Part 1.
FINANCE COMMISSION OF TEXAS
Chapter 1.
CONSUMER CREDIT REGULATION
Subchapter Q. CHAPTER 342, PLAIN LANGUAGE CONTRACT PROVISIONS
7 TAC §§1.1201 - 1.1207
The Finance Commission of Texas adopts new 7 TAC §§1.1201
- 1.1207, concerning a plain language model contract for Subchapter F contracts.
New 7 TAC §§1.1201 - 1.1207 includes proposed clauses, disclosures,
layout, and font type for Subchapter F plain language contracts. The new rules
are adopted with changes to the proposal as published in the December 28,
2001, issue of the
Texas Register
(26 TexReg
10691).
The purpose of the rules is stated in the purpose clause, §1.1201,
and is to implement the provisions of Texas Finance Code §341.502, which
requires contracts for consumer loans under Chapter 342, whether in English
or in Spanish, to be written in plain language. Use of the model contract
is optional; however, should a lender choose not to use the model contract,
contracts must be submitted to the agency in accordance with the provisions
of 7 TAC §1.841.
The agency received written comments on the rule proposal from: Rob Wisner,
Crain, Caton & James; Charles Johnson, Loan Tec Financial Software; and
Jennifer Sedeno, Western Shamrock.
One of the comment letters expressed specific technical concerns with portions
of the rule; primarily those comments were directed toward a model Subchapter
E loan contract that is currently under development. Those comments will be
addressed in connection with the development of that rule. The commenter found
no need for a separate Subchapter F precomputed loan contract, yet the agency
licenses and examines approximately 1,500 locations that almost exclusively
engage in those types of transactions. The agency disagrees with this comment
and believes that it is important to adopt a model Subchapter F precomputed
loan contract. Two of the comment letters expressed concern about the formatting
requirements for the new plain language contracts and stated inquiries regarding
a Spanish translation of the contract. Additionally one of the comment letters
expressed disagreement with the agency estimates on the cost to comply with
the rule. The agency's estimates were based on a lender that uses a preprinted
precomputed Subchapter F loan form. The commenter stated that many lenders
rely on computer systems to reproduce loan forms and that the cost of reprogramming
systems to accommodate the new form would be substantially higher than the
estimate given in the proposed rule. The agency agrees that costs to reprogram
a computer system might be necessary for some lenders who desire to implement
the model forms. Of course, a licensed Subchapter F lender who does not desire
to modify a computer system always has an option to submit their non-standard
contract for a readability review. The agency made several changes to the
proposed model form to accommodate computer generated contracts designed to
keep the costs associated with reprogramming to a minimum.
Section 1.1202 explains the relationship of federal law to the state requirements.
The section describes how any conflicts or inconsistencies shall be resolved.
Section 1.1203 provides definitions in order to ensure consistent treatment
and application of defined terms. Technical corrections were made to §1.1203
to more accurately state the definitions.
Section 1.1204 details the required format, typeface, and font for model
plain language Subchapter F contracts. The requirements are necessary to ensure
that the contract will be easy for consumers to read and understand. Revisions
were made to §1.1204 to provide more flexibility for lenders to comply
with the formatting provisions. Some lenders verbally expressed a desire to
use some sans serif typeface in the text of the loan contract. Some lenders
have been using this typeface in their contract for a long period of time
and believe that it is easily readable. The agency agrees that sans serif
typefaces can be easily readable and removes the requirement that the text
of contract be printed in a serif typeface. Sans serif typefaces are generally
used for headings, but can be used in the text for a clean, modern look. The
rule accommodates both kinds of typefaces and provides that the typeface must
be easily readable.
Section 1.1205 identifies the types of provisions that may be included
in a Subchapter F contract. In §1.1205 the federal disclosure box was
added in the list of contract provisions, one permissible clause was added,
and one subsection was reorganized.
Section 1.1206 contains the model clauses. These clauses are the agency's
interpretation of a plain language version of typical contract provisions.
The modifications in §1.1206 reorganize the provisions related to the
security agreement in a single subsection, make consistent grammatical and
other nonsubstantive language changes with a similar contract (Subchapter
E) that is under development, and provide an optional finance charge earnings
clause for lender who make loans of $30 or less.
Section 1.1207 outlines permissible changes that can be made to a contract
and still comply with the model provision. This section provides lenders with
flexibility in using a model contract. The changes in §1.1207 are conforming
changes consistent with the reorganization of the security agreement. Additionally
a statement was added permitting creditors considerable flexibility to arrange
the format of the contract consistent with the objectives of the rule.
The new section is adopted under the Texas Finance Code §11.304,
which authorizes the Finance Commission to adopt rules to enforce Title 4
of the Texas Finance Code. Additionally, Texas Finance Code §341.502
grants the Finance Commission the authority to adopt rules to govern the form
of Subchapter F contracts and to adopt model plain language contracts.
These rules affect Texas Finance Code Chapter 342, Subchapter F. These
Rules become effective May 1, 2002.
§1.1201.Purpose.
(a)
The purpose of these rules is to provide a model plain
language contract in English for Texas Finance Code, Chapter 342, transactions.
The establishment of model provisions for these transactions will encourage
use of simplified wording that will ultimately benefit consumers by making
these contracts easier to understand. The use of the "plain language" model
contract by a creditor is not mandatory. The creditor, however, may not use
a contract other than a model contract unless the creditor has submitted the
contract to the commissioner in compliance with 7 TAC §1.841. The commissioner
shall issue an order disapproving the contract if the commissioner determines
the contract does not comply with this section or rules adopted under this
section. A creditor may not claim the commissioner's failure to disapprove
a contract constitutes an approval.
(b)
These provisions are intended to constitute a complete
plain language Subchapter F contract; however, a creditor is not limited to
the contract provisions addressed by these rules.
§1.1202.Relationship with Federal Law.
In the event of an inconsistency or conflict between the disclosure
or notice requirements in these provisions and any current or future federal
law, regulation, or interpretation, the requirements of the federal law, regulation,
or interpretation will control to the extent of the inconsistency. The remainder
of the contract will remain in full force and effect.
§1.1203.Definitions.
The following words and terms, when used in this subchapter, have the
following meanings, unless the context clearly indicates otherwise:
(1)
Acquisition Charge--a finance charge assessed for making
the loan as authorized under 342.252.
(2)
Borrower--the person or persons who sign the loan agreement.
(3)
Collateral--an interest in personal property which serves
to secure the payment or performance of an obligation. See "Security."
(4)
Deferment--an additional period of time beyond a due date
for the borrower to make a payment or payments. See "Extension."
(5)
Installment Account Handling Charge--a finance charge assessed
on the loan as authorized under §342.252.
(6)
Prepayment--any whole or partial payment of an amount equal
to one or more full installments made by the borrower prior to the date the
payment is due.
(7)
Security--an interest in personal property which serves
to secure the payment or performance of an obligation. See "Collateral."
§1.1204.Format, Typeface, and Font.
(a)
Plain language contracts must be printed in an easily readable
font and type size pursuant to Texas Finance Code §341.502(a). If other
state or federal law requires a different type size for a specific disclosure
or contractual provision, the type size specified by the other law should
be used.
(b)
The text of the document must be set in an easily readable
typeface. Typefaces considered to be readable include: Times, Scala, Caslon,
Century Schoolbook, Helvetica, Arial, and Garamond.
(c)
Titles, headings, subheadings, captions, and illustrative
or explanatory tables or sidebars may be used to distinguish between different
levels of information or provide emphasis.
(d)
Typeface size is referred to in points (pt). Because different
typefaces in the same point size are not of equal size, type face is not strictly
defined but is expressed as a minimum size in the Times typeface for visual
comparative purposes. Use of a larger typeface is encouraged. The typeface
for the federal disclosure box or other disclosures required under federal
law must be legible, but no minimum typeface is required. Generally, the typeface
for the remainder of the contract must be at least as large as 8pt in the
Times typeface.
§1.1205.Contract Provisions.
A Chapter 342, Subchapter F contract may include, but is not limited
to, the following contract provisions to the extent not prohibited by law
or regulation. If the lender desires to exercise its rights under one of the
following provisions, it must include the provision in the contract. A lender
who does not desire to apply a provision is not required to include it in
the contract. For example, if a lender does not take a security interest in
the borrower's personal property, the provisions addressing security interests
are not required.
(1)
Identification of the parties, including the name and address
of each party;
(2)
A Truth-in-Lending Act (TILA) disclosure box;
(3)
A definition section specifying the pronouns that designate
the borrower and the lender;
(4)
A promise to pay;
(5)
A late charge provision;
(6)
A provision for after maturity interest;
(7)
A provision specifying that prepayment is permitted;
(8)
A provision specifying the finance charge earnings and
refund method;
(9)
A provision authorizing deferments;
(10)
A provision specifying the conditions causing default;
(11)
A waiver of notice of intent to accelerate and waiver
of notice of acceleration;
(12)
A provision contracting for a fee for a dishonored check;
(13)
A signature block;
(14)
A security agreement including provisions addressing:
(A)
a statement that the collateral is free from encumbrances;
(B)
the location and restrictions on movement or transfer of
the collateral; and
(C)
a statement that the borrower will appropriately maintain
and use the collateral;
(15)
A provision regarding the mailing of notices to the borrower;
(16)
Statement of truthful information;
(17)
A provision expressing no waiver of lender's rights;
(18)
A clause stating that all modifications to the contract
must be in writing;
(19)
A provision stating Texas and federal law will apply to
the contract;
(20)
A clause providing for joint liability;
(21)
A usury savings clause;
(22)
Complaints and inquiries notice;
(23)
An arbitration agreement; and
(24)
A clause stating that if any part of the contract is invalid,
all other parts remain valid.
§1.1206.Model Clauses.
(a)
Generally. These model clauses are the plain language rendition
of contract clauses that have typically been stated in technical legal terms.
(1)
The model clauses refer to the Borrower as "I" or "me."
The Lender is referred to as "you" or "your."
(2)
Nothing in this regulation prohibits a contract from including
provisions that provide more favorable results for the borrower than those
that would result from the use of a model clause.
(b)
Promise to Pay. The model clause for the borrower's promise
to pay reads: "I promise to pay the Total of Payments to the order of you,
the Lender. I will make the payments at your address above. I will make the
payments on the dates and in the amounts shown in the Payment Schedule."
(c)
Late Charge. The late charge model clause reads: "If I
don't pay an entire payment within 10 days after it is due, you can charge
me a late charge. The late charge will be 5% of the scheduled payment."
(d)
After Maturity Interest. The after maturity interest model
clause reads: "If I don't pay all I owe by the date the final payment becomes
due, I will pay interest on the amount that is still unpaid. That interest
will be at a rate of 18% per year and will begin the day after the final payment
becomes due."
(e)
Prepayment Clause. The model prepayment clause reads: "I
can make any payment early."
(f)
Finance Charge Earnings and Refund Method. The model finance
charge earnings and refund method reads: "The acquisition charge on this loan
will not be refunded if I pay off early. If I pay all I owe before the beginning
of the last monthly period, I will save part of the installment account handling
charge. You will figure the amount I save by the Sum of the Periodic Balances
Method. This method is explained in the Finance Commission rules. You don't
have to refund or credit any amount less than $1." At the lender's option,
the lender may include the following model finance charge and refund method
language if the lender makes loans of $30 or less: "The acquisition charge
on this loan will not be refunded if I pay off early. If this loan is for
more than $30 and I pay all I owe before the beginning of the last monthly
period, I will save part of the installment account handling charge. You will
figure the amount I save by the Sum of the Periodic Balances Method. This
method is explained in the Finance Commission rules. You don't have to refund
or credit any amount less than $1."
(g)
Deferment Clause. The deferment model clause reads: "If
I ask for more time to make any payment and you allow me more time, I will
pay additional interest to extend the payment. The additional interest will
be figured as provided in the Finance Commission rules."
(h)
Default Clause. The model default clause reads: "If I break
any of my promises in this document, you can demand that I immediately pay
all that I owe. You can also do this if you in good faith believe that I am
not going to be willing or able to keep all of my promises."
(i)
Waiver of Notice of Intent to Accelerate and Waiver of
Notice of Acceleration Clause. The waiver of notice of intent to accelerate
and waiver of notice of acceleration clause reads: "I agree that you don't
have to give me notice that you are demanding or intend to demand immediate
payment of all that I owe.
(j)
Fee for Dishonored Check Clause. The fee for dishonored
check model clause reads: "I agree to pay you a reasonable fee of up to $25
for a returned check. You can add the fee to the amount I owe under this agreement
or collect it separately."
(k)
Clause Describing Collateral. In the TILA disclosure box,
the model clause describing the collateral reads: "You will have a security
interest in the following described collateral ________________." At the creditor's
option, if the promissory note is unsecured, the lender may use the following
clause: "This note is unsecured."
(l)
Security Agreement Clause. The model clause setting out
the security agreement in case of default reads: "If I am giving collateral
for this loan, I will see the separate security agreement for more information
and agreements."
(m)
Mailing of Notice to Borrower. The model agreement regarding
notice to the borrower reads: "You can mail any notice to me at my last address
in your records.
(n)
Statement of Truthful Information. The following clause
is sufficient as the borrower's agreement that the information provided to
the lender is true: "I promise that all information I gave you is true."
(o)
No Waiver of Lender's Rights. The model agreement regarding
the lender's rights reads: "If you don't enforce your rights every time, you
can still enforce them later."
(p)
Modifications in Writing. The model agreement requiring
any change to be in writing reads: "Any change to this agreement has to be
in writing. Both you and I have to sign it."
(q)
Application of Law. The model clause regarding the law
to be applied to the contract reads: "Federal law and Texas law apply to this
contract."
(r)
Joint Liability. The model joint liability agreement reads:
"I will keep all of my promises in this document. If there is more than one
Borrower, each Borrower agrees to keep all of the promises in this document,
even if the other Borrowers do not."
(s)
Usury Savings Clause. The model usury savings clause reads:
"I don't have to pay interest or other amounts that are more than the law
allows."
(t)
Complaints and Inquiries Notice. "This lender is licensed
and examined by the State of Texas - Office of Consumer Credit Commissioner.
Call the Consumer Credit Hotline or write for credit information or assistance
with credit problems. Office of Consumer Credit Commissioner, 2601 North Lamar
Boulevard, Austin, Texas 78705-4207, (512) 936-7600, (800) 538-1579."
(u)
Security Agreement. The model clause setting out the security
agreement reads: "We are entering into this security agreement at the same
time that we are entering into a loan. In exchange for the loan referenced
above, I agree to the follow terms and conditions: To secure this loan, I
give you a security interest in the collateral. The collateral includes the
property listed below, anything that becomes attached to it, and all proceeds
of the collateral. This security interest also secures all other debt I owe
you now. I understand that all collateral that I have given to secure loans
may also be used to secure this and any other loans I may make to you. I own
the collateral. I won't sell or transfer it without your written permission.
I won't allow anyone else to have an interest in the collateral except you.
I will keep the collateral at my address shown above. I will promptly tell
you in writing if I change my address. I won't permanently remove the collateral
from Texas unless you give me written permission. I will timely pay all taxes
and license fees on the collateral. I will keep it in good repair. I won't
use the collateral illegally. Any substitutions or replacements for, accessions,
attachments, and other additions to the collateral, including insurance proceeds,
are considered part of the collateral. Any change to this security agreement
has to be in writing. Both you and I have to sign it. Any default under my
agreements with you will be a default of this security agreement. Federal
and Texas law apply to this security agreement. If I don't keep any of my
promises, you can take the collateral. You will only take the collateral lawfully
and without a breach of the peace. If you take my collateral, you will tell
me how much I have to pay to get it back. If I don't pay you to get the collateral
back, you can sell it or take other action allowed by law. You will send me
notice at least 10 days before you sell it. My right to get the collateral
back ends when you sell it. You can use the money you get from selling it
to pay amounts the law allows, and to reduce the amount I owe. If any money
is left, you will pay it to me. If the money from the sale is not enough to
pay all I owe, I must pay the rest of what I owe you plus interest."
§1.1207.Permissible Changes.
(a)
An authorized lender may consider making the following
types of changes to the model clauses:
(1)
The addition of information related to information set
forth in the model clauses that is not otherwise prohibited by law.
(2)
Substituting another term for "Lender", "Borrower" that
has the same meaning, or use of pronouns such as "you", "we" and "us."
(3)
The model clauses may be presented in any order, and may
be combined or further segregated at the creditor's option.
(4)
Inserting descriptive headings or number provisions.
(5)
Changing the case of a word if otherwise permitted by the
Texas Finance Code.
(6)
Other changes which do not affect the substance of the
disclosures.
(7)
A sample model contract is presented in the following example.
Figure: 7 TAC §1.1207(a)(7)
(8)
A sample model security agreement is presented in the following
example.
Figure: 7 TAC §1.1207(a)(8)
(b)
An authorized lender has considerable flexibility to arrange
the format of the model form if the revised format does not significantly
adversely affect the substance, clarity, or meaningful sequence of the disclosures.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on February 22, 2002.
TRD-200201126
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: May 1, 2002
Proposal publication date: December 28, 2001
For further information, please call: (512) 936-7640
7 TAC §§1.1401 - 1.1410
The Finance Commission of Texas adopts new 7 TAC §§1.1401
- 1.1410, concerning licensing procedures for motor vehicle sellers and contract
holders. The new rules are adopted with changes to the proposal as published
in the December 28, 2001, issue of the
Texas Register
(26 TexReg 10694).
