 371, this chapter, or the special instructions section of the examination report, the follow-up will result in an assessment at two (2) times the rates provided in subsection (a), paragraph (3) of this section.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on July 10, 2000.

TRD-200004756

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 20, 2000

For further information, please call: (512) 936-7640

7 TAC §§85.604 - 85.608

The Office of Consumer Credit Commissioner (the agency) proposes the adoption of new §§85.604 - 85.608 concerning revocation, suspension, and surrender of pawnshop licenses.

Section 85.604 describes the types of administrative action that the commissioner may take and the basis for taking administrative action. This section is necessary to describe the types of actions that the agency will pursue in enforcement actions. The agency is not necessarily limited to the actions described by the rule, but the rule describes common enforcement situations. The rule also requires reporting of any criminal enforcement actions. This information will assist the agency in determining whether an administrative enforcement action should be initiated.

Section 85.605 describes the procedures for redemption of pawned merchandise after a pawnshop license has been revoked. The pledgor must be given an opportunity to redeem their pledged goods, even if a license has been revoked. The pawn ticket gives the pledgor a contractual right to redeem the pledged goods until the appropriate grace period has expired.

Section 85.606 explains the procedures for a licensee who desires to surrender their pawn license or wind down their operations. The rule is necessary to ensure that the licensee is aware of certain responsibilities that may not be avoided by simply surrendering the license. For example, a licensee is required to permit pledgors to redeem pledged goods before the expiration of the grace period and the licensee may not avoid this responsibility by surrendering its license.

Section 85.607 references the applicable statutes and rules that will be used in connection with an administrative hearing.

Section 85.608 details the procedure for obtaining a certificate of good standing as required by §371.259 of the Texas Pawnshop Act.

Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period these rules will be in effect, the public benefit anticipated as a result of the adoption of the new rules will be to more adequately inform the public and the regulated entities of the duties and requirements for the examination of pawnshops.

Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period these rules will be in effect, there will be no fiscal implications for state or local government as a result of administering or enforcing these rules.

There is no cost for complying with the rule if a licensee complies with the other appropriate provisions of the statute. If however, a licensee fails to comply with the Texas Pawnshop Act and an administrative action is initiated against the licensee, the licensee may be assessed an administrative penalty or court costs associated with any hearing that is required to be held. The court costs are the direct costs associated with the hearing and may be imposed on the respondent through the authority of Texas Finance Code §14.207. The agency believes that there will be no adverse economic impact to small businesses to comply with the rule.

Comments on the proposed adoption of the new rules may be submitted in writing to Leslie L. Pettijohn, Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207.

The new rules are proposed under §371.006 of the Texas Pawnshop Act, which authorizes the Consumer Credit Commissioner to adopt rules to enforce the Act.

These rules affect the Texas Pawnshop Act, Chapter 371 of the Texas Finance Code.

§85.604.Revocation or Suspension of Pawnshop License or Pawnshop Employee License.

(a)

The commissioner may initiate an administrative action for the reasons in subsection (b) of this section and assess any or all of the penalties below:

(1)

revoke or suspend a license;

(2)

assess an administrative penalty.

(b)

Basis for administrative actions.

(1)

Eligibility. A pawnbroker who does not continue to meet the eligibility requirements in Texas Finance Code, Chapter 371, Subchapter B or a pawnshop employee who does not continue to meet the eligibility requirements in Subchapter C and the administrative rules promulgated by the commissioner, is subject to suspension or revocation.

(2)

Character and fitness. A pawnbroker or a pawnshop employee must report to the commissioner knowledge of any arrest, charge, indictment, or conviction of any person named on a pawnshop or pawnshop employee license or application filed with the commissioner. Traffic violations and any action previously reported to the commissioner are not required to be reported. Any known investigation of potential violations of federal laws or rules relating to firearms must be reported to the commissioner. An adverse action taken by the United States Bureau of Alcohol, Tobacco and Firearms against the federal firearms license must also be reported. Reports must be made within three (3) business days.

(3)

Failure to comply with the law. A pawnbroker or pawnshop employee who fails to comply with this chapter or the provisions of the Texas Finance Code, Chapter 371, is subject to suspension, revocation, or an administrative penalty.

(4)

Accepting stolen property. A pawnbroker or pawnshop employee who accepts stolen property or accepts property which has been represented to be stolen without reporting it to law enforcement is subject to suspension, revocation, or an administrative penalty. A pawnbroker or pawnshop employee who has knowledge of a pawnbroker or a pawnshop employee accepting stolen property without reporting it to law enforcement is subject to suspension or an administrative penalty.

