7 TAC §1.605
The Finance Commission of Texas (the commission) proposes
new §1.605 concerning the authority to engage in deferred presentment
transactions.
New 7 TAC §1.605 authorizes regulated lenders to engage in deferred
presentment transactions under the authority of Subchapter F, Chapter 342.
In essence, this rule permits the lender to take and hold a check as collateral
for a consumer loan.
New §1.605 establishes the authority for a lender licensed under Chapter
342 to take a check as collateral for the payment of a loan. The practice
of deferred presentment transactions has rapidly spread across the United
States. This rule recognizes and authorizes this type of loan within the Texas
statutory usury framework.
Subsections (a) and (b) of the rule establish the definition and application
of a deferred presentment transaction. These subsections are necessary to
appropriately define the types of transactions that may fall within the rule's
purview.
Subsection (c) clarifies the maximum charge that may be assessed on this
type of loan. The subsection applies the provision of Texas Finance Code, §342.253
to a loan of this type.
Subsection (d) establishes a minimum term of 7 days of a loan of this type.
Texas Finance Code, §342.258 authorizes the commissioner to establish
repayment schedules on a weekly basis. This subsection conforms the rule with
the statutory authorization.
Subsection (e) prescribes the procedures for these types of loans. The
subsection addresses the disclosures that must be given in addition to providing
the measures for rebating the unearned charges and the time limitation on
presenting a check for payment.
Disclosures are necessary to adequately inform the borrower of the requirements
and cost of this transaction. The time restriction of 31 days for presenting
checks to a bank for payment is necessary to prevent checks from becoming
stale, in addition, to ensuring that the borrower is adequately aware of the
outstanding nature of the check.
Subsection (f) provides that these loans may not be duplicated, that the
borrowers may not be prosecuted criminally, and that renewals of these loans
are limited.
These rules conform this type of transaction to the Texas statutes.
Leslie L. Pettijohn, Consumer Credit Commissioner has determined that for
the first five-year period the rule will be in effect, there will be no fiscal
implications for state or local government as a result of administering or
enforcing the rule.
Commissioner Pettijohn also has determined that for each year of the first
five-year period the rule will be in effect, the public benefit anticipated
as a result of the adoption of the new rule will be to more adequately inform
the public and the regulated entities of the procedures pertaining to engaging
in deferred presentment transactions.
The additional cost to the licensee to comply with the rule will be minimal
in order to provide this new type of transaction. The licensee will be required
to give a uniform disclosure to each consumer and to post a notice. The cost
should not exceed the equivalent cost of duplicating a single copy multiplied
by the number of transactions that the lender consummates. A standard cost
for reproducing a single copy is five to ten cents. If a lender makes 250
loans in a month, then the range of costs should not exceed $12.50 to $25.00
per month. The additional cost would be incurred on the basis of the number
of transactions and not based upon the dollar volume of the loans. The rule
provides no additional requirement for licensure beyond that already required
by the Texas Finance Code, Chapter 342.
Comments on the proposed new section may be submitted in writing to Leslie
L. Pettijohn, Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin,
Texas 78705-4207.
The new section is proposed under Texas Finance Code, §11.304,
which authorizes the Finance Commission to adopt rules to enforce Title 4
of the Texas Finance Code.
The rule affects Subchapter F of Chapter 342, Texas Finance Code.
§1.605. Deferred Presentment Transactions.
(a)
Definitions. For the purposes of this chapter, the following
words and terms, when used in this chapter, shall have the following meanings,
unless the context clearly indicates otherwise.
(1)
Check means a check, draft, share draft, automatic debit,
or other instrument for the payment of money.
(2)
Deferred presentment transaction means a short term
cash advance made in exchange for the consumer's personal check, in the amount
of the advance plus a fee and an agreement, whether express or implied, to
hold or defer presentation of the check for payment until a designated future
date.
(b)
Authorization. A licensee may engage in a deferred presentment
transaction under this chapter and subject to the provisions of Texas Finance
Code, Chapter 342, Subchapter F. A deferred presentment transaction is a loan
and any consideration or charge associated with the transaction is interest.
The check serves as security for the payment of the loan and no other security
interest in personal property may be taken as collateral. A person who negotiates,
arranges, or acts as an agent for an authorized lender in a deferred presentment
transaction that has an effective annual rate of greater than 10% is required
to be licensed.
(c)
Maximum charge. A licensee may not charge an amount in
excess of the rates authorized in Texas Finance Code, §342.253. The chart
in Exhibit 1 provides examples of the maximum authorized rates for loans made
under this section.
Figure: 7 TAC §1.605(c)
(d)
Minimum and maximum term. A licensee may not engage in
a deferred presentment transaction with a term of less than seven days or
more than one month.
(e)
Procedures.
(1)
The licensee must require that the check be made payable
to the actual name of the company printed on the license and must be dated
the day the loan is made.
(2)
The transaction must be documented by a written agreement
signed by the borrower and the licensee. The agreement must contain the name
of the licensee, the transaction date, the amount of the check, a statement
of the total amount of fees charged, expressed both as a dollar amount and
as an annual percentage rate (APR), and the date on which the check will be
deposited. The agreement must also contain a notice of the name and address
of the agency and the telephone number of the consumer helpline. Additionally,
the lender shall provide a notice to the consumer that reads as follows: This cash advance is not intended to meet long-term financial
needs. This loan should only be used to meet immediate short-term cash needs.
Renewing the loan rather than paying the debt in full when due will require
the payment of additional fees.
(3)
The borrower shall have a right to prepay the loan
and redeem the check at any time prior to the due date. If the loan is prepaid,
the lender must rebate the unearned finance charges.
(4)
No check may be held for more than 31 days and then
subsequently presented to the bank for payment.
(5)
The licensee must post a notice of the fee schedule
for engaging in a deferred presentment loan.
(f)
Prohibitions.
(1)
Duplicate loans. The provisions of Texas Finance Code, §342.501
and 7 TAC §1.851 apply to loans made under the authority of this section.
(2)
Collection practices. If a check is returned to the
licensee from a payer financial institution due to insufficient funds, closed
account, or stop payment order, the licensee may pursue all legally available
civil means to collect the check. A borrower who presents a personal check
to a licensee under a deferred presentment agreement is not subject to criminal
penalty. Collection practices must be in accordance with this chapter and
with the Texas Debt Collection Practices Act, Texas Finance Code, §392.001 et seq
.
(3)
Renewals. Prior to refinancing any loan the lender
must make a good faith effort to assess the consumer's ability to repay the
refinance loan under the new loan terms or risk the loan being determined
to be unconscionable and unenforceable. A reasonable analysis of ability to
repay may include, but not be limited to, reviewing credit reports, income
verification, bank account statements, and a budget analysis or financial
statement of all income and obligations such as rent or mortgage, utilities,
groceries, gas, and outstanding loans including payday loans, credit cards,
and other installment debt. All material reviewed must be current and the
lender's records must document that the information was collected and a reasonable
analysis made. Although a consumer may once have had the ability to pay the
original loan, a refinance request requires a new review and evaluation of
the consumer's financial situation. After one consecutive renewal, in order
to renew the account again, the lender must convert the loan from a single
payment balloon loan to a declining balance installment note.
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 February 18, 2000.
TRD-200001276
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Earliest possible date of adoption: April 2, 2000
For further information, please call: (512) 936-7640