The adopted new rules provide procedures for filing an application for
and issuance of a motor vehicle sales finance license under Chapter 348, Texas
Finance Code, procedures for the transfer of a motor vehicle sales finance
license, processing procedures and time frames for applications, procedures
for changes in business form or proportionate ownership, procedures for amendments
to pending applications, procedures for the relocation of licensed offices,
procedures for designating licenses in an active and inactive status, and
the fees associated with licensing activities.
Section 1.1401 defines particular terms. Several new definitions were added
to clarify the use of these terms as they appear later in the rule or in the
application forms themselves. The definition of "principal party" is a critical
term to identify individuals who must be investigated. The definition of this
term was clarified to add flexibility for the applicants, especially publicly
held applicants, and to only require investigation of parties closely affiliated
with the financing operation.
Section 1.1402 describes the procedure for filing a new application for
a motor vehicle sales finance license, including instructions regarding what
form to use and what information is necessary on the application and what
information must be filed with the application. A provision was added to distinguish
additional branch offices from the main (headquarters) location. In the original
proposed rule, all locations would require a license. In the revised rule,
a single license would be required for the main location and other offices
would only be required to register. Further modifications were made to the
rule to reduce the volume of filings required. For example, an applicant is
not required to file complete copies of certain corporate documents such as
the bylaws, but need only file copies of the relevant portions. In some cases,
in lieu of the copies of relevant portions of documents, certifications from
the secretary of the corporation will suffice. A reference was also made to
the statutory provision that permits applicants to pay a late filing fee and
apply for a retroactive license.
Section 1.1403 describes the procedure for filing an application for transfer
of a motor vehicle sales finance license, including the filing requirements.
Section 1.1404 describes how an application for a motor vehicle sales finance
license is processed, including a description of when an application is complete
as well as an explanation of what may occur if an applicant fails to complete
an application. In addition, this section describes the hearings process that
occurs if the applicant contests the denial of its application.
Section 1.1405 describes what action the licensee must take when it changes
the proportion of ownership in or the form of the licensed entity that lists
the time frame within which the licensee must notify the commissioner.
Section 1.1406 requires each applicant, upon discovery of new or changed
information, to supplement its application within 10 days of discovery of
the new or changed information.
Section 1.1407 describes the procedures for relocating a licensed office,
including deadlines for notification thereof.
Section 1.1408 describes how a licensee may change its license from active
to inactive status and how a license may activate an inactive license.
Section 1.1409 sets out the fees for new licenses, license transfers, fingerprint
checks, license amendments, license duplication, and cost of hearings.
Section 1.1410 states the implementation provisions including the authority
to issue provisional licenses, if necessary.
Changes to sections 1.1403 - 1.1410 were primarily clarifying changes or
conforming revisions to accommodate the registered branch offices modification.
Certain revisions were made to provide flexibility to publicly held corporations.
The agency received written comments from: Andrew Siegel representing the
New Car Dealers Association of Greater Dallas; and Texas Independent Automobile
Dealers Association, Round Rock.
One commenter disagreed with the adoption of the rules. The commenter suggested
that the proposed rules be amended to exempt new car dealers from the rules
or to postpone adoption of the rules. The requirement for licensing of sellers
of motor vehicles financed under Chapter 348 of the Texas Finance Code was
mandated by statute (Senate Bill 317). The statute does not exempt a class
of dealers from the application of the licensing statute. By its terms the
statute requires all sellers and holders of motor vehicles contracts covered
by Chapter 348 to become licensed. The agency believes that it would not only
violate the legislative intent, but that it would exceed the agency's authority
to exempt a class of motor vehicle sellers from the application of the statute
and the corresponding rules. The statute requiring the license becomes effective
September 1, 2002. In order to begin processing licensing applications and
implement the statute by its effective date, it is paramount that the agency
act promptly in adopting rules with licensing procedures. Processing licensing
applications for a large number of applicants will require the agency to begin
processing applications as soon as possible, so that as many licenses as possible
can be processed and issued in advance of the September 1 deadline. The agency
believes that it is appropriate and prudent to adopt the rules at this time
and respectfully disagrees with the commenter.
Another commenter offered specific recommendations for modifications of
the rule. The agency agreed with several of these comments and modified the
rule accordingly. The other remarks offered by this commenter addressed topics
not covered by the proposed rule.
The agency met several times with representatives of trade associations
representing persons covered by the rule. The agency made modifications to
the proposed rule as a result of this valuable input and feedback. Generally,
these modifications were to make the rules more flexible and less burdensome
for the companies who are required to become licensed.
The new rules are adopted under the Texas Finance Code §§11.304
and 348.513, which authorize the Finance Commission to adopt rules to enforce
Title 4 and Chapter 348 of the Texas Finance Code.
These rules affect Chapter 348, Texas Finance Code.
§1.1401.Definitions.
Words and terms used in this chapter that are defined in Chapter 348,
Texas Finance Code, have the same meanings as defined in Chapter 348. The
following words and terms, when used in this chapter, shall have the following
meanings, unless the context clearly indicates otherwise.
(1)
Affiliate--A business entity directly or indirectly through
one or more intermediaries that is under common control with the applicant
or licensee.
(2)
Applicant--An entity that has filed the required forms
and fees to operate under a license from the Office of Consumer Credit Commissioner
pursuant to Chapter 348, Texas Finance Code.
(3)
Foreign Entity--An entity formed under the laws of a jurisdiction
other than the state of Texas.
(4)
Licensed Location--The central or main location of the
entity.
(5)
Principal Party--An individual with a substantial relationship
to the proposed business of the applicant. The following individuals are considered
to be principal parties:
(A)
proprietors;
(B)
general partners;
(C)
voting members of a limited liability corporation;
(D)
officers of privately-held corporations, to include the
chief executive officer or president, the chief operating officer or vice
president of operations, and those with substantial responsibility for operations
or compliance with Chapter 348, Texas Finance Code;
(E)
individuals associated with publicly-held corporations
designated by the applicant as follows:
(i)
officers as provided by subsection (4) of this section
(as if the corporation was privately- held); or
(ii)
three officers or similar employees with significant involvement
in the corporation's activities governed by Chapter 348, Texas Finance Code.
One of the persons designated shall be responsible for assembling and providing
the information required on behalf of the applicant and shall sign the application
for the applicant.
(F)
directors of privately-held corporations;
(G)
trustees; and
(H)
individuals designated as a principal party where necessary
to fairly assess the applicant's financial responsibility, experience, character,
general fitness, and sufficiency to command the confidence of the public and
warrant the belief that the business will be operated lawfully and fairly
as required by the commissioner.
(6)
Privately-Held Corporation--A corporation that is not publicly-held.
(7)
Publicly-Held Corporation--A corporation:
(A)
subject to the registration provisions of Securities Act
of 1933 in order to allow a public offering of voting stock; or
(B)
owned directly or indirectly by a parent corporation that
is subject to the registration provisions of Securities Act of 1933.
(8)
Registered Offices--Each location other than the licensed
location where a licensee will originate, service, or collect retail installment
contracts subject to Chapter 348, Texas Finance Code.
§1.1402.Filing of New Application.
An application for issuance of a new motor vehicle sales finance license
must be submitted on forms prescribed by the commissioner at the date of filing
and in accordance with the commissioner's instructions. The application must
include the appropriate fees and the following:
(1)
Required Forms.
(A)
Application for Motor Vehicle Finance License.
(i)
Location. A physical street address must be listed for
the applicant's proposed licensed location. If the address has not yet been
determined or the application is for an inactive license, then the application
must indicate an application for an inactive license.
(ii)
Registered Offices. A physical street address must be
provided for each proposed location that will be originating, servicing, or
collecting transactions.
(iii)
Individual Responsible for Financing Operations. Name
the person responsible for the day-to-day financing operations of applicant's
proposed office.
(iv)
Signature.
(I)
If the applicant is a proprietor or a partnership, each
proprietor and general partner must sign.
(II)
If the applicant is a corporation, an authorized officer.
(III)
If the applicant is a limited liability company, an authorized
member or manager must sign.
(IV)
If the applicant is a trust or estate, the trustee or
executor must sign.
(B)
Disclosure of Owners and Principal Parties. If an individual's
interest in an entity is community property, then the spouse's community property
interest must also be listed. If the business interest is owned by a married
individual as separate property, documentation establishing or confirming
separate property status should be provided.
(i)
Proprietorship. An individual owning and operating the
business must be named.
(ii)
General Partnership. Each partner must be listed and the
percentage of ownership stated.
(iii)
Corporation. The officers and directors' sections on
the form must be completed. Each shareholder holding at least 10% of the voting
stock must be named if the corporation is privately-held. If a parent corporation
is the sole or part owner of the proposed business, a narrative or diagram
must be attached that describes each level of ownership greater than 10%.
(iv)
Limited Liability Partnership. Each partner, general and
limited, owning at least 10% must be listed and the percentage of ownership
stated. If a partner is a business entity and not an individual, a narrative
or diagram must be attached that describes each level of ownership greater
than 10%.
(v)
Limited Liability Company. Each manager, officer, agent,
and member owning at least 10% of the company, as those terms are used by
the Texas Limited Liability Company Act, Texas Civil Statutes, Article 1528n,
must be named. If a member is a business entity and not an individual, a narrative
or diagram must be attached that describes each level of ownership greater
than 10%.
(vi)
Trust or Estate. Each trustee or executor must be listed.
(C)
Application Questionnaire. Questions requiring a yes answer
must be accompanied by an explanatory statement and any appropriate documentation
requested on the form.
(D)
Statutory Agent Disclosure. This form must be completed
by each applicant. The statutory agent is the person or entity to whom any
legal notice may be delivered. The agent must be a Texas resident and list
an address for legal service. If the statutory agent is an individual, the
address must be a physical residential address.
(E)
Personal Affidavit, Personal Questionnaire, and Employment
History. Each individual listed on the application as a principal party must
complete the forms. The employment history must also include the individual's
association with the entity applying for the license.
(F)
Fingerprint Card. A complete set of legible fingerprints
must be provided for each individual that is a principal party. Individuals
who have previously been licensed by the agency and principal parties of entities
currently licensed are not required to provide fingerprints. All fingerprints
should be submitted on the format provided by the agency and approved by the
Department of Public Safety and the Federal Bureau of Investigation.
(2)
Other Required Filings.
(A)
Contract Forms. The applicant must provide information
regarding the retail installment contract forms generally expected to be used.
(i)
Custom Forms. If a custom contract form is anticipated
for regular use, a complete preliminary draft indicating the number and distribution
of copies expected for each transaction must be submitted.
(ii)
Stock Forms. If an applicant plans to purchase stock forms
from a supplier, the applicant must attach a statement that includes the supplier's
name and address and a list identifying the forms to be used.
(B)
Statement of Experience. An applicant should provide information
that relates to the applicant's prior experience in the motor vehicle sales
finance business. If the applicant or its principal parties do not have significant
experience in the business, the applicant must provide a written statement
explaining the applicant's relevant business experience or education, why
the commissioner should find that the applicant has the requisite experience,
and how the applicant plans to obtain the necessary knowledge to operate lawfully
and fairly.
(C)
Business Operation Plan. An applicant must attach a brief
narrative to the application explaining:
(i)
the extent of planned motor vehicle sales finance activity;
(ii)
whether the applicant will be the creditor to whom the
contract is originally payable;
(iii)
whether the applicant will be assigning the contract
to another financing entity (assignee) and, if so, list the types of entities;
(iv)
whether the applicant will only be accepting contracts
from another entity (assignor), and, if so, list the types of entities; and
(v)
whether the collections will occur at the licensed location.
(D)
Entity Documents.
(i)
Partnerships. A partnership applicant must submit a copy
of the relevant portions of the partnership agreement addressing ownership
and the responsibility for operations
(ii)
Corporations. A corporate applicant, domestic or foreign,
must provide the following documents:
(I)
copies of the relevant portions of the by-laws addressing
directors and officers of the corporation; and
(II)
minutes of corporate meetings that record the election
of the statutory agent and all current officers and directors as listed on
the license application or a certification from the secretary of the corporation
identifying the statutory agent and current officers and directors as listed
on the license application.
(iii)
Foreign Entities. In addition to the items required by
this chapter, a foreign entity must provide a statement of where records of
Texas transactions will be kept. If these records will be maintained at a
location outside of Texas, the applicant must acknowledge responsibility for
the travel costs associated with examinations in addition to the usual assessment
or agree to make all the records available for examination in Texas.
(iv)
Publicly-Held Corporations. In addition to the items required
for corporations, a publicly-held corporation must file the most recent 10K
or 10Q for the applicant or for the parent company.
(v)
Trusts. A copy of the relevant portions of the instrument
that created the trust addressing management of the trust and operations of
the applicant must be filed with the application.
(vi)
Estates. A copy of the relevant portions of the instrument
establishing the estate addressing management of the estate and operations
of the applicant must be filed with the application.
(vii)
Limited Liability Companies. A limited liability company
applicant, domestic or foreign, must provide the following documents:
(I)
a copy of the relevant portions of the operating agreement
addressing responsibility for operations; and
(II)
minutes of meetings that record the election of the statutory
agent and all current officers, directors, and managers as listed on the license
application, or a certification identifying the statutory agent and current
officers, directors, and managers as listed on the license application.
(E)
Registered Offices. An applicant must submit the assumed
name (DBA), physical address, telephone number, and individual responsible
for financing operations for each registered office.
(3)
Additional Offices. An applicant or licensee must provide
the assumed name (DBA), physical address, telephone number, and individual
responsible for financing operations for each new registered office and the
appropriate fees before operations begin. Other information required by this
section need not be filed if the information on file with the agency is current
and valid.
(4)
Late Filing. An applicant who desires to retroactively
file a license application may do so by complying with Texas Finance Code,
section 349.303, and the rules adopted under this chapter. A licensee who
desires to retroactively register an office may do so by complying with the
Texas Finance Code, section 349.302, and the rules adopted under this chapter.
§1.1403.Transfer of License.
(a)
Definition. As used in this section, a "transfer of ownership"
occurs whenever an existing owner relinquishes that owner's entire interest
in a license or an entirely new entity has obtained an ownership interest
in the license. This term includes any purchase or acquisition of control
over more than 10% of the outstanding voting stock of any licensed privately-held
corporation, or of any privately-held corporation which is the parent or controlling
stockholder of a licensed corporation. The term also includes stock ownership
changes that result in a change of control for a publicly-held company. This
term also includes any acquisition of a license by gift, devise, or descent.
This term does not include a change in proportionate ownership as defined
in section 1.1405(c)(1) of this title.
(b)
Approval of Transfer. No license may be sold, transferred,
or assigned without written approval by the commissioner.
(c)
Filing Requirements. An application for transfer of a license
must be submitted on forms prescribed by the commissioner and in accordance
with the rules and instructions. The application for transfer shall include
the appropriate fees and the following:
(1)
Application Form. The instructions in section 1.1402(1)
of this title (relating to Filing of New Application) are applicable to this
filing.
(2)
Evidence of the Transfer of Ownership. Documentation evidencing
the transfer of ownership must be filed with the application and should include
one of the following:
(A)
a copy of the asset purchase agreement when only the assets
have been purchased;
(B)
a copy of the stock purchase agreement or other evidence
of acquisition if voting stock of a corporate license has been purchased or
otherwise acquired; or
(C)
any document that transferred ownership in a license by
gift, devise, or descent, such as a probated will or a court order.
(d)
Permission to Operate. No business under the license shall
be conducted by any transferee until the application has been received, all
applicable fees have been paid, and a request for permission to operate has
been approved. A request for permission to operate during the pendency of
the application may be denied. This subsection does not apply to a change
of control of a publicly-held corporation or a change due to the death or
disability of an individual.
(e)
Purchaser Operating Under Seller's License. A written agreement
whereby a seller grants a buyer the authority to operate under the seller's
license pending approval of the buyer's new license application is authorized.
The agreement must provide that the seller accepts full responsibility to
any customer of the licensed business for any acts of the buyer in connection
with the operation of the business. The written agreement between the seller
and the buyer must be submitted to the commissioner with a request to operate
under the seller's license not less than 10 business days after the closing
or the date of the sale. The agreement shall be for a defined period of time
as provided in the agreement.
(f)
Application Filing Deadline. Applications filed in connection
with transfers of ownership may be filed in advance but must be filed no later
than 10 calendar days following the actual transfer. Failure to meet the application
filing deadline does not invalidate transactions unless the agency has obtained
a contrary finding through the administrative process.
§1.1404.Processing of Application.
(a)
Initial Review. Applications shall be responded to within
14 calendar days of receipt stating that the application is complete and accepted
for filing or stating that the application is incomplete and specifying the
information required for acceptance.
(b)
Complete Application. An application is complete when:
(1)
it conforms to the rules and published instructions;
(2)
all fees have been paid; and
(3)
all requests for additional information have been satisfied.
(c)
Failure to Complete Application. If a complete application
has not been filed within 30 calendar days after notice of deficiency has
been sent to the applicant, the application may be denied.
(d)
Hearing. Whenever an application is denied, the affected
applicant has 30 calendar days from the date the application was denied to
request in writing a hearing to contest the denial. This hearing shall be
conducted pursuant to the Administrative Procedure Act, Texas Government Code,
Chapter 2001, and section 9.1 et seq. of this title (relating to Rules of
Procedure for Contested Case Hearings, Appeals, and Rulemakings), before an
administrative law judge who will recommend a decision to the commissioner.
The commissioner will then issue a final decision after review of the recommended
decision.