(5)

Failure to comply with commissioner's order. A pawnbroker or pawnshop employee who fails to comply with an order of the commissioner is subject to suspension, revocation, or an administrative penalty.

(6)

Responsibility for compliance. Any licensed pawnbroker or pawnshop employee who knowingly or without exercise of due care violates the purposes of the Texas Finance Code, Chapter 371, or this chapter is subject to suspension, revocation, or an administrative penalty.

(7)

Responsibility for acts of others. Any person who holds a pawnshop license will be responsible for the acts of its officers, directors, employees, and agents in the conduct of the pawnshop business.

§85.605.Redemption of Goods after License Revocation or Suspension.

A pawnshop that ceases operation must make reasonable accommodations to ensure that a pledgor has an opportunity to redeem pledged goods. A sign must be posted in compliance with §85.401(b) of this title that informs a pledgor of the process of redemption. A copy of the posting along with additional contact information must be submitted to the commissioner. The opportunity for redemption may be made by allowing the pledgor to redeem even though the pawnshop is no longer in business or by providing accommodations so that the pledgor may redeem goods through another licensed pawnshop.

§85.606.Surrender of License.

(a)

Winding down. When a licensee surrenders its license or ceases business operations, the licensee must comply with §85.605 of this title.

(b)

Surrendering to avoid administrative action. A licensee may not surrender a license after an administrative action has been initiated without the written agreement of the agency.

§85.607.Hearings.

Hearings held under this chapter will be held in accordance with Administrative Hearing Process and Rules of Procedures in the Finance Commission Agencies, §9.1 et seq. of this title, the Administrative Procedures Act, the Texas Rules of Civil Procedure, and the Texas Rules of Evidence.

§85.608.Certificate of Standing; Copies.

Upon request, a certificate of good standing must be provided in accordance with §82.2 of this title.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on July 10, 2000.

TRD-200004757

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 20, 2000

For further information, please call: (512) 936-7640

7 TAC §§85.701 - 85.703

The Office of Consumer Credit Commissioner (the agency) proposes the adoption of new §§85.701 - 85.703 concerning enforcement actions and administrative penalties related to the Texas Pawnshop Act, Chapter 371, Texas Finance Code.

Section 85.701 details the penalty provisions that will be applied for failure to timely file a pawnshop employee application. Section 371.101 requires that a pawnshop employee must apply for a license not later than the 75th day after the date employment begins. The commissioner finds that this is an area of concern for non-compliance. In order to discourage noncompliance with the requirement as well as to consistently and uniformly enforce the provisions, the rule provides standard penalties for noncompliance with the requirement.

Section 85.702 details the enforcement procedures that will be applied for accepting prohibited merchandise. Section 371.181 requires that a pawnbroker must monitor goods purchased, accepted in pawn, or otherwise acquired in order to identify and prohibit transactions involving stolen goods. Furthermore, it is one of the stated purposes of the Pawnshop Act to prevent transactions in stolen property and other unlawful property transactions. The commissioner finds that this is an area of concern for non-compliance. In order to discourage noncompliance with the requirement as well as to consistently and uniformly enforce the provisions, the rule provides standard penalties for noncompliance with the requirement.

Section 85.703 is a savings clause stating that if any rule or portion of this chapter is found invalid or unenforceable, that fact shall not affect or impair the remainder of the chapter.

Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period these rules will be in effect, the public benefit anticipated as a result of the adoption of the new rules will be to more adequately inform the public and the regulated entities of the duties and requirements, as well as to provide standard penalties and enforcement provisions for pawnshops.

Leslie L. Pettijohn, Consumer Credit Commissioner, has determined that for the first five-year period these rules will be in effect, there will be no fiscal implications for state or local government as a result of administering or enforcing these rules.

There is no additional cost for complying with the rule if the pawnbroker is in compliance with the other provisions of the statute. If, however, a pawnbroker is not in compliance with the provisions relating to timely filing pawnshop employee applications, the rule provides for an administrative penalty of a suspension of the employee's license or at the pawnshop's option, a monetary penalty to reduce the time of suspension. The cost to reduce a day of suspension is $30. Again, if the application is timely filed, there is no cost required to comply with the rule. Section 85.702 also provides for the option of a monetary penalty in lieu of suspension for accepting prohibited items. The cost is $500 per prohibited item if the violation results from the action of ownership or management or $50 per prohibited item if the violation results from the action of a pawnshop employee. These penalties only will be applicable if the pawnshop employee or the pawnshop ownership or management fails to comply with the provisions relating to accepting prohibited merchandise. The agency believes that there will be no adverse economic impact to small businesses to comply with the rule as the rule specifically addresses issues of noncompliance. Since these penalties are applied on a per occurrence basis for noncompliance, there is no difference in the cost of compliance between large businesses and small businesses.