(e)
Denial. If an application has been denied, the investigation
fee in section 1.1409(a) of this title (relating to Fees) shall be forfeited.
(f)
Processing Time.
(1)
A license application shall ordinarily be approved or denied
within a maximum of 60 calendar days after the date of filing of a completed
application.
(2)
When a hearing is requested following an initial license
application denial, the hearing shall be held within 60 calendar days after
a written request for a hearing is made unless the parties agree to an extension
of time. A final decision approving or denying the license application shall
be made after receipt of the proposal for decision from the administrative
law judge.
(3)
Exceptions. More time may be taken where good cause exists,
as defined by Texas Government Code, section 2005.004, for exceeding the established
time periods in paragraphs (1) and (2) of this subsection.
(g)
Applications and Notices as Public Records. Once a license
application or notice is filed with the agency, it becomes a "state record"
under Texas Government Code, section 441.180(11), and "public information"
under Texas Government Code, section 552.002. Under Texas Government Code,
sections 441.190, 441.191 and 552.004, the original applications and notices
must be preserved as "state records" and "public information" unless destroyed
with the approval of the director and librarian of the State Archives and
Library Commission under Texas Government Code, section 441.187. Under Texas
Government Code, section 441.191, the agency may not return any original documents
associated with a license application or notice to the applicant or licensee.
An individual may request copies of a state record under the authority of
the Texas Government Code, Chapter 552.
§1.1405.Change in Form or Proportionate Ownership.
(a)
Organizational Form. When any licensee desires to change
the organizational form of its business (e.g., from proprietorship to corporation),
the licensee must advise the commissioner in writing of the change within
10 calendar days by filing the appropriate fees and transfer documents as
provided in this title. In addition, the licensee shall submit a copy of the
relevant portions of the organizational document for the new entity (i.e.,
the articles of incorporation) addressing the ownership and management of
the new entity. Failure to meet the application filing deadline does not invalidate
transactions unless the agency has obtained a contrary finding through the
administrative process.
(b)
Merger. A merger of a licensee is a change of ownership
that results in a new or different surviving entity and requires the filing
of a transfer application pursuant to this title. A merger of the parent entity
of a licensee that leads to the creation of a new entity requires a transfer
application pursuant to this title. A merger of the licensee's parent entity
resulting in a different surviving parent entity requires a transfer application
pursuant to this title. Mergers or transfers of other entities with a beneficial
interest beyond the parent entity level only require notification within 10
calendar days. Failure to meet the application or notification filing deadline
does not invalidate transactions unless the agency has obtained a contrary
finding through the administrative process.
(c)
Proportionate Ownership.
(1)
A proportional change in ownership among the current owners
does not require the filing of a transfer application, but does require notification
when the cumulative ownership change to a single entity or individual amounts
to greater than 10%. The notification is required no later than 10 calendar
days following the actual change.
(2)
This section does not apply to a publicly-held corporation
that has filed with the agency the most recent 10K or 10Q filing of the licensee
or the publicly-held parent corporation.
(3)
Failure to meet the notification filing deadline does not
invalidate transactions unless the agency has obtained a contrary finding
through the administrative process.
§1.1406.Amendments to Pending Application.
Each applicant shall provide information supplemental to that contained
in the applicant's original application documents and attachments. Any action,
fact, or information that would require a materially different answer than
given in the original license application and which relates to the qualifications
for license must be reported within 10 calendar days after the person has
knowledge of the action, fact, or information.
§1.1407.Relocation.
(a)
Relocation of a Licensed Location. A licensee may move
a licensed location to any other location by paying the appropriate fees and
giving notice of intended relocation to the commissioner not less than 10
calendar days prior to the anticipated moving date.
(b)
Relocation of a Registered Office. A licensee may move
a registered office from the registered location to any other location by
payment of the appropriate fees and giving notice of intended relocation to
the commissioner not less than 10 calendar days prior to the anticipated moving
date.
(c)
The notice must include the contemplated new address of
the licensed location or registered office and the approximate date of relocation.
Failure to meet the notification deadline does not invalidate transactions
unless the agency has obtained a contrary finding through the administrative
process.
§1.1408.License Status.
(a)
Inactivation of an Active License. A licensee may cease
operating a licensed location by giving notice of the cessation of operations
on the appropriate form not less than 10 calendar days prior to the anticipated
inactivation date and remitting the fee for license amendment. Registered
offices will be designated as closed when a license is inactivated.
(b)
Activation of an Inactive License. A licensee may activate
a license by giving notice of the intended activation on the appropriate form
not less than 10 calendar days prior to the anticipated activation date and
remitting the fee for license amendment. Registered offices must be listed
and appropriate fees paid upon activation of a license.
(c)
Expiration. A license will expire unless a fee is paid
by the due date on the license renewal form. A licensee that pays the annual
renewal and examination assessment will automatically be renewed even though
a new license may not be issued.
§1.1409.Fees.
(a)
New Licenses.
(1)
A $100 non-refundable investigation fee is assessed each
time an application for a new license is filed.
(2)
Registered Office Fees. The fee for each registered office
is $25.
(b)
License Transfers. An applicant must pay a non-refundable
investigation fee of $100 for the transfer of a license.
(c)
Fingerprint Record Checks. The non-refundable fee to investigate
each applicant's fingerprint record is $40 per set. This fee must be paid
for each set of fingerprints filed with an application for a new license or
a license transfer.
(d)
License Amendment.
(1)
A fee of $25 must be paid each time a licensee seeks to
amend a license by rendering a license inactive, activating an inactive license,
changing the assumed name of the licensee, or relocating a licensed location.
(2)
Registered Office Amendment Fees. The fee for amending
or transferring a registered office is $10.
(e)
Annual Renewal and Examination Assessment.
(1)
An annual renewal fee is required for each licensee consisting
of:
(A)
a licensed location fee of $75;
(B)
a registered office fee of $10 per location; and
(C)
a variable fee based upon the annual dollar volume of contracts
originated or acquired during the preceding calendar year.
(2)
The maximum annual assessment for each active license shall
be no more than $250 excluding the registered office fees.
(f)
Licensed Location or Registered Office Duplicate Certificate.
The fee for a duplicate certificate is $10.
(g)
Costs of Hearings. The commissioner may assess the costs
of an administrative appeal pursuant to the Texas Finance Code, section 14.207
for a hearing afforded under section 1.1404 of this title (relating to Processing
of Application), including the cost of the administrative law judge, the court
reporter, and agency staff representing the agency at a hearing.
§1.1410.Implementation Provisions of Licensing.
(a)
Effective Date. The effective date of the statutory licensing
requirement is September 1, 2002. After September 1, 2002, a motor vehicle
seller may not engage in any retail installment transaction without a provisional
or permanent license granted under this title. Any motor vehicle seller engaging
in a motor vehicle sales finance transactions must comply with the provisions
of the Texas Finance Code, sections 348.401 and 348.402 as it existed prior
to September 1, 2001, and 7 TAC, Part I, Chapter 1, Subchapter P until September
1, 2002. Failure to comply with required registration provisions is grounds
for denial of an application made under section 1.1404 of this title (relating
to Processing of Application).
(b)
Provisional license. The commissioner may issue a provisional
license with a specified expiration date if necessary during implementation.
(c)
Securitization of transactions. In the case of securitized
transactions, such as a transaction in which motor vehicle retail installment
contracts are held in trust or similar structure with participatory interests
in the structure transferred to investors, the licensing requirements may
be fulfilled either by the trust or other securitization entity or by the
servicer that is responsible for servicing the contracts included in the securitized
entity.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on February 22, 2002.
TRD-200201127
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: March 14, 2002
Proposal publication date: December 28, 2001
For further information, please call: (512) 936-7640
7 TAC §4.21
The Finance Commission of Texas (the commission) adopts new §4.21,
concerning the filing of consumer complaints with the Texas Department of
Banking (department). New §4.21 is being adopted with nonsubstantive
changes to the proposal as published in the November 2, 2001,
Texas Register
(26 TexReg 8629). The text of new §4.21 will be
republished.
Section 4.21 implements the requirements of Finance Code, §11.307,
pertaining to the filing of consumer complaints with the department.
New §4.21 specifies the manner in which currency exchange, transmission,
and transportation licensees provide consumers with information on how to
file complaints with the department. The new section also requires that the
information on how to file complaints be included with each privacy notice
a currency exchange, transmission, and transportation licensee is required
by law to provide to consumers.
The commission received no comments regarding the proposal. However, the
commission made nonsubstantive changes to the rule as proposed for consistency
with similar recently adopted rules applying Finance Code, §11.307 to
other regulated industries. See, for example, §29.21 of this title (relating
to How Do I Provide Information to Consumers on How to File a Complaint) published
for adoption in this issue of the Texas Register.
The commission revised the language of the required notice for providing
information to consumers of currency exchange, transmission, and transportation
licensees on how to file complaints with the department in subsection (b)(1).
Further, the rule as proposed required currency exchange, transmission,
and transportation licensees to post the required notice in every area where
the licensee conducts business on a face-to-face basis. However, such business
is often conducted by the agent of a licensee rather than the licensee itself.
The commission has therefore revised subsection (b)(5)(A) to require that
the notice must be posted in an area where the licensee or its agent conducts
business with consumers on a face-to-face basis, that the licensee is responsible
for providing the notice to its agents, and that the licensee is in compliance
with this section if it provides the required notice to its agents and requires
posting of the notice in its contract with the agent. A licensee that fails
to hold an agent accountable for actions or conduct on behalf of the licensee
under this section may be subject to enforcement sanctions under Finance Code,
Chapter 153, Subchapter E.
The commission also added an alternative to compliance with the posting
requirement of subsection (b)(5)(A). Instead of posting the required notice,
the required notice may be included on the currency exchange, transmission,
or transportation transaction receipts.
The commission added language to subsection (b)(3) to clarify that the
requirement to include consumer complaint notices with privacy notices applies
only to Texas consumers.
The commission also provided that the notice required to be included with
each privacy notice under subsection (b)(3), and required to be accessible
on a website offering currency exchange, transmission, or transportation services
under subsection (b)(5)(B), be in substantially the same language and form
as the required notice set out in subsection (b)(1).
Section 4.21 is adopted under the authority of Finance Code, §11.307,
which requires the commission to adopt rules specifying the manner in which
currency exchange, transmission, and transportation licensees provide consumers
with information on how to file complaints with the department. The commission
concluded that the changes made to the proposal are nonsubstantive because
no person's rights are adversely affected by the changes in the adopted rule
as compared to the proposal.
§4.21.How Do I Provide Information to Consumers on How to File a Complaint?
(a)
Definitions
(1)
"Consumer" means an individual who obtains or has obtained
a product or service from you that is to be used primarily for personal, family,
or household purposes.
(2)
"Privacy notice" means any notice which you give regarding
a consumer's right to privacy as required by a specific state or federal law.
(3)
"Required notice" means a notice in a form set forth or
provided for in subsection (b)(1) of this section.
(4)
"You" means a currency exchange, transmission, and transportation
licensee that is licensed by the Texas Department of Banking under the Finance
Code.
(b)
How do I provide notice of how to file complaints?
(1)
You must use the following notice in order to let your
consumers know how to file complaints: Complaints concerning currency exchange,
transmission, and transportation activities should be directed to: Texas Department
of Banking 2601 North Lamar Boulevard, Austin, Texas 78705 1-877/276-5554
(toll free) www.banking.state.tx.us
(2)
You must provide the required notice in the language in
which a transaction is conducted.
(3)
You must include the required notice with each privacy
notice that you send to consumers in this state. The language and form of
the notice must substantially conform to the required notice set out in subsection
(b)(1) of this section.
(4)
Regardless of whether you are required by any state or
federal law to give privacy notices, you must take appropriate steps to let
your consumers know how to file complaints by giving them the required notice
in compliance with subsection (b)(1) of this section.
(5)
You must use the following measures to give the required
notice:
(A)
In each area where you or your agent conduct business on
a face-to-face basis under Chapter 153 of the Finance Code, the required notice
must be conspicuously posted. If such business is conducted by an agent, the
licensee must provide to the agent a notice which complies with this section
for posting at each such area. A licensee will be deemed in compliance with
this section if it provides to each of its agents in this state the required
notice and requires posting of the notice in its contract with the agent.
A licensee that fails to hold an agent accountable for actions or conduct
on behalf of the licensee under this section may be subject to enforcement
sanctions under Finance Code, Chapter 153, Subchapter E. A notice is conspicuously
posted if a consumer with 20/20 vision can read it from the place where he
or she would typically conduct business or if it is included on a bulletin
board, in plain view, on which all required notices to the general public
(such as equal housing posters, licenses, Community Reinvestment Act notices,
etc.) are posted.
(B)
As an alternative to subsection (b)(5)(A) of this section
you may include the required notice on all currency exchange, transmission,
or transportation transaction receipts.
(C)
This section applies equally to business conducted electronically.
For example, those portions of your or your agent's website that offer to
consumers currency exchange, transmission, or transportation services must
contain access to the required notice. The language and form of the notice
must substantially conform to the required notice set out in subsection (b)(1)
of this section.
This agency hereby certifies that the adoption
has been reviewed by legal counsel and found to be a valid exercise of the
agency's legal authority.
Filed with the Office of
the Secretary of State on February 22, 2002.
TRD-200201109
Everette D. Jobe
Certifying Official
Finance Commission of Texas
Effective date: March 14, 2002
Proposal publication date: November 2, 2001
For further information, please call: (512) 475-1300
Chapter 25.
PREPAID FUNERAL CONTRACTS
Subchapter A. CONTRACT FORMS
7 TAC §§25.1 - 25.6
The Finance Commission of Texas (the commission) adopts the
repeal of §§25.1 - 25.6, concerning contract forms for sale of prepaid
funeral benefits, without changes to the proposal as published in the November
2, 2001, issue of the
Texas Register
(26 TexReg
8631). The repealed sections are replaced by new §§25.1 - 25.6,
adopted in this issue of the
Texas Register
.
Amendments in law made by the 77th Texas Legislature, effective September
1, 2001, required existing §§25.1 - 25.6 to be significantly rewritten,
effectively requiring repeal and replacement by new sections.
No comments were received regarding the proposed repeal.
The repeals are adopted under Finance Code, §154.051, which
authorizes the commission to adopt reasonable rules concerning enforcement
and administration of Finance Code, Chapter 154.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on February 22, 2002.
TRD-200201111
Everette D. Jobe
Certifying Official
Texas Department of Banking
Effective date: March 14, 2002
Proposal publication date: November 2, 2001
For further information, please call: (512) 475-1300
7 TAC §§25.1 - 25.6
The Finance Commission of Texas (the commission) adopts new §§25.1
- 25.6, concerning contract forms. Nonsubstantive changes are made to the
proposed text of each section as published in the November 2, 2001, issue
of the
Texas Register
(26 TexReg 8631). (A
corrected version of Figure: 7 TAC §25.3(b) was published in the November
23, 2001, issue of the
Texas Register
(26
TexReg 9642).) Existing §§25.1 - 25.6 in this title are repealed
in this issue of the
Texas Register
. The text
of adopted §§25.1 - 25.6 will be republished.
According to Texas courts, if, after proper notice and hearing, an agency
incorporates public comments into a proposed rule and the final rule affects
no other subject or person than those previously given notice, no further
purpose would be served by requiring republication of the proposed rule. While
numerous changes are made to proposed §§25.1 - 25.6, because these
changes in the rules as finally adopted regulate no new parties, affect no
new subjects of regulation, and are in almost every instance the result of
public comment, the commission concludes the changes to §§25.1 -
25.6 are nonsubstantive and do not require reproposal.
State Bd. of Ins. v. Deffebach
, 631 S.W.2d 794, 801-802 (Tex. Civ.
App.--Austin 1982, writ ref'd n.r.e.)
The commission is adopting these sections to guide a prepaid funeral benefits
contract seller in complying with law. Finance Code, §154.151(a), requires
the Texas Department of Banking (department) to approve a sales contract form
for prepaid funeral benefits before a licensed seller uses the form. Amendments
enacted by the Texas Legislature to Finance Code, Chapter 154, effective September
1, 2001, significantly alter the legal requirements applicable to a prepaid
funeral benefits contract, requiring licensees to revise their contract forms.
As amended, Finance Code, §§11.307, 154.151, and 154.156, obligate
the commission and the department to provide new standard disclosures, model
contract forms, and "plain language" contract standards.
Under Finance Code, §154.151(a), the department must approve a sales
contract form for prepaid funeral benefits before a seller uses the form.
Finance Code, §154.151(d), provides that a prepaid funeral benefits contract,
whether in English or Spanish, must be written in plain language designed
to be easily understood by the average consumer. Further, the contract must
be printed in an easily readable font and type size. The department is charged
with providing model contracts that comply with these directives and must
enforce the provisions as applied to contract forms submitted by industry
for approval. A form waiver of right of cancellation must also be approved
by the department under the same standards that apply to a contract, see Finance
Code, §154.156(a).
The department published draft model prepaid funeral benefits contracts
for both insurance-funded and trust-funded arrangements and a waiver of cancellation
rights, as required by Finance Code, §154.151(d) and §154.156(a).
These forms were developed with the assistance of the regulated industry and
have been revised simultaneously with this adoption to improve and enhance
consistency with the rules. A few provisions in the models directly reflect
certain required, standard disclosures and these provisions are incorporated
into the adopted sections as appropriate and discussed further in this preamble.
(The models use the term "you" to describe the purchaser of a prepaid funeral
benefits contract, not the seller as the adopted sections do, because the
focus of the models is the contractual relationship between a seller and a
purchaser.)
General Concerns of Commentors
Six commentors responded in writing to the commission's request for comments.
Interested groups or associations offering comment were the Texas Funeral
Directors Association, the Texas Association of Insurance Officials, and a
coalition of unidentified insurance companies that asserts its members write
the majority of insurance policies funding prepaid funeral benefits contracts.
The commission also held a public hearing to solicit additional public comment
on December 14, 2001, as requested by the Texas Funeral Directors Association.
The only attendees at the hearing were the same commentors who submitted written
responses. All commentors recognized the rules are required by recent legislation
and commended the department's efforts in developing the proposal, but opposed
adoption of the rules in their proposed form.
The commentors expressed three general concerns: failure to appropriately
distinguish between the prepaid funeral benefits contract that is funded by
insurance and the funding insurance policy, imposition of requirements on
non-model contracts that are more onerous than the model contracts, and a
lack of specific deadlines for department approval or disapproval of submitted
contracts and detailed due process procedures for the contract approval process.
Most commentors specifically expressed concerns relating to the incorporation
by the proposed rules of portions and provisions of the insurance contract
and contracting process into the prepaid funeral benefits contract. These
commentors asserted that the proposed rules fail to appreciate the unique
nature of the insurance-funded transaction, pointing out that the prepaid
funeral benefits contract is fundamentally separate and apart from the insurance
policy and related documents. Further, the commentors noted that the agents
who will be completing the prepaid funeral benefits contract and taking the
application for insurance can now be licensed and appointed to sell insurance
policies or annuities for a number of companies. Therefore, a prepaid funeral
benefits contract needs to take into account and allow the possibility that
the agent will shop the coverage and the premium through the various companies
in its portfolio. At a minimum, the commentors requested that the rules permit
a provision in model and non-model contracts relating to insurance funding
that provides the terms of the policy will control any conflicts between the
two documents.
The department acknowledges that the prepaid funeral benefits contracting
transaction and the insurance contracting transaction are distinct, though
linked, and that the insurance transaction is regulated by the Texas Department
of Insurance (TDI). The department has altered specific provisions in response
to the expressed concerns, as discussed further in this preamble. However,
the department believes some disclosure of insurance policy information is
necessary to comply with Finance Code, §154.151. The department requested
TDI to review these comments and the proposal. TDI does not believe the department
is attempting to regulate the business of insurance and did not find any of
the proposed insurance disclosures to be objectionable. In making revisions,
the department attempted to avoid requiring a seller to disclose information
in a contract form that is exclusively within the knowledge of the insurance
company or that insurance law already requires to be disclosed to the consumer.
Most commentors also observed generally that the proposed rules impose
disclosures or provisions on a non-model contract that are not reflected in
the model contract, asserting this burden is patently unfair. The department
did not intend to vary the requirements in this manner, and attempted to design
the model contract to satisfy the same requirements imposed on non-model contracts.
The rules have therefore been revised to address this perception, as discussed
further in connection with §25.2(e).
Finally, most commentors criticized the failure of the proposed rules to
provide due process for the approval or disapproval of non-model contracts
and customized model contracts. The department has revised the rules to incorporate
more details regarding process, as discussed further in this preamble.
Section by Section Summary and Analysis of Comments
Section 25.1
Overview
. Section 25.1 defines terms commonly
used in prepaid funeral benefits contracting and terms that will simplify
understanding of legal requirements. A number of commentors indicated confusion
regarding phrases and terms used in §§25.2 - 25.6 that were not
defined in §25.1 as proposed, terms that were defined in statute or that
the department believed were self-defining. The department concluded the proposal
could be improved by adding a number of definitions, and by including statutory
definitions of basic terminology used in defining derived terms. Section 25.1
is significantly revised as a result. The former introductory language is
revised into two subsections. New subsection (a) incorporates defined terms
from Finance Code, Chapter 154, unless a term is otherwise defined in new
subsection (b). Comments and responses regarding proposed definitions are
included in the discussion of individual definitions that follows.
Contract beneficiary
was defined in proposed §25.1(1)
(now §25.1(b)(1) as adopted) as the person for whom a prepaid funeral
benefits contract is purchased. One commentor requested that the definition
provide additional explanation because the prepaid funeral benefits contract
could have been purchased for someone who is actually not the person upon
whose death the contract depends. The same commentor observed that the term
"beneficiary" is a term of art in the insurance industry and could therefore
be misleading to a consumer if used in two separate contracts to mean two
different people, explaining that the "beneficiary" of the life insurance
policy will always be different than the "contract beneficiary" under the
prepaid funeral benefits contract. The department has no objection to adding
clarification and has revised the definition to refer to the person named
in a prepaid funeral benefits contract as the intended recipient of contracted
funeral merchandise and services. The department disagrees with the recommendation
to use a different term because the term is also a term of art in the prepaid
funeral benefits industry and is used in Finance Code, Chapter 154. Further,
a seller has the flexibility to use a different term for "contract beneficiary"
in the seller's contract. As proposed and as adopted, §25.3(c) permits
use of an alternate term.
Funeral goods and services
was not defined
in the proposal. The term is defined in §25.1(b)(2) as adopted, to generally
mean prepaid funeral benefits regulated under Finance Code, Chapter 154. Because
Finance Code, §154.151(e), requires a prepaid funeral benefits contract
to contain a standard disclosure informing purchasers of the goods and services
that will be provided or excluded under the contract, without distinction
between prepaid funeral benefits and other funeral goods and services, the
definition permits an exception for goods and services that are listed in
the standard disclosure required by §25.3(b) but may not be within the
definition of "funeral goods and services."
Funeral home
is defined in §25.1(b)(3)
as a "funeral provider", a term statutorily defined in Finance Code, §154.002(6).
The definition was not included in the proposal. A commentor observed that
the proposed rules throughout referred to "funeral home" but the statutory
definition for "funeral provider" seems to have been intended. In addition,
the proposal further suggested that one could substitute the word "provider"
for "funeral home". Because "funeral home" is a more meaningful term to consumers
than the statutory "funeral provider", the department elected to explicitly
define the term.
Insurance-funded contract
is defined in §25.1(b)(4)
as a prepaid funeral benefits contract funded by an insurance policy. The
term was not defined in the proposal. A commentor noted numerous occurrences
of the undefined phrase "funding insurance policy" throughout the proposal
and suggested the department include a definition for insurance-funded contract
as a means to achieve the desired specificity. The department concurs with
this suggestion. As part of implementing this suggestion, the department also
added a definition for
trust-funded contract
as new §25.1(b)(14), to mean a prepaid funeral benefits contract funded
by trust deposits made on behalf of the purchaser.
Insurance policy
is defined in §25.1(b)(5)
exactly as defined in Finance Code, §154.002(7), specifically a life
insurance policy or an annuity contract but not any other form of insurance.
The term was not defined in the proposal and is included for convenience to
assist comprehension.
Model contract, model waiver, non-model contract,
non-model waiver, prepaid funeral benefits contract
, and
purchaser
are defined in §25.1(b)(6) - (11) substantially the
same as these terms were defined in proposed §25.1(2) - (7), with minor
stylistic and conforming edits. One commentor noted that the term "purchaser"
was defined differently in proposed §25.1(7) than in pre-existing §25.1(c)
(repealed in this issue of the
Texas Register
).
After review, the department concluded that the proposed definition was consistent
with the prior definition and differed only through the addition of clarifying
details.
Responsible person
is defined in §25.1(b)(12)
substantially the same as the term was defined in proposed §25.1(8),
with minor stylistic and conforming edits.
Seller
is defined in §25.1(b)(13)
exactly as defined in Finance Code, §154.002(10), specifically a person
selling, accepting money or premiums for, or soliciting contracts for prepaid
funeral benefits or contracts or insurance policies to fund prepaid funeral
benefits in this state. The term was not defined in the proposal and is included
for convenience to assist comprehension. A commentor associated with the insurance
industry objected to including words such as "premiums" and "insurance policy"
in this definition, arguing that only a licensed insurance agent can be involved
in an insurance transaction. The department disagrees based on the literal
text of Finance Code, §154.002(10).
You
is defined in §25.1(b)(13) substantially
the same as the term was defined in proposed §25.1(9), with minor stylistic
and conforming edits. One commentor observed that proposed section titles
used first person pronouns instead of second person pronouns. In response
to this comment, the department parenthetically added explanatory text, so
that the term "you" (or "I" in a section title) means a seller that is licensed
under Finance Code, Chapter 154, and is subject to Title 7, Chapter 25, Texas
Administrative Code.
Section 25.2
Overview
. Section 25.2 explains how a seller
may use the model forms developed by the department, and generally describes
the requirements applicable to non-model forms. The model contracts and waiver,
as revised to conform the adopted sections, are available from the department's
web site, in English and Spanish.
Subsection (a)
. With respect to the insurance-funded
model contract, the department received conflicting comments that created
difficulties in resolving uniform application of the model contract to different
potential contractual arrangements. The department thus has limited the applicability
of the model contract to insurance-funded transactions in which purchaser
is also the insurance policy owner. The text of §25.2(a) has therefore
been modified to more clearly state limitations on use of the department's
model contracts.
In this connection, §25.2(a)(2) did not appear in the proposal and
has been added to clarify that the insurance-funded model contract developed
by the department is designed to fit a transaction where the person named
in the contract as the purchaser is also the insurance policy owner. If the
contract purchaser and the insurance policy owner are not to be the same person,
a seller must use an approved non-model contract that has been modified to
correctly explain this arrangement. The department will consider adding future
clarifications to the rules for additional guidance as it gains experience,
through the contract approval process, in understanding the potential variations
in insurance-funded contracting and related legal consequences to the consumer.
According to one commentor, sellers who opt to use the model form should
not be required to submit the same form to the department for verification,
as required by proposed §25.2(a)(2) (now §25.2(a)(3) as adopted),
if no changes have been made to the model form other than to add information
about the seller or a funeral home. Compliance is so minimal and straightforward
that waiting for verification should not be required. Further, the requirement
places an unnecessary administrative burden on the department. The department
disagrees. New legislation changed contract requirements dramatically and
the department believes compliance must initially be closely monitored. The
department will consider adopting a "file and use" system after it develops
experience regarding problems that might arise in compliance with new law.
Subsection (b)
. Proposed §25.2(b)(1)
and (2) stated that the non-model contract must meet the requirements of §25.3
and §25.4 "as the department determines." One commentor stated the emphasized
phrase was discomforting and seemed to convert an objective decision to a
subjective one. The department believes the phrase is superfluous and has
removed it from §25.2(b)(1) and (2) as adopted.
Subsection (c)
. Another commentor stated
that requiring non-model waivers to contain identical provisions to the model
waiver and use substantially the same language as the model waiver, in §25.2(c),
is tantamount to requiring the use of the model waiver. Substantive reasons
could exist why a seller may wish to use other language in the non-model waiver,
perhaps something unique to the seller's business processes. The commentor
suggested that flexibility be incorporated into the review standards to accommodate
this concern as long as the additional or substitute language does not harm
consumers or violate the plain language requirements of §25.4. However,
if the suggestion is adopted, the commentor further requested that standards
for the non-model waiver be developed to prevent use of unfair or arbitrary
standards in the review process. The department believes some easing of this
requirement is appropriate, and has revised §25.2(c) to permit some flexibility.
Subsection (d)
. Section 25.2(d) did not
appear in the proposal and has been added in response to comments critical
of the process in the proposed rules for use of a Spanish language contract.
These comments are discussed further in connection with §25.5. As adopted, §25.2(d)
permits a seller to use a Spanish version of an approved non-model contract
after the seller files a copy of the Spanish document with a certification
of accurate translation.
Subsection (e)
. Section 25.2(e) did not
appear in the proposal and has been added to clarify that the department considers
the model contracts and waiver to fully comply with §§25.1 - 25.6.
Most commentors perceived that the proposed rules would impose disclosures
or provisions on a non-model contract that are not reflected in the model
contract, and asserted that this burden appeared to be patently unfair. The
department did not intend to vary the requirements in this manner and attempted
to design the model contract to satisfy the same requirements imposed on non-model
contracts. Although the department revised the draft model contracts in a
manner consistent with the adopted sections, new §25.2(e) has also been
added to clearly state that the model contracts and model waiver satisfy the
substantive content requirements of §25.3 and qualify under the plain
language principles in §25.4. Section 25.2(e) should thus provide assurance
that a non-model document need not include a broader or more comprehensive
provision than is contained in the relevant model document unless additional
explanation or disclosure is necessary to clarify or prevent misleading provisions
in the non-model document.
Section 25.3
Overview
. Section 25.3 imposes requirements
for the content and certain formatting aspects of a non-model form submitted
for department approval. In preparing the proposal, the department attempted
to satisfy state law requirements while permitting the variations that may
be necessary to comply with other state or federal law.
Several commentors argued that consideration must be given in §25.3
to TDI's supervision and control of the insurance market so that duplicitous
regulation and conflicting control by the department can be avoided. To the
extent that TDI regulations address the issues of concern to the department,
the commentors urged that the regulations not be repeated in the prepaid funeral
benefits contract rules. Specifically, the commentors stated that the terms
of the insurance policy, the consumer insurance sales process, and the on-going
administration of the insurance policies are regulated by TDI, and insurance
law and regulations control insurance cancellation, premium payment disclosures,
and repetition of life insurance policy provisions. Further, according to
the commentors, the relationship of premiums to the death benefit should not
be a matter regulated by the department. These comments are addressed in the
context of specific requirements.
Subsection (a)
. Section 25.3(a) collects
all requirements in summary form that are more explicitly described elsewhere
in §§25.3 - 25.5. Comments made regarding subsection (a) are more
appropriately discussed in connection with the substantive requirements that
are incorporated by reference into subsection (a).
Subsection (b)
. The department intends §25.3(a)(1)
and (b) to meet the mandates of Finance Code, §154.151(e), that "a standard
disclosure . . . must be included in each contract to inform purchasers of
the goods and services that will be provided or excluded under the contract
. . . ." A number of commentors objected to the requirements of the proposal
that the statement of goods and services must be page one of the contract
exactly as set out in the model contract, including substantially the same
formatting and spacing. The statement of goods and services is merely part
of the contract and there is no compelling reason to require it to be page
one. Further, commentors reasoned, the requirement actually detracts from
the remainder of the contractual provisions to the detriment of consumers.
As long as the information is provided to fully inform the consumer, companies
should be allowed to use their expertise in designing the forms. The department
disagrees regarding location, formatting, and spacing because of its obligation
to design uniform, comparable, and understandable disclosures. Flexibility
has been enhanced in certain respects as described in subsequent discussions.
One commentor observed that a seller should be required to include only
those items which it offered for sale to the public in the statement of funeral
goods and services included, and should be permitted to relocate those funeral
goods and services not offered to the description of the items not typically
included in a prepaid funeral benefits contract. Further the commentor expressed
the belief that the department had agreed to permit this type of variation.
The department believed such variations were permissible under §25.3(b)
as proposed. After further review, the department concurs that these permitted
variations were not as clearly articulated in the proposal as the department
had intended. The department revised §25.3(b)(5) to more explicitly permit
variations in categories of funeral goods and services and has added new §25.3(b)(7)
to provide reduced requirements for sellers operating under specifically limited
permits.
One commentor found the general description categories under the caption
"Immediate Burial and Direct Cremation", in Figure: 7 TAC §25.3(b), to
be confusing to the seller and consumer, pointing out that the form may inadvertently
encourage errors. Specifically, the cost of the burial container could be
entered twice, once in the area specific to the container and again under
the referenced caption. The commentor recommended that this redundancy be
removed to avoid accidental double billing. The department concurs and has
edited Figure: 7 TAC §25.3(b) accordingly.
Subsection (c)
. Section 25.3(a)(2) and
(c) as proposed addressed defined terms in a contract to increase uniformity
of terminology, comparability of contracts, and consumer understanding. One
commentor recommended permitting usage of the 16 defined terms in the Federal
Trade Commission's (FTC) Funeral Rule, Title 16, Part 453, Code of Federal
Regulations (16 CFR Part 453), and that usage of the federal or state terminology
be exempt from the plain language principles of §25.4. The commentor
noted that many currently licensed sellers use the terminology found in the
FTC Funeral Rule in their general price lists. These terms are also found
in the rules of the Texas Funeral Services Commission. The commentor agreed
that consistency in terminology is consumer friendly but points out that using
multiple terms for the same service on different documents is confusing to
the consumer. The department generally concurs and has revised the model contracts
to make greater use of terminology in the FTC Funeral Rule.
Another commentor objected to requiring sellers to use terms that may be
self-defining, such as "insurance policy" or "insurance company", or terms
that can be misleading in specific circumstances, such as using the term "contract
beneficiary" in an insurance-funded contract, because the term "beneficiary"
means something different in the insurance policy. To address this concern,
the department revised §25.3(c) as adopted to permit use of "terms commonly
understood by consumers to be equivalent" to the required terms.
Subsection (d)
. Section 25.3(d) as proposed
required a prepaid funeral benefits contract to explain the obligations of
the parties to the contract and the obligations of the insurance company if
the contract was insurance-funded. One commentor noted that the only obligation
of the insurance company is to meet the terms and conditions of the insurance
policy, and recommended deleting any reference to the obligations of an insurance
company. The department acknowledges that the prepaid funeral benefits contracting
transaction and the insurance contracting transaction are distinct, though
linked, and that the insurance transaction is regulated by TDI. As previously
noted, TDI does not share the commentor's concerns, and the department believes
some disclosure of insurance policy information is necessary to comply with
Finance Code, §154.151. The department made revisions to §25.3(d)
as adopted to eliminate a perception that a seller must disclose information
in a contract that is exclusively controlled by the insurance company. For
example, in lieu of requiring a discussion of the insurance company's obligations, §25.3(d)
now requires a discussion of the impact of terms in the insurance policy on
specified obligations of parties to the contract. To further clarify the distinction
between the contract and the insurance policy, the department added a new
provision as §25.3(d)(10) to require a disclosure that the purchaser
must refer to the terms of the insurance policy for information concerning
its operation.
Most commentors were also critical of §25.3(d) because of a perception
that the proposal imposed significantly more onerous requirements on a non-model
contract as compared to the model contracts. The department had attempted
to draft standards based on the draft model contracts developed with industry
assistance and did not intend to impose more burdensome requirements on a
non-model contract. However, the department understands the expressed concerns
and has revised §25.3(d) and the model contracts to clarify that the
required disclosures do not impose requirements for non-model contracts that
are not also satisfied by the model contracts. In this connection, clarification
is also provided by new §25.2(e) as previously discussed.
Specifically regarding §25.3(d)(2), one commentor suggested clarifications
regarding what was meant by the disclosure that selected goods and services
could not be changed "unless a new contract is issued." As adopted, §25.3(d)(2)
requires disclosure that selected goods and services cannot be changed "unless
the contract is voided and replaced with a new contract." Another commentor
also objected to the revised phrase and argued that contract amendments should
be permitted. The department disagrees based on the literal text of Finance
Code, §154.155(c).
As proposed, §25.3(d)(4)(A) required explanation of the extent to
which the purchaser will have any tax liability for earnings attributable
to the contract or to an insurance policy and the manner in which the seller
or insurance company will withhold funds to pay any tax liability. Several
commentors asserted that, unlike a trust funded prepaid funeral benefits contract,
no tax liability is associated with an insurance policy used to fund prepaid
funeral benefits contracts. One commentor said an insurance company cannot
withhold funds for tax purposes without violating the terms of the insurance
policy. Finally, commentors noted inconsistency with the model contracts with
respect to the tax withholding disclosure.
In response to these comments, the department has revised §25.3(d)(4)
to require explanation of "whether the purchaser may incur tax liability for
earnings under a trust-funded contract or for growth under an insurance policy
if the contract is insurance-funded", and has revised the model contracts
for consistency with this requirement. While the commentors are correct that
no income tax consequence accompanies issuance or maturity of most insurance
policies, a tax consequence may exist for an annuity and perhaps for certain
life insurance policies. A consumer should be informed regarding future tax
consequences that may result from the choice of funding mechanism the consumer
must make when purchasing a prepaid funeral. If no tax consequence exists
with respect to a particular policy, the contract may so state.
One commentor observed that proposed §25.3(d)(5) and §25.3(d)(7)
referred to the parties' general contractual obligations or other contractual
provisions of a general nature, and suggested the provisions were redundant
of one another. The department concurs and has deleted proposed §25.3(d)(7).
Proposed §25.3(d)(4)(C) also addressed a general contractual provision
and has been merged with proposed §25.3(d)(5) into (8) as adopted.
Section 25.3(d)(6) as adopted was formerly part of proposed §25.3(e)(4)
and is relocated for consistency with the model contracts and revised for
the reasons stated in connection with the discussion of comments received
on proposed §25.3(e).
Subsection (e)
. Several commentors noted
that cancellation of a prepaid funeral benefits contract or insurance policy,
and the assignment of benefits of an insurance policy, both addressed in proposed §25.3(a)(4)
and (e), are two very different issues that should separately be addressed.
As adopted, the department has reorganized §25.3(e) to more clearly differentiate
between trust-funded and insurance-funded contracts and to more carefully
distinguish required disclosures regarding cancellation or assignment, but
has not divided disclosure requirements for cancellation and assignment into
separate subsections. Trust-funded contract requirements relating to cancellation
and assignment appear in §25.3(e)(1) and insurance-funded contract requirements
appear in §25.3(e)(2).
As originally proposed, §25.3(e)(1) required the contract to recognize
and explain the mandatory 15-day delay after contract execution that applies
to a voluntary waiver of cancellation rights under the contract. Most commentors
suggested that the provision should be limited to trust-funded contracts because
cancellation rights under an insurance-funded contract are not meaningful
if contract funding is accomplished by an irrevocable assignment of policy
proceeds. Further, the proposal did not permit an insurance-funded contract
seller to eliminate irrelevant provisions from the contract, such as a reference
to the use of a department-approved cancellation form. There is no such form
for canceling the insurance policy, and no refund would ever be owing under
the contract, according to the commentor. Any refund would be due from the
insurance company that provided the insurance policy. As adopted, the department
has limited the applicability of this provision as requested, in §25.3(e)(1)(A)
and (B) (trust-funded contracts) and §25.3(e)(2)(A) (insurance-funded
contracts). However, the department believes the commentor overstates the
separation of the contract and the insurance policy with respect to cancellation
issues, at least with respect to the manner in which the legislature addressed
the issue,
see, e.g.
, Finance Code, §154.205.
One commentor argued that the requirement in §25.3(e)(1) as proposed,
for explaining the process of waiving cancellation rights in the original
contract, will potentially be very confusing to consumers, observing that
an explanation can be given at the time a waiver is executed. The department
declines to alter this requirement because consumers should be made aware
of the option at the time of contracting, as well as be able to discover applicable
legal requirements by reading transaction documents in the possession of the
consumer. Further, a consumer should be made aware that a seller may not legally
require a waiver of cancellation rights at the time the contract is executed.
The department anticipates that sellers will not unlawfully solicit waivers.
However, because Finance Code, §154.155(d), as revised entitles a consumer
to half of the earnings under the contract upon cancellation, a benefit that
did not previously exist, a limited financial incentive exists for a seller
to routinely induce consumers to waive cancellation rights as soon as possible.
The prudent course is to ensure consumers are adequately informed regarding
both the potential for increased refund and the statutory limitation on soliciting
waivers.
Comments were generally very critical of proposed §25.3(e)(4), which
required a contract to disclose "the prohibition on partial cancellation of
the contract, loans against the contract and loans against or withdrawal of
proceeds accrued under a funding insurance policy," because the provision
significantly overstated applicable legal restrictions. Under the terms of
the insurance policy and state laws governing insurance, the purchaser has
the right to make partial cancellations, take out loans on the policy, and
withdraw proceeds. Commentors argued that these consumer rights, granted under
other state law, do not need to be usurped even though the exercise of these
rights would likely be an event of default under the prepaid funeral benefits
contract. The department concurs and has made appropriate revisions to limit
this restriction to trust-funded contracts in §25.3(d)(6) as adopted.
With respect to an insurance-funded contract, adopted §25.3(e)(2)(H)
now requires the contract to disclose "the effect that loans against or withdrawal
of proceeds accrued under an insurance policy will have on the contract and
on price guaranties in the contract."
Commentors also noted that the model contract did not contain the disclosure
contained in §25.3(e)(4) as proposed, now revised in adopted §25.3(e)(2)(H),
but instead simply stated that the applicant cannot take out a loan against
the insurance policy. According to commentors, this language misstates the
rights of an owner of a life insurance policy and conflicts with insurance
law. Although the guarantees under the prepaid funeral benefits contract may
be adversely impacted, the proposed model contract should not contain the
false statement that the owner cannot take a loan out against an insurance
policy. The department has revised the model contracts to be consistent with
the adopted section.
In criticizing §25.3(e)(6)(A) as proposed, a commentor pointed out
that requiring a contract clause referencing the "purchaser's interest" in
the insurance policy ignored the fact that the purchaser may not be the owner
of the life insurance policy. The department concurs with this observation
but concluded that addressing the implications of this comment would create
extraordinary complexity. Comments received conflicted with one another regarding
the exact requirements of insurance regulation, and additional research will
be necessary to properly define and describe structural variations in the
aggregate, insurance-funded transaction. Thus, §25.5(e)(2) as adopted
addresses disclosure requirements in the situation where the purchaser is
also the owner of the insurance policy, but requires appropriate modification
of the disclosures if the purchaser is not the policy owner, as permitted
by adopted §25.2(a)(2).
The department concurs with the several comments that noted proposed §25.3(e)(7)
appeared to be a catch-all and was superfluous, and has deleted the provision
in its entirety.
Subsection (f)
. Section 25.3(a)(5) and
(f) were designed to require contract disclosure of the consequences of default.
Because the insurance policy is an integral component of an insurance-funded
transaction, proposed disclosures addressed potential default under both the
contract and the insurance policy. One commentor referred to proposed §25.3(f)
as perhaps the best illustration of the department's failure to recognize
the distinction between the insurance-funded contract and the insurance policy,
and requested that the rule be revised to exclude matters in the insurance
domain. Other commentors have endorsed the premise underlying this suggestion.
The department disagrees that the rule should exclude all disclosures regarding
matters in the insurance domain because the insurance policy is an integral
part of the underlying transaction. However, the department revised §25.3(f)
as adopted to better differentiate between the prepaid funeral benefits contract
and the insurance policy acquired to fund it.
For example, §25.3(f)(1) as proposed required disclosure of the consequences
of missed or late payments under the contract or under an insurance policy.
A commentor requested that insurance-funded contracts be exempt from this
requirement, observing that, because no payments are due under an insurance-funded
contract, no need exists for an explanation in the contract of the consequences
of a late payment. Further, the commentor noted that requiring a prepaid funeral
benefits seller, who may not be licensed as an insurance agent or have any
familiarity with the product, to describe to the consumer the consequences
of incomplete or late premium payments on the insurance policy, is unjustified.
According to the commentor, explaining an insurance policy constitutes the
business of insurance under Insurance Code, Article 21.02, and is a clear
violation of law if performed by a person not licensed as an agent. The commentor
suggested a more effective disclosure would address the impact of failure
to make required premium payments on any guarantees provided under the prepaid
funeral benefits contract.
This commentor and others identified similar problems in §25.3(f)(2)
- (4). Generally, commentors suggested that disclosure should be limited to
a caution that the insurance policy is a separate contract that can affect
the purchaser's rights under the prepaid funeral benefits contract coupled
with a recommendation that the purchaser refer to the insurance policy to
understand its terms. Commentors had conflicting views on whether an insurance
company is required to deliver a copy of the policy and application to the
policy owner. Finally, several commentors pointed to discrepancies between
the requirements of §25.3(f) and the model contracts. The department
revised §25.5(f)(1) - (4) and the model contracts for consistency and
to minimize the expressed concerns regarding the separate business of insurance.
Subsection (g)
. The department proposed §25.3(a)(6)
and §25.3(g) to address the mandate of Finance Code, §154.151(e),
that "a standard disclosure . . . must be included in each contract to inform
purchasers of . . . the circumstances under which the contract may be modified
after death of the beneficiary." The standard disclosure as proposed was set
forth in proposed Figure: 7 TAC §25.3(g) (26 TexReg 8864). One commentor
recommended clarification of language in the model contract that addresses
this requirement to clarify that the contract must be paid in full at the
time of death, not immediately after death. The department concurs and revised
the model contracts as requested. The revised language appears in Figure:
7 TAC §25.3(g). In addition, the department agrees with a commentor that
the phrase "fully funded" must be used in lieu of "fully paid" in an insurance-funded
contract to avoid a potentially misleading disclosure.
Subsection (h)
. Section 25.3(a)(7) and
(h) as proposed required disclosure and explanation of all payment terms imposed
on a purchaser of prepaid funeral benefits. The department attempted to succinctly
capture and identify, in one location in a contract, the monetary obligations
a purchaser incurs as a result of entering the contract and the terms of the
contract that affect the amount and timing of these obligations, whether the
obligations are to fund trust deposits or to pay premiums on a funding insurance
policy.
Most commentors objected to the provisions as written, citing proposed §25.3(h)
as another example of the rules to contemplate the differences between trust-funded
and insurance-funded contracts and the failure of the department to appreciate
the unique nature of the insurance-funded transaction. All commentors concurred
that §25.3(h) should be revised to permit an insurance-funded contract
to disclose that the terms of payment are provided for in the insurance policy.
However, all comments received were not in agreement with regard to specific
details of the operation of Texas insurance law, and the following summary
of comments contains inconsistencies. Subject to specific exceptions, the
department generally concurs with the commentors and has revised §25.3(a)(7)
and (h) to more accurately capture the relationship between insurance-funded
contracts and the insurance policies purchased to fund them, and to adjust
required disclosures accordingly.
Commentors agreed that no payments are made under an insurance-funded contract;
all payments are made under an insurance policy purchased to fund the contract.
Several commentors asserted that Texas insurance laws require complete disclosure
of payment information on the application for insurance. Because the application
for insurance provides clear information concerning the payment obligations
under the insurance policy, these commentors believed that including duplicate
information in the insurance-funded contract is redundant, unnecessary, and
potentially confusing. In particular, commentors pointed to the potential
confusion and possible liability that would result if the payment information
were completed differently on each form.
One commentor noted that, because premium payments are strictly a matter
between the purchaser and the insurance company, they may not even be known
when the contract is entered. In some circumstances the rates proposed in
the application are based on the information contained in the application.
In such circumstances, the cost of insurance may be higher or lower than the
proposed rates, depending on the results of the underwriting process before
the application is accepted by both the purchaser and the insurer. If payment
terms provided in the prepaid funeral benefits contract are copied from the
application, the contract would be in error. The department has addressed
this concern in §25.3(h)(4)(C) as adopted. If premium information in
the initial documents delivered at closing is based on an estimate of premiums,
the contract must contain a notice that actual premiums could be more or less
than estimated after the insurance company completes its underwriting process.
A commentor also argued that requiring a prepaid funeral benefits seller
to provide insurance policy payment information to the purchaser would place
the seller in violation of Insurance Code, Article 21.02, unless the seller
is also licensed as an insurance agent. As previously noted, TDI does not
share these concerns, although the department has clarified the distinction
between the contract and the insurance policy throughout this section to address
the commentor's concern. The department notes, however, that sellers of insurance-funded
contracts or designated employees of such sellers are indeed often licensed
as insurance agents.
Another commentor asserted that the rule presumes that the seller is an
insurance company and thus would know the payment information, but some sellers
are not insurance companies and would not have access to the information.
In addition, information in the application for insurance constitute personal
information of the purchaser provided to the life insurance company through
its agent. Thus, unless specifically authorized by the purchaser, the commentor
stated that this information cannot be shared with the prepaid funeral benefits
seller without violating privacy laws, citing the federal Gramm-Leach-Bliley
Act (GLBA). The department specifically disagrees with the asserted application
of GLBA. Specific exceptions exist for disclosure of nonpublic personal information
if necessary to effect, administer, or enforce a transaction requested or
authorized by the consumer, or to persons holding a legal or beneficial interest
relating to the consumer. The core transaction requested by the consumer in
this context is a funeral. See 15 U.S.C. §6801(e)(1) and (3)(C); 16 C.F.R. §313.14(a)
and §313.15(a)(2)(iv). TDI has also adopted regulations interpreting
GLBA that contain similar exceptions, effective January 1, 2002. See 28 TAC §22.18(a)
and §22.19(a)(5). Thus, the relevant inquiry is whether sharing of the
information is necessary to implement the core transaction, not whether the
consumer has consented.
The department believes that §25.3(h) as adopted adequately addresses
the central objections of commentors. Subject to modifications or clarifications
required by §25.2(a)(2), new §25.3(h)(4)(B) requires notice in an
insurance-funded contract that the terms governing premium payments are set
forth in another document that the purchaser should consult, such as the application
for insurance or the insurance policy.
Several commentors also pointed out that §25.3(h)(4)(B) as proposed
(proposed §25.3(h)(4)(B) is now §25.3(h)(4)(D) as adopted) required
a notice that insurance premiums paid on the underlying insurance policy or
policies "may exceed the total contract price." These commentors objected
to this disclosure as misleading because it is not necessarily true. In addition,
the model contract is inconsistent with this provision. Commentors believed
the proposed disclosure is prejudicial by its very nature and recommend that
the provision be revised to be more consistent with the language used in the
draft model contract. The department concurs. As adopted, §25.3(h)(4)(D)
requires notice that insurance premiums paid on the insurance policy or policies
may be more or less than the total contract price.
Subsection (i)
. Section 25.3(a)(8) and
(i) established standards for the signature page and related notices. No comments
were received directly regarding this subsection. Consistent with comments
received regarding the legally separate duties imposed by insurance law, the
requirement of proposed §25.3(i)(3), to include a notice that the purchaser
may request a copy of the insurance policy, has been separately incorporated
into new §25.3(i)(4) and revised to require notice that the policy owner
may request a copy of the insurance policy from the insurance company if the
insurance company is not legally required to deliver a copy of the policy
to the policy owner. The department also revised proposed §25.3(i)(4)
(now §25.3(i)(5) as adopted) to correct an oversight by adding telephone
numbers to the information identifying certain parties.
Subsection (j)
. Finance Code, §11.307(a),
requires the commission to adopt rules, applicable to each entity regulated
by the department, requiring the entity to provide consumers with information
on how to file complaints with the department and other state agencies. The
commission adopted new §25.41 in December 2001 to apply this requirement
to a prepaid funeral benefits seller, see the December 28, 2001, issue of
the
Texas Register
(26 TexReg 10851). However,
to improve conformity, amendments are proposed to §25.41 is this issue
of the
Texas Register
.
As a specific, contextual application of this requirement, the model contract
forms contain the required disclosure. Section 25.3(a)(9) and (j) as proposed
required the same disclosure to appear in non-model forms. One commentor specifically
objected to including the seal of the State of Texas in the notice, stating
that it provided no benefit to consumers. The department disagrees. Consistent
with plain language principles, the image of the state seal instantly communicates
to a purchaser that the state has a regulatory interest in the transaction
and provides an easily identifiable reference point for a purchaser thumbing
through a stack of papers in search of this information, perhaps months or
years later.
The commentor further objected to including information regarding how to
contact other state regulatory agencies, asserting that the department is
the only agency with jurisdiction over prepaid funeral benefits contracts.
The department disagrees. Finance Code, §11.307(a), specifies that the
notice must include information on how to file complaints with the "appropriate
agency." In addition to contact information for the department, at the very
least the department believes a consumer of a prepaid funeral benefits contract
needs information on how to contact the Texas Funeral Service Commission,
as well as TDI if the contract is insurance-funded. Other "appropriate" agencies
exist, such as the Office of Consumer Credit Commissioner with respect to
finance charges or the Federal Trade Commission with regard to violations
of the FTC Funeral Rule, 16 C.F.R. Part 453, but the department did not include
other agencies to minimize the regulatory burden the notice requirement may
impose.
Finally, a commentor requested more flexibility with respect to placement
of the required notice. As proposed, §25.3(j) required the disclosure
to appear at the end of the last page of the contract. The department modified
the placement requirement to prefer placement at the bottom of the signature
page but permit placement at the top or bottom of a preceding page if separated
from other text by at least 1/2 inches of white space.
Subsection (k)
. As proposed, §25.3(k)
collected certain miscellaneous requirements and permitted additions that
do not logically fit elsewhere in §25.3. Section 25.3(k)(2) as proposed
required that the title of the contract include the term "Prepaid Funeral
Benefits Contract." The department's purpose in imposing this requirement
and similar requirements is to promote comparability among the contracts of
competing sellers to enhance consumer understanding and facilitate comparison
shopping. One commentor argued that companies should be permitted to brand
their programs, title their forms in any manner that is not misleading, and
otherwise have the ability to use discretionary judgment if no compelling
public interest requires dictating conduct. The department revised §25.3(k)(2)
to marginally increase the seller's discretion while retaining some degree
of comparability. As revised, the contract title must disclose the contract
is for the purpose of prearranging a funeral, such as "Prepaid Funeral Benefits
Contract."
As proposed, §25.3(k)(6) required that a non-model contract contain
"all consumer disclosures required by other state or federal law for this
type of transaction." A commentor asserted that this requirement is overly
broad and outside the jurisdiction of the department. The department used
mandatory language in recognition that additional disclosures are legally
required by other law but did not intend to use its regulatory authority to
"require" these disclosures. The department concurs that the proposed language
is overly broad and has reorganized and revised the requirement into new §25.3(l).
As revised, a non-model document is "permitted" to contain additional contract
clauses that are fair to consumers in light of the purpose of Finance Code,
Chapter 154, and additional consumer disclosures that will assist the purchaser
in understanding the transaction or that the seller determines are required
by other state or federal law for the type of transaction the contract represents.
However, a seller must logically determine what additional disclosures
are required to be in the contract by other law. Therefore, a seller is required
by adopted §25.5(b)(1)(D), discussed further in connection with comments
and revisions to §25.5, to represent to the department that, "to the
best of your knowledge", a proposed non-model document submitted to the department
for approval complies with all applicable state and federal law. The department
does not believe it is using its regulatory authority to "require" these disclosures
by insisting that the seller have considered the subject prior to filing a
contract for approval.
Regarding consumer disclosures required by other law, the commentor noted
that disclosures required by other state or federal law may change over time
and suggested that the rule should permit companies to modify non-model contracts
to comply with changes in such other law without further submission to the
department other than notification of the changes. The department disagrees
because of its obligation to approve a non-model contract for consistency
with plain language principles. However, approval of a non-model contract
that has been revised solely to comply with changes in other law can be obtained
without significant difficulty or delay if properly explained, as required
by adopted §25.5(b)(1)(C)(ii).
Section 25.4
Generally
. Section 25.4 as proposed articulated
the plain language principles that are incorporated into the model forms and
will guide the department in evaluating non-model contract and waiver forms
submitted for department approval. This plain language requirement is imposed
by Finance Code, §154.151(d). Although the department specifically invited
comments regarding how the department could more effectively determine that
a Spanish language contract is "designed to be easily understood by the average
consumer," no commentor addressed this question.
The department researched plain language writing and determined that plain
language principles sound deceptively simple but can dramatically improve
readability and understandability if followed. Plain language writing does
not mean deleting complex information to make the document easier to understand.
A plain language document uses words economically and at a level the audience
can understand. Its sentence structure is tight. Its tone is welcoming and
direct. Its style and design is visually appealing and attracts the eye to
important information. The department located numerous resources from which
to derive the requirements of §25.4, including the information and links
available at http://www.plainlanguagenetwork.org/ and http://www.plainlanguage.gov,
and has made some modifications in response to comments.
One commentor flatly asserted that §25.4 as proposed was vague, arbitrary,
and failed to establish objective standards for plain language contracts.
The commentor pointed to terms that appear in the proposal, such as "easily",
"clear", "concise", "strong verbs", "everyday words", "superfluous", and "legalistic",
and argued that these terms and others are not objective criteria upon which
a seller may gauge compliance. These terms, according to the commentor, are
so judgmental that compliance will vary depending upon the opinion of the
person conducting the review rather than upon objective criteria. The department
disagrees and believes the comment is more appropriately directed to the legislature,
not the state agency charged with implementing and enforcing a statutory mandate
that contracts must be "written in plain language designed to be easily understood
by the average consumer [and] printed in an easily readable font and type
size." None of the terms the commentor finds objectionable are used in connection
with inflexible requirements, but are rather part of general principles that
describe factors the department will consider in evaluating a proposed document.
Subsection (a)
. The text of §25.4(a)
as adopted sets forth the statutory standard the department must follow and
is unchanged from the proposal. The commentor that believed proposed §25.4
was vague, arbitrary, and failed to establish objective standards for plain
language contracts urged that subsection (a) be deleted. The department disagrees
that deletion of the paraphrased statutory standard is appropriate. Subsection
(a) is adopted without changes.
Subsections (b) and (c)
. A proposed non-model
contract or waiver should substantially comply with the plain language writing
principles stated in §25.4(b) and substantially avoid the plain language
impediments identified in §25.4(c), although the department will consider
a seller's asserted reasons why a particular principle should not be applied
in a specific context. The principles stated in §25.4(b) and (c) sought
to avoid the most common writing problems that hinder a reader's understanding,
including overly long sentences, overuse of passive voice and weak verbs,
and unnecessary use of technical jargon and artificially defined terms. The
commentor that believed proposed §25.4 was vague, arbitrary, and failed
to establish objective standards for plain language contracts urged that subsections
(b) and (c) be deleted. The department disagrees and believes the guidance
provided by these provisions will be helpful to industry in understanding
plain language requirements. None of the principles are expressed as inflexible
requirements. These subsections are adopted without changes.
Subsections (d) and (e)
. Section 25.4 as
proposed incorporated typesetting concepts in §25.4(d) and (e). Subsection
(d) addressed typeface (font) selection and described both serif and sans
serif typefaces and the relative advantages of these categories of typeface.
The basic text of a proposed non-model document should be set in a serif typeface.
Titles, headings, subheadings, captions, and illustrative or explanatory tables
or sidebars may be set in a sans serif typeface for emphasis. The department
has specified the minimum type size (measured in points (pt) in §25.4(e)(1)
as equivalent to a Times typeface in 10pt, and will permit smaller sizes for
certain provisions. Most resources reviewed by the department suggest 10pt
as the minimum size and urge consideration of 12pt or larger if the document
is designed for an elderly audience. In specifying what is generally considered
a smaller than desirable type size for certain sections of the document, the
department sought a compromise between easy legibility and other advisable
requirements, such as keeping related disclosures grouped together or satisfying
a requirement to keep specified text on a single page. However, the department
encourages sellers to consider using a larger and more legible type size.
Proposed §25.4 also addressed linespacing, or "leading", which refers
to the amount of space between lines of text. The department specified minimum
leading in §25.4(e)(2) as about 120% of type size, provided this standard
results in at least two points of additional leading between lines of type.
No comments were received regarding proposed §25.4(d) and (e). The
subsections are adopted without changes.
Subsection (f)
. Document design and formatting
can enhance or hinder readability. Section 25.4(f) stated a preference for
left justified, ragged right text and encourages use of descriptive headings
and subheadings and tabular presentations. A commentor suggested full-justification
should be permissible if the document is arranged in columns. The department
concurs with the commentor. As revised and adopted, §25.4(f)(1) strongly
encourages left-justified text in any paragraph or section of a non-model
document that has text lines exceeding 70 characters in length.
The commentor that believed proposed §25.4 was vague, arbitrary, and
failed to establish objective standards for plain language contracts urged
that §25.4(f)(1) and §25.4(f)(3) be deleted for the reasons discussed
in the following paragraphs.
This commentor criticized §25.4(f)(1) as addressing esthetics of the
document rather than any substantive requirement. The commentor asserted that
this requirement has no bearing on the readability, content, or any other
substantive matter, and that companies should at the very least be free to
design the look of their own forms without government interference. The department
disagrees. Every comprehensive "plain language" resource reviewed by the department
states that design and layout of a document strongly influences comprehension.
The department therefore believes it must consider these factors in evaluating
whether a contract is "designed to be easily understood by the average consumer."
Proposed §25.4(f)(3) required a non-model document to "use descriptive
headings and subheadings that match the headings in the department's model
contract." The commentor argued that headings and subheadings should be at
the discretion of the drafter as long as they are not misleading. The department's
purpose in imposing this requirement and similar requirements is to promote
comparability among the contracts of competing sellers to enhance consumer
understanding and facilitate comparison shopping. In response to this comment,
the department has revised §25.4(f)(3) as adopted to encourage use of
descriptive headings and subheadings that "are conceptually similar to the
headings in the department's model contract." A seller will therefore be able
to choose alternate terms if a consumer would understand the language chosen
to mean substantially the same as the comparable heading or subheading in
a model contract.
A commentor requested flexibility to use a page size of 8-1/2 inches by
17 inches. Proposed §25.4(f)(2) stated that the recommended page size
for a proposed non-model contract is 8-1/2 inches by 14 inches. The department
has revised §25.4(f)(2) to recommend a minimum page size for a proposed
non-model contract of 8-1/2 inches by 14 inches and a maximum page size of
8-1/2 inches by 17 inches. However, as was the case with the proposal, page
size is not expressed as an inflexible requirement.
Another commentor observed that proposed §25.4(f)(5) addressed use
of alternate definitional terms and did not seem to fit in the plain language
section. The department concurs and has deleted the provision by incorporating
it into revised and adopted §25.3(c).
Subsection (g)
. As proposed, §25.4(g)
required a non-model document to be subjected to mechanical readability tests
as one factor to aid determination of its readability. These tests are contained
in Microsoft Word and Corel WordPerfect software. The person submitting a
proposed document for approval will be expected to apply the same tests before
submission and explain how the results are consistent with the requirements
of §25.4. Mechanical readability formulas are flawed because they cannot
analyze substantive content. The department will therefore not rely solely
on the readability statistics generated by these tests but will instead use
them to supplement the department's evaluation of more subjective factors.
However, in the absence of a suitable explanation that is consistent with
plain language principles, a document that fails one of the four common tests
listed in §25.4(g)(1) will ordinarily not be approved.
The commentor that believed proposed §25.4 was vague, arbitrary, and
failed to establish objective standards for plain language contracts conceded
that readability standards in §25.4(g) do set forth apparently objective
criteria but argued that the stated principles are so arbitrary and vague
that it is impossible to assess their meaning. The department disagrees and
emphasizes that it will not rely solely on the readability statistics generated
by these tests, as the text of subsection (g) plainly states, but will instead
use them to supplement the department's evaluation of more subjective factors.
Another commentor noted that, in most instances in which mechanical scoring
is used, certain phrases, disclosures, or terms are specifically excluded
from the scoring requirements. For example, in some instances, such as with
disclosures relating to representations and warranties as well as the disclosures
required by Finance Code, Chapter 154, the legislature or a regulatory agency
elected to use certain language for specific reasons. The commentor believed
it would be inappropriate to include statutorily mandated language, disclosures,
or definitions in the scoring because of the mandate to use such language
and the lack of a seller's discretion to exercise control over its readability.
The department concurs with this comment but specifically designed the proposed
standards to account for this situation. First, the specified minimum scores
are already skewed in anticipation of statutorily mandated language, disclosures,
and definitions. The department's model contracts satisfy the requirements
of subsection (g). Second, proposed §25.4(g)(2) required a seller to
explain the circumstances and justifications for any scores outside the parameters.
Language, disclosures, or definitions mandated by other law constitute circumstances
that may justify substandard scores. However, the scores listed as desirable
in subsection (g) have been relaxed slightly as adopted.
Section 25.5
Generally
. Section 25.5 as proposed stated
the filing requirements and procedures applicable to department approval of
a non-model document. A fee is imposed of $250 plus $60 per hour spent by
department employees in excess of one hour in evaluating the proposed document
submitted for approval. A seller would have the option of seeking judicial
review of a department decision by following the specified procedures.
Commentors universally requested more detailed due process and specific
time periods for action in §25.5. The department concurs and has expanded §25.5
as adopted to explicitly incorporate specific procedures designed to increase
confidence that an application for approval of a non-model document will be
handled predictably, as discussed further with regard to specific subsections
and comments.
Subsection (a)
. Section 25.5(a) contained
a statement of the legal authority underlying the requirement that a non-model
contract form must be approved by the department before it can be used. No
comments were received and the proposed text of the subsection is adopted.
However, the department has added numbered paragraphs specifically describing
each subsection of §25.5 and its purpose, as a general guide to a section
significantly increased in length.
Subsection (b)
. Section 25.5(b) as proposed
listed the documents and fees required to be submitted with an application
to approve a non-model document. The adopted subsection has been expanded
with descriptive text and the addition of requirements currently imposed by
the department through its forms for submission of contracts for approval.
As proposed, §25.5(b)(2) required the submission of the Spanish version
of the non-model contract at the time the English version is filed. A commentor
suggested that, because the Spanish version is a translation of the English
version, the rule should allow it to be filed after the English version is
approved. The department concurs. As adopted, §25.5(b)(1)(B) and 25.2(d)
implement this suggestion.
Adopted §25.5(b)(1)(C) did not appear in the proposal and has been
added to incorporate requirements currently imposed in the department's application
form for approval of a contract that is an amended version of a previously
approved contract. Under §25.5(b)(1)(C), a seller requesting approval
of amendments to a previously approved contract must submit a printed copy
of the proposed non-model document that is specifically marked to show all
text proposed to be added and all text proposed to be deleted, and a written
summary of the amendments explaining their purpose.
Adopted §25.5(b)(1)(D) is based on and revised from §25.5(e)
as proposed. Proposed §25.5(e) required a seller to submit a certification
accepting responsibility for ensuring that the submitted non-model document
complies with all applicable state and federal law, including Finance Code,
Chapter 154. The proposed subsection (e) also contained a statement that the
department does not determine that a submitted contract complies with laws
and regulations administered by other state and federal regulatory agencies.
One commentor requested that proposed §25.5(e) be stricken in its
entirety, arguing that the department by statute only has the authority to
require compliance with Finance Code, Chapter 154, and has the sole obligation,
without certification from the seller, to determine whether a submitted non-model
contract complies with Chapter 154. The department disagrees with this characterization
of the department's responsibilities but has more specifically defined its
role based on the comment. It would be highly irresponsible of the department
to approve a contract that it knows violates another state or federal law,
yet the department does not desire the duty to inquire into compliance with
other law. The only responsible solution is to rely on the seller to assume
that duty, and in fact sellers submitting contracts for approval in past years
have signed such a certification for the department, without comment or complaint.
However, another commentor expressed concern that a seller without legal training
might not be aware of a failure to comply with other law and could, by signing
a certification of compliance, unwittingly empower the department to take
a disciplinary action against the seller for filing a false document. This
result is not intended or desired by the department. Although the department
does not agree that the language of the proposal can reasonably be interpreted
in this manner, it has revised the proposal to more explicitly avoid this
interpretation.
As adopted, §25.5(b)(1)(D) requires a seller submitting a proposed
document for approval to certify that the seller has examined the submitted
document and,
to the best of seller's knowledge
,
the submitted document complies with all applicable state and federal law.
In addition, if an amendment to a previously approved document, the seller
will certify,
to the best of seller's knowledge
,
that the submitted document is identical to the previously approved document
except for specifically marked and identified changes. In light of the intensity
of comments received urging faster processing times, this requirement is not
unreasonable, and does not expose the seller to penalty for lack of knowledge.
Further, this requirement is identical in all material respects to current
practice as represented by the application form sellers have signed and submitted
to the department for years.
The remaining issue raised by these comments, whether the department should
consider compliance with other law, is addressed in §25.5(c)(3) as adopted,
regarding standards for approval. Generally, the applicable standards are
based on Finance Code, Chapter 154. However, if the department "discovers"
and "confirms" that a proposed non-model document will "clearly" violate a
mandatory requirement of other law, the department will deny approval. However,
the department will ordinarily not seek to review a proposed non-model document
for compliance with other law, and approval of a non-model document by the
department does not represent a determination of compliance with other state
and federal law.
As proposed, §25.5(b)(3) specified certain additional documents to
be filed with the department, including a copy of the life insurance policy
form intended for use with the proposed contract and written evidence from
TDI that the submitted policy form had been approved. A commentor asserted
that TDI does not require formal approval of all life insurance policies marketed
in Texas. Companies may therefore not have "written evidence from the Texas
Department of Insurance that the policy has been approved." The department
disagrees after consultation with TDI, with one exception. The commentor is
technically correct that TDI does not approve all policy forms, but TDI does
approve all policy forms that are used to fund prepaid funeral benefits contracts.
If TDI fails to act within its time period for approval and the form becomes
automatically approved, TDI stated its practice is to issue an approval letter
upon request. However, policy forms may exist and be in use that were approved
by TDI before it specifically addressed approval of the forms to fund prepaid
funeral benefits contracts. As adopted, §25.5(b)(1)(E)(ii) incorporates
this adjusted requirement.
Revised and adopted §25.5(b)(1)(F) and (b)(3) impose filing and review
fees. As proposed, §25.5(d) imposed a filing fee of $250 plus an additional
fee of $60 per employee hour in excess of one hour for review of a proposed
non-model document submitted for approval. One commentor suggested that §25.5(d)
be revised to include a maximum fee of $500. Another commentor proposed a
maximum fee of $550. The department disagrees, based on its prior practice,
complied with by sellers without objection, of charging $50 per employee hour
in excess of one hour for review of a proposed contract, without a maximum
stated fee. However, the department modified the proposal to more closely
conform to current fees, in revised §25.5(b)(1)(F) and (b)(3), by imposing
a filing fee of $250 plus an additional fee of $60 per employee hour in excess
of four hours for review of a proposed non-model document submitted for approval.
Subsection (c)
. As proposed, §25.5(c)
described the procedure the department will follow in considering whether
to approve a proposed non-model document. After submission, §25.5(c)(1)
provided the department would act "as soon as reasonably possible" and, if
approval is denied, the department would "state the basis for the denial."
If approval was denied, proposed §25.5(c)(2) provided a seller the opportunity
to either keep the application open by resubmitting a modified non-model document
or request a hearing before the commissioner to review and reconsider the
department's response. Proposed subsection (c)(3) required the hearing to
be set "as soon as reasonably possible" and imposed the burden of proof at
a hearing on the department, and subsection (c)(4) made the commissioner's
order after hearing appealable. The department did not specify deadlines for
action, reasoning that initial contract form submissions by sellers could
potentially overwhelm the department's resources in the short term. Hard and
fast deadlines in this circumstance would be detrimental to the public policies
established by Finance Code, Chapter 154.
A commentor urged that, in exchange for payment of the required fees by §25.5(d),
a seller should be reasonably entitled to some assurance that the application
will be reviewed within 15 days, the department will specify the specific
basis for any disapproval in writing, and an automatic approval of the form
will occur if no action is taken within 30 days. Otherwise, according to the
commentor, companies will be faced with potential loss of revenue, the expense
of extra regulatory fees, and no corresponding obligation on the department
to act. Another commentor joined in requesting the department be required
to specify a specific basis for denial, including citations to the specific
legal provisions the document fails to satisfy.
The department concurs that adding additional assurances regarding processing
time is reasonable but disagrees that a 15 day review period is appropriate
for the reasons underlying the department's initial proposal to omit specific
deadlines. The department disagrees with the suggestion that automatic approval
is appropriate in the event of a missed deadline. The legislature is clearly
aware of its authority to impose automatic approval deadlines on state agencies
and has done so in numerous instances, but not in connection with any application
process under Finance Code, Chapter 154. Absent explicit legislative direction,
the department will not voluntarily relinquish its statutorily-granted discretion
in a manner that could damage the regulatory interests the department is charged
with protecting.
After consideration, the department concluded that an appropriate processing
time for a new non-model contract, as stated in §25.5(c)(1)(A) as adopted,
is 90 days if submitted prior to March 1, 2003, and 45 days if submitted on
or after that date. Further, with respect to a proposed non-model waiver or
an amended version of a previously approved non-model contract, adopted §25.5(c)(1)(B)
specifies a processing time of 30 days. Finally, the specified processing
time for amendments limited to changed or added information about the seller
or a funeral home is 10 days, consistent with the manner in which modifications
to a model document are processed under adopted §25.2(a)(3). Subsection
(c)(2) grants the department discretion to extend a processing time by up
to an additional 30 days if the filing raises issues requiring additional
information or additional time for analysis.
Section 25.5(c)(3) as adopted is based on proposed §25.5(e). Under
this provision, the department will deny approval if the proposed non-model
document fails to comply with the Finance Code, Chapter 154, as implemented
by §§25.1 - 25.6. As previously noted, the department will not ordinarily
seek to verify compliance with other law but reserves the authority to refuse
to approve a document that "clearly" violates other applicable law if the
department takes action to confirm the clear violation.
With respect to comments requesting the department to state the specific
basis for denial, the department was unaware that its proposed obligation
to "state the basis for the denial" could be interpreted to allow a general
denial without justification, and accordingly has revised §25.5(c)(4)
as adopted to more explicitly require a statement of the specific basis for
denial and make additional disclosures to inform the applicant of available
second review and appeal rights.
Subsection (d)
. Section 25.5(d) is based
on proposed text that was originally part of §25.5(c). The text has been
expanded to more explicitly grant and describe rights to an unsuccessful applicant
to seek a second review of a revised version of the proposed document by the
department or to request a hearing before the commissioner. The department
will not require a new filing fee but may charge additional review fees. The
specified processing time for the department to approve or disapprove a revised
submission on second review is 10 days. After a second disapproval, the applicant
may request a hearing before the commissioner. However, if approval would
be granted provided minor changes are made to the document and the applicant
has not previously had an opportunity to make those changes, the department
will include an option in the second notice of denial to submit the revised
form for approval within 10 days.
Subsection (e)
. Section 25.5(e) is also
based on proposed text that was originally part of §25.5(c), and the
text has been expanded to more explicitly describe the procedures that will
apply to a hearing before the commissioner. These procedures are not newly
created and would have applied to a commissioner hearing in the absence of
this expanded text, based on 7 TAC Chapter 9. However, including detailed
procedures in §25.5 as adopted will provide better guidance to sellers
unaccustomed to researching procedural administrative law.
Subsection (f)
. Adopted §25.5(f) describes
the circumstances under which a seller may not use a previously approved document,
as did proposed §25.5(f). The dates specified in the proposal have been
advanced forward to account for delays that occurred in finally adopting §§25.1
- 25.6.
Several commentors requested that a seller be permitted to use the seller's
current contract after the stated expiration date if the seller's request
for approval of a non-model contract is still pending or remains open pending
additional submission or resolution by a requested hearing. The department
incurs in part but will still retain an outside expiration date. To address
continued use of an existing contract while a good faith application for approval
is pending, the seller may request an extension from the commissioner.
As adopted, §25.5(f) generally prohibits use of a prepaid funeral
benefits contract form that was approved before January 31, 2002, because
contracts approved prior to this date were analyzed under the law in effect
prior to September 1, 2001. However, a seller can continue using an obsolete
contract with the model addendum developed by the department until the later
of June 1, 2002, October 1, 2002, if the seller files a proposed non-model
contract with the department for approval before June 1, 2002, or a later
date if, before October 1, 2002, the seller requests an extension of time
to permit completion of a pending approval proceeding under this section and
the commissioner approves the request in writing. In addition, these expiration
dates do not apply once a seller obtains approval of a non-model contract.
After approval and following a transition period of 30 days, the seller must
use the non-model contract and not the seller's obsolete contract, even with
the model addendum.
Section 25.6
Proposed §25.6 rephrased and reorganized existing §25.6 in a
manner consistent with the proposal without adding new substantive content.
Generally, the section specifies who should receive copies of documents after
a contract is executed by all parties.
Commentors generally pointed to the failure of §25.6 to recognize
the difference between an insurance-funded contract and the life insurance
policy, stating that §25.6(a) attempts to regulate life insurance companies
when they may not be a party to the prepaid funeral benefits contract. The
life insurance laws dictate who receives a copy of the life insurance contract
application, and under certain circumstances the purchaser may not be entitled
to a copy of the application. The department concurs and has revised §25.6
as adopted to clarify the roles of the parties.
Sections 25.1 - 25.6 are adopted under Finance Code, §154.051(b),
which authorizes the commission to adopt reasonable rules regarding matters
relating to the enforcement and administration of Chapter 154, including rules
concerning the filing of contracts. Additional authority and applicable requirements
are provided by Finance Code, §§11.307(a) and (b), 154.151(d) and
(e), and 154.156(a).
§25.1.Definitions.
(a)
A word or term that is defined in Finance Code, Chapter
154, retains the same meaning when used in this subchapter unless the word
or term is defined otherwise in subsection (b) of this section.
(b)
The following words and terms have the following meanings
when used in this subchapter, unless the context in which a word or term is
used clearly indicates a different meaning that is consistent with the purpose
of Finance Code, Chapter 154:
(1)
"Contract beneficiary" means the person named in a prepaid
funeral benefits contract as the intended recipient of contracted funeral
merchandise and services.
(2)
"Funeral goods and services" means funeral merchandise
and services that are regulated as prepaid funeral benefits, as that term
is defined by Finance Code, §154.002(9), except to the extent provided
otherwise in §25.3(b) of this title (relating to What Requirements Apply
to a Non-Model Contract) and related provisions.
(3)
"Funeral home" means a funeral provider, as that term is
defined by Finance Code, §154.002(6), specifically a funeral home that
agrees in a prepaid funeral benefits contract to provide specified prepaid
funeral benefits.
(4)
"Insurance-funded contract" means a prepaid funeral benefits
contract funded by an insurance policy.
(5)
"Insurance policy" has the meaning assigned by Finance
Code, §154.002(7), specifically a life insurance policy or an annuity
contract. The term does not include a policy for any other form of insurance.
(6)
"Model contract" means a prepaid funeral benefits contract
form developed and published by the department for your use.
(7)
"Model waiver" means the waiver form developed and published
by the department for your use, to govern the voluntary waiver of a purchaser's
right to cancel a prepaid funeral benefits contract as permitted by Finance
Code, §154.156(a).
(8)
"Non-model contract" means a prepaid funeral benefits contract
form that differs from the model contract with respect to the requirements
and standards of §25.3 of this title and §25.4 of this title (relating
to What Are the Plain Language Requirements for a Non-Model Contract or Waiver).
A model contract does not become a non-model contract because you add your
name, trademark, or other information about you, or information about the
funeral home.
(9)
"Non-model waiver" means a form of waiver that has the
same purpose as but differs from the model waiver with respect to the requirements
and standards of §25.2(c) of this title (relating to Am I Required to
Use the Model Contract and Model Waiver) and §25.4 of this title. For
example, a model waiver does not become a non-model waiver because you add
your name, trademark, or other information about you, or information about
the funeral home.
(10)
"Prepaid funeral benefits contract" or "contract" means
a contract or agreement for prepaid funeral benefits, whether trust-funded
or insurance-funded.
(11)
"Purchaser" means the person who contracts to buy prepaid
funeral benefits. The purchaser may also be the contract beneficiary. If permitted
by the context, the term includes the purchaser's authorized agent.
(12)
"Responsible person" means the person charged with the
disposition of the contract beneficiary's remains by Health and Safety Code, §711.002(a).
(13)
"Seller" has the meaning assigned by Finance Code, §154.002(10),
specifically a person selling, accepting money or premiums for, or soliciting
contracts for prepaid funeral benefits or contracts or insurance policies
to fund prepaid funeral benefits in this state.
(14)
"Trust-funded contract" means a prepaid funeral benefits
contract funded by trust deposits made on behalf of the purchaser.
(15)
"You" (or "I" in a section title) means a seller that
is licensed under Finance Code, Chapter 154, and is subject to this chapter.
§25.2.Am I Required to Use the Model Contract and Model Waiver?
(a)
Use of model contract and waiver. You may use the appropriate
model contract or the model waiver described in this subsection except as
provided in paragraph (2) of this subsection, but you are not required to
do so if you obtain approval to use a non-model contract or waiver.
(1)
The department has adopted two model contracts, one for
sale of trust-funded prepaid funeral benefits and one for sale of insurance-funded
prepaid funeral benefits where the purchaser is also the policy owner, and
a model waiver, in English and in Spanish, for your use. Each model contact
or waiver meets all statutory requirements and the requirements of this subchapter
with respect to the type of transaction it is designed to govern. You may
acquire copies of model contracts and the model waiver by downloading them
from the department's web site or requesting them by mail. The department's
web site address is http://www.banking.state.tx.us.
(2)
If you sell insurance-funded contracts, the insurance-funded
model contract is suitable only if the person named in the contract as the
purchaser is also the insurance policy owner. If the contract purchaser and
the insurance policy owner are not to be the same person, you must use an
approved non-model contract that correctly addresses this arrangement.
(3)
You may use a current model contract or model waiver after
the department verifies that your proposed form document is a current model
document that has been customized by inserting your name and permit number.
Your submitted form document may also contain other information about you
or a funeral home as long as you do not otherwise alter the model document.
The department shall approve or disapprove a customized model document on
or before the 10th business day following the day the document is filed with
the department.
(b)
Non-model contracts. Before you use a non-model contract,
it must:
(1)
satisfy the substantive content requirements of §25.3
of this title (relating to What Requirements Apply to a Non-Model Contract
or Waiver);
(2)
qualify under the plain language principles stated in §25.4
of this title (relating to What Are the Plain Language Requirements for a
Non-Model Contract or Waiver); and
(3)
be approved by the department as provided in §25.5
of this title (relating to How Do I Obtain Approval of a Non-Model Contract
or Waiver).
(c)
Non-model waivers. You may use a non-model waiver if it
addresses substantially the same matters in substantially the same order as
the model waiver, to promote comparability and consumer understanding. Your
proposed non-model waiver form may contain additional provisions that are
fair to consumers in light of the purpose of Finance Code, Chapter 154. You
must submit a non-model waiver to the department for approval in the manner
required by §25.5 of this title. The model waiver in English appears
as:
Figure: 7 TAC §25.2(c)
(d)
Transactions conducted in Spanish. If you intend to conduct
any prepaid funeral benefits transaction predominately in Spanish, you may
use a current model contract or model waiver in Spanish as provided by subsection
(a) of this section. If the department has approved your non-model document
in English under §25.5 of this title, you may use a Spanish version of
the document after you file a copy of your Spanish document and a certification
from a translation service acceptable to the department that the Spanish version
is a true and correct translation of the submitted English document. If the
English version of your Spanish non-model document has not previously been
approved, you may not use your Spanish non-model document until you comply
with subsection (b) of this section.
(e)
Interpretation of required content and form. The department
considers the model contracts and model waiver to satisfy the substantive
content requirements of §25.3 of this title and qualify under the plain
language principles stated in §25.4 of this title. If you have questions
regarding the intent and meaning of a requirement in this subchapter, locate
and review the related clause in the model contracts or model waiver. You
are not required to include a broader or more comprehensive provision than
is contained in the relevant model document unless additional explanation
or disclosure is necessary to clarify or prevent misleading provisions in
your non-model document.
§25.3.What Requirements Apply to a Non-Model Contract or Waiver?
(a)
Contract requirements. The department must approve a non-model
contract before you can use it. Your proposed non-model contract must:
(1)
contain a disclosure informing the purchaser of the funeral
goods and services that will be provided or excluded under the contract, as
described by subsection (b) of this section;
(2)
define terms used in the contract as described by subsection
(c) of this section;
(3)
state and explain the purchaser's obligations, your obligations,
and the obligations of the funeral home if you are not performing all funeral
services under the contract, and the impact of terms in the insurance policy
on the contract if the contract is insurance-funded, as described by subsection
(d) of this section;
(4)
disclose and explain the purchaser's cancellation rights
under the contract and, if the contract is insurance-funded, the effect of
insurance policy cancellation or assignment on the contract, as described
by subsection (e) of this section;
(5)
state events of default under the contract for all parties
and explain the consequences of default, as described by subsection (f) of
this section;
(6)
state and explain the circumstances under which the responsible
person may modify or change the contract at the death of the contract beneficiary,
as described by subsection (g) of this section;
(7)
disclose and explain all payment terms under the contract
and related provisions as described by subsection (h) of this section;
(8)
contain a section for required signatures and related notices
as described by subsection (i) of this section;
(9)
contain a standard disclosure explaining how a purchaser
can make inquiries or file complaints with specified regulatory agencies,
as described by subsection (j) of this section;
(10)
comply with subsections (k) and (l) of this section;
(11)
comply with §25.4 of this title (relating to What
Are the Plain Language Requirements for a Non-Model Contract or Waiver); and
(12)
be approved by the department as provided by §25.5
of this title (relating to How Do I Obtain Approval of a Non-Model Contract
or Waiver).
(b)
Statement of funeral goods and services selected. The first
section of a proposed prepaid funeral benefits contract must inform the purchaser
of the funeral goods and services that you will provide or exclude under the
contract, as required by Finance Code, §154.151(e). This section must
appear entirely on page one of the contract exactly as set out in the model
contract and in the figure below, including substantially the same formatting
and spacing, except:
Figure: 7 TAC §25.3(b)
(1)
you may move specific goods and services between general
description categories;
(2)
you may move specific goods and services between the category
of goods and services to be provided and the category of goods and services
not included in the contract;
(3)
you may change the description of specific goods or services
if the alteration does not change the intent of the description in the standard
disclosure;
(4)
you may add other, specific funeral goods and services
to the list of included funeral goods and services;
(5)
you may delete the category designated "cash advance items"
under included funeral goods and services if you do not sell cash advance
items as prepaid funeral benefits and you list all cash advance items under
funeral goods and services not normally included, provided that individual
cash advance items may not be added to another category of included goods
and services;
(6)
you may delete check boxes and related text for sealing
features in casket and outer burial container descriptions, for example, "seal",
"non-seal", "protective", and "non-protective", if these features are not
included in the funeral home's price list; and
(7)
if the goods and services you sell are specifically limited
and constitute significantly less than those goods and services normally required
for a funeral, you may substitute a simplified disclosure that the contract
is for your specific goods and services only and that you do not offer any
other funeral goods and services. For example, you may substitute this limited
disclosure if you sell only services relating to opening and closing of the
grave or unique memorials that utilize a token portion of cremains, or if
you only sell limited funeral goods such as outer burial containers or caskets
without furnishing funeral services.
(c)
Definitions. Your proposed prepaid funeral benefits contract
must list, define, and use the terms "contract beneficiary", "responsible
person", "funeral home", "purchaser", and "seller", or terms commonly understood
by consumers to be equivalent, substantially as defined in a model contract.
For example, you may substitute the term "provider" for "funeral home", or
use a combined term such as "seller/provider" or "seller/funeral home" if
you believe the alternate term is more descriptive of your services. If your
proposed contract is insurance-funded, you must also list, define, and use
the terms "insurance company", "insurance policy", and "premiums" in the contract,
or terms commonly understood by consumers to be equivalent, substantially
as defined in the department's insurance-funded model contract. You may list,
define and use additional terms if they are consistent with the requirements
of §25.4 of this title.
(d)
General provisions. Your proposed prepaid funeral benefits
contract must recognize and explain the purchaser's obligations, your obligations,
and the obligations of the funeral home if you are not performing all funeral
services under the contract, and the impact of terms in the insurance policy
on the contract if the contract is insurance-funded, with respect to:
(1)
your obligation (and that of the funeral home) to furnish
the funeral goods and services selected in the contract for a cost not to
exceed the total contract price at the death of the contract beneficiary,
if the purchaser has fully complied with the contract and with each insurance
policy, if the contract is insurance-funded;
(2)
the purchaser's inability to change the selected funeral
goods and services during the life of the contract unless the contract is
voided and replaced with a new contract;
(3)
the extent to and conditions under which the purchaser
may change the funeral home specified in the contract or, with respect to
a trust-funded contract, the contract beneficiary;
(4)
whether the purchaser may incur tax liability for earnings
under a trust-funded contract or for growth under an insurance policy if the
contract is insurance-funded;
(5)
the extent to which you offer any warranties or guarantees
or assert any specific disclaimers of warranty;
(6)
the prohibition on partial cancellation of or loans against
the contract;
(7)
if the transaction may result in available funds in excess
of the contract price at the time the funeral is performed, identification
of who is entitled to such excess funds;
(8)
each party's general contractual duties under the contract
and the extent to which the contract is binding on a person who assumes the
rights or obligations of a party to the contract;
(9)
the manner in which a party must notify other parties of
a change of address; and
(10)
if the contract is insurance-funded, the requirement that
terms of the insurance policy must be consulted for information concerning
the obligations of the insurance company and those of the policy owner.
(e)
Cancellation or assignment. Your proposed prepaid funeral
benefits contract must recognize and explain:
(1)
with respect to a trust-funded contract:
(A)
the requirement for, and 15-day delay that applies to,
a separate, written waiver of cancellation rights if the purchaser chooses
to irrevocably waive the right to cancel the contract;
(B)
the manner in and conditions under which the purchaser
may cancel the contract, including the procedural requirements applicable
to a cancellation, including the purchaser's obligation to request cancellation
in writing on department-approved forms and your obligation to pay a refund
not later than the 30th day after receipt of the purchaser's written cancellation
notice;
(C)
the amount of the refund or other payment that you will
owe the purchaser if the contract is canceled and the conditions or circumstances
that may alter the refund amount; and
(D)
the refund or other benefits you will owe the purchaser
if the contract is canceled at your request; or
(2)
subject to modifications or clarifications required by §25.2(a)(2)
of this title (Relating to Am I Required to Use the Model Contract and Model
Waiver), with respect to an insurance-funded contract:
(A)
the purchaser's right to assign the purchaser's interest
in an insurance policy by signing a separate document;
(B)
the qualification that canceling the contract does not
automatically cancel the insurance policy but canceling the insurance policy
does cancel the contract;
(C)
the requirement for, and 15-day delay that applies to,
a separate, written waiver of cancellation rights if the purchaser chooses
to irrevocably waive the right to cancel the contract, unless the contract
is funded by an insurance policy for which an irrevocable assignment of ownership
rights has been made;
(D)
the procedural requirements applicable to a cancellation
of the contract, including the purchaser's obligation to request cancellation
in writing on department-approved forms and the statutory obligation, if applicable,
to pay a refund not later than the 30th day after receipt of the purchaser's
written cancellation notice;
(E)
the refund the purchaser may expect if insurance coverage
is denied, and the conditions or circumstances that may alter the refund amount;
(F)
the purchaser's obligation to read the insurance policy
to determine the conditions imposed upon cancellation and the potential amount
of refund that would be due if the policy is canceled during or after the
"free look" period;
(G)
the consequences the purchaser may expect, whether refund
of premium, receipt of cash surrender value, or other benefits from you or
another person, if the contract is canceled at your request; and
(H)
the effect that loans against or withdrawal of proceeds
accrued under an insurance policy will have on the contract and on price guaranties
in the contract.
(f)
Default. Your proposed prepaid funeral benefits contract
must explain events and consequences of default under the contract and under
each insurance policy if the contract is insurance-funded, including:
(1)
the potential effect on the contract if the purchaser fails
to make a payment or makes a late payment under the contract or under an insurance
policy if the contract is insurance-funded;
(2)
the effect on the contract and on payments due if the contract
beneficiary dies:
(A)
before the purchaser's payment obligations have been fulfilled
under a trust-funded contract; or
(B)
if the contract is insurance-funded:
(i)
during a period when an insurance policy pays reduced benefits,
if applicable; or
(ii)
before the premium obligations have been fulfilled on
an insurance policy, if applicable; and
(3)
the conditions under which you may owe a full or partial
refund to the purchaser of funds received under a contract, or a full or partial
abandonment of your rights to anticipated proceeds of an insurance policy
if the contract is insurance-funded and proceeds are not yet received, as
a consequence of your inability (or the funeral home's inability, if you are
relying on another to perform portions of the contract) to furnish the selected
funeral goods and services;
(4)
only with respect to a trust-funded contract, whether or
not the purchaser may make a claim to the prepaid funeral guaranty fund governed
by §25.17 of this title (relating to Guaranty Fund), if you are unable
to honor the contract terms.
(g)
Changes to a contract at the death of contract beneficiary.
Your proposed prepaid funeral benefits contract must disclose the circumstances
under which the contract may be modified by the responsible person at the
death of the contract beneficiary, as required by Finance Code, §154.151(e).
The disclosure must appear exactly as set out in the model contract and in
the figure below, without modification, except that the phrase "fully funded"
must be substituted for the phrase "fully paid" wherever it appears in this
disclosure when used in an insurance-funded contract. In addition, you may
use a larger type size if feasible.
Figure: 7 TAC §25.3(g)
(h)
Payment terms. Your proposed prepaid funeral benefits contract
must clearly state and explain payment terms and related provisions, including:
(1)
how and when you will deposit a payment received under
a trust-funded contract, or forward any premiums received to the insurance
company for application to an insurance policy if the contract is insurance-funded;
(2)
with respect to a trust-funded contract, whether and the
extent to which you will retain a portion of the purchaser's payments for
reimbursement of your operating and selling expenses;
(3)
with respect to a trust-funded contract, the finance charges
you will impose, if applicable, provided that the description must also comply
with Finance Code, Chapter 345, and other state and federal law governing
such charges;
(4)
subject to modifications or clarifications required by §25.2(a)(2)
of this title, with respect to an insurance-funded contract:
(A)
the effect on the contract if insurance coverage is denied
and the manner in which written notice of the reason for denial will be sent
to the policy owner;
(B)
if payment terms under the insurance policy are not disclosed
in the contract, a space for the purchaser to initial or sign to acknowledge
that the purchaser has received written information regarding the terms governing
premium payments in another document that the purchaser received at the time
of sale, such as the application for insurance or the insurance policy;
(C)
if the information the purchaser receives regarding payment
terms under an insurance policy is based on an estimate of premiums, notice
that actual premiums could be more or less than estimated after the insurance
company completes its underwriting process;
(D)
notice that insurance premiums paid on the insurance policy
or policies may be more or less than the total contract price; and
(5)
other contract provisions that materially relate to payment
terms under a contract or under an insurance policy.
(i)
Required signatures and notices. Your proposed prepaid
funeral benefits contract must contain a section for required signatures and
related notices that appears in its entirety on the last page of the contract.
This section must include:
(1)
a list of all items that must be received or offered before
the contract can be signed;
(2)
if required by state or federal law, cooling-off period
language that includes spaces to note when and where the contract was signed;
(3)
notice that the purchaser will receive a copy of the contract;
(4)
if the contract is insurance-funded:
(A)
notice that the policy owner will receive a copy of the
insurance policy from the insurance company; or
(B)
if the insurance company is not legally required to deliver
a copy of the insurance policy to the policy owner, notice that the policy
owner may request a copy of the insurance policy from the insurance company;
(5)
spaces for:
(A)
the purchaser's printed name, mailing address, telephone
number, social security number (if required), and signature line;
(B)
if you are not directly providing the funeral goods and
services, the printed name, mailing address, and telephone number of the funeral
home, and spaces for the printed name and signature of the authorized officer
or agent signing on behalf of the funeral home;
(C)
your printed name, mailing address, and telephone number,
and spaces for the printed name and signature of the authorized officer or
agent signing on your behalf; and
(D)
the printed name, mailing address, and date of birth of
the sole individual designated as contract beneficiary; and
(6)
other provisions, party identifications, or certifications
legally required for valid execution of the contract.
(j)
Inquiries and complaints notice. Your proposed prepaid
funeral benefits contract must disclose how a purchaser, potential purchaser
or consumer can make consumer inquiries and complaints to the department as
required by Finance Code, §11.307(a), and §25.41 of this title (relating
to How Do I Provide Information to Consumers on How to File a Consumer Complaint),
and to other specified state regulatory agencies with appropriate jurisdiction.
(1)
This disclosure must appear exactly as set out in the relevant
model contract, including the state seal and the names and contact information
for each regulatory agency, without modification, and will vary in context
depending on whether the proposed contract is trust-funded or insurance-funded.
The model disclosures for both trust-funded and insurance-funded contracts
appear in:
Figure: 7 TAC §25.3(j)
(2)
If the disclosure does not appear at the bottom of the
last page of the contract following the signatures of the parties, it must
be placed at the top or bottom of a preceding page and be separated from other
contract text by at least 1/2 inches of white space. The disclosure may not
be placed on a page by itself.
(k)
Additional requirements. A proposed prepaid funeral benefits
contract must also contain:
(1)
page numbers;
(2)
a document title that discloses the contract is for the
purpose of prearranging a funeral, such as "Prepaid Funeral Benefits Contract";
(3)
a distinguishing form number or name;
(4)
your permit number; and
(5)
a space for the contract number.
(l)
Your proposed non-model contract or waiver form may contain:
(1)
additional contract clauses that are fair to consumers
in light of the purpose of Finance Code, Chapter 154; and
(2)
additional consumer disclosures that you determine:
(A)
will assist the purchaser in understanding the transaction;
or
(B)
are required by other state or federal law for the type
of transaction the contract represents.
§25.4.What Are the Plain Language Requirements for a Non-Model Contract or Waiver?
(a)
Overview. If you elect to not use a model contract or waiver,
you must prepare a non-model prepaid funeral benefits contract or a waiver
of cancellation rights, whether in English or Spanish, in plain language designed
to be easily understood by the average consumer. Your proposed non-model document
must also be printed in an easily readable font and type size. The department
is charged with enforcing these requirements by Finance Code, §154.151(d).
(b)
Plain language principles for English documents. The department
will consider the extent to which you have incorporated plain language principles
into the organization, language, and design of a non-model document that you
submit for approval. At a minimum, your proposed non-model document should
substantially comply with each of the plain language writing principles identified
in this subsection.
(1)
You must present information in clear, concise sections,
paragraphs, and sentences. Whenever possible, you should use the active voice
with strong verbs in short, explanatory sentences and bullet lists. Passive
voice is not banned but should be used sparingly.
(2)
You should use everyday words whenever possible and avoid
the use of legal and highly technical business terminology. In those instances
where no plain language alternative is apparent, you should explain what the
term means when the term is first used. Use of a defined term may improve
readability in such instances.
(3)
You should group related information together whenever
possible to help identify and eliminate repetitious information.
(4)
You should use first-person plural (we, us, our/ours) and
second-person singular (you, your/yours) pronouns.
(5)
You should make complex information more understandable
by using an example scenario or a "question and answer" format.
(c)
Attributes to avoid. The department will consider the extent
to which you avoid the detrimental attributes identified in this subsection.
In preparing your proposed non-model document, you should not:
(1)
include a term in definitions unless the meaning of the
term is unclear from the context and cannot be easily explained in context,
or rely on artificially defined terms as the primary means of explaining information;
(2)
use superfluous words (words that can be replaced with
fewer words that mean the same thing) that detract from understanding;
(3)
rely on legalistic or overly complex presentations;
(4)
copy complex information directly from legal documents,
statutes, or rules without a clear and concise explanation of the material;
(5)
unnecessarily repeat information in different sections
of the non-model document; or
(6)
use multiple negatives.
(d)
Typeface (font). Typefaces come in two varieties: serif
and sans serif. All serif typefaces have small lines at the beginning or ending
strokes of each letter. Sans serif typefaces lack those small connective lines.
(1)
The text of your proposed non-model document must be set
in a serif typeface. Popular serif typefaces include Times, Scala, Caslon,
Century Schoolbook, and Garamond.
(2)
A sans serif typeface may be used for titles, headings,
subheadings, captions, and illustrative or explanatory tables or sidebars
to distinguish between different levels of information or provide emphasis.
Popular sans serif typefaces include Scala Sans, Franklin Gothic, Frutiger,
Helvetica, Ariel, and Univers.
(e)
Type size and line spacing. You must select a type size
for your proposed non-model document that is clearly legible. Minimum type
size and line spacing are specified in this subsection. If other state or
federal law requires a different type size for a specific disclosure or contractual
provision, you should set the specific disclosure or contractual provision
in the type size specified by other law.
(1)
Typeface size is referred to in points (pt). Because different
typefaces in the same point size are not of equal size, type size is not strictly
defined in this subsection but is expressed as a minimum size in the Times
typeface for visual comparative purposes. Use of a larger size typeface is
encouraged. Generally, the type size must be at least as large as 10pt in
the Times typeface, except the type size must be at least as large as 8-1/2pt
in the Times typeface for:
(A)
the statement of funeral goods and services selected, as
described in §25.3(b) of this title (relating to What Requirements Apply
to a Non-Model Contract);
(B)
the required signatures and notices, as described in §25.3(i)
of this title; and
(C)
the consumer inquiries and complaints disclosure, described
in §25.3(j) of this title.
(2)
You must use line spacing that is at least 120% of the
type size. For example, a 10pt type should be set with 12pt leading (two points
of additional leading between the lines).
(3)
The department may approve a smaller type size or denser
line spacing than specified in this subsection in limited circumstances, such
as keeping related disclosures grouped together or satisfying a requirement
to keep specified text on a single page. However, you must offset smaller
type size or denser line spacing by use of other readability enhancements
such as a more readable typeface or greater use of white space through wider
margins or divisions between sections of the document.
(f)
Formatting and design. The department will consider the
extent to which your non-model document uses the plain language formatting
and design concepts described in this subsection.
(1)
You should use left-justified text (text aligned flush
on the left, with a loose, or ragged, right edge) in any paragraph or section
of your document that has text lines exceeding 70 characters in length. If
you seek approval of a document containing any full-justified paragraph or
section with text lines exceeding 70 characters in length (text aligned flush
on both left and right sides), the full-justified portions of your proposed
document should at a minimum use a larger type size than specified in subsection
(e) of this section. You should also add other readability enhancements, such
as a more readable typeface or greater use of white space, including wider
margins and additional leading between lines.
(2)
The minimum recommended page size of a proposed non-model
contract is 8-1/2 inches by 14 inches and 8-1/2 inches by 11 inches for a
proposed non-model waiver. However, the page size should ordinarily not be
larger than 8-1/2 inches by 17 inches.
(3)
You must use descriptive headings and subheadings that
are conceptually similar to or match the headings in the department's model
contract.
(4)
You may use tabular presentations or bullet lists to simplify
disclosure of complex material. You may also use pictures, logos, charts,
graphs, or other design elements so long as the design is not misleading and
the required information is clear.
(g)
Readability statistics. The department will consider the
readability statistics generated by your non-model document in the tests described
in this subsection.
(1)
The department's evaluation of your proposed non-model
document will include results of automated readability tests applied to the
complete document, without omission of titles or other attributes of the document.
These tests are