Comments on the proposed adoption of the new rules may be submitted in writing to Leslie L. Pettijohn, Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207.

The new rules are proposed under §371.006 of the Texas Pawnshop Act, which authorizes the Consumer Credit Commissioner to adopt rules to enforce the Act.

These rules affect the Texas Pawnshop Act, Chapter 371 of the Texas Finance Code.

§85.701.Failure to Timely File a Pawnshop Employee Application.

(a)

Reasonable ground for denial. Failure to file a pawnshop employee application with the Office of Consumer Credit Commissioner within seventy-five (75) calendar days of the first day the employee participated or trained in a transaction subject to Texas Finance Code, §371.101(c), shall be a reasonable ground for denial of the license. Should the commissioner find that no other ground is present on which to base a denial of the license, the commissioner may grant the license with an agreed suspension as set out in subsection (b) of this section.

(b)

Agreed suspension. As stated in subsection (a) of this section, if the commissioner finds that no grounds other than failure to timely file is present, the parties may agree upon one of the following options in lieu of denial:

(1)

if the applicant has not previously held a pawnshop employee license, the application will be granted and then immediately suspended for the number of days equal to 20% of the total number of days past the seventy-fifth (75th) calendar day which the applicant worked without a license;

(2)

if the applicant has previously held a pawnshop employee license, the application will be granted and then immediately suspended for the number of days equal to 30% of the total number of days past the seventy-fifth (75th) calendar day which the applicant worked without a license;

(3)

in cases where the pawnshop accepts responsibility for failure to timely file, and the suspension calculated under paragraph (1) or (2) of this subsection results in a suspension period in excess of fourteen (14) days, the pawnshop may pay thirty dollars ($30) per suspension day to reduce the suspension period; or

(4)

some other option agreeable to all parties.

(c)

Suspension calculations. There will be no suspension of less than one (1) complete day. All calculations resulting in fractions shall be rounded up to the next full day.

(d)

A pattern of violations may result in an additional administrative action, denial, or the forfeiture of the options in this section.

§85.702.Accepting Prohibited Merchandise.

(a)

Reasonable ground for revocation. Reasonable ground for revocation of the license exists when a pawnbroker or pawnshop employee violates Texas Finance Code, Chapter 371, by knowingly or without exercising due care fails to prevent a transaction of stolen property. Should the commissioner find that no other ground is present on which to base a revocation of the license, the commissioner may agree to a suspension or an administrative penalty as set out in subsections (b) and (c) of this section.

(b)

Individual violations. A pawnbroker or a pawnshop employee found to have taken items in violation of §85.418(a)(1) and (3) of this title, is subject to the following penalty:

(1)

If the violation results from the action of ownership or management, the pawnshop license shall be suspended for one day per each item found on premises or the pawnshop may pay an administrative penalty of five hundred dollars ($500) per each item found on premises.

(2)

If the violation results from the action of a pawnshop employee, the employee license shall be suspended for one day per each item found on premises or the pawnshop employee may pay an administrative penalty of fifty dollars ($50) for each item found on premises.

(c)

Multiple violations. A pawnshop that is found to have more than ten (10) violations of any of the provisions of §85.418(a)(1) and (3) of this title in a two (2) year period is subject to the following penalties:

(1)

suspension of three (3) days; and

(2)

administrative penalty of one thousand dollars ($1,000).

(d)

Alternative resolution. If a pattern of violations indicate a lack of the management's affirmative duty to supervise its employees to prohibit violations of§85.418(a)(1) and (3) of this title, then forfeiture of the options in subsections (b) and (c) of this section will result. If the agency has independent proof of violations of§85.418 of this title, the pawnbroker or pawnshop employee may be subject to stronger administrative actions than required by this section.

§85.703.Savings Clause.

If any portion or provision of this chapter is found to be illegal, invalid, or unenforceable, such illegality, invalidity, or lack of enforceability shall not affect or impair the legality, validity, and enforceability of the remainder hereof, all of which shall remain in full force and effect.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State, on July 10, 2000.

TRD-200004758

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 20, 2000

For further information, please call: (512) 936-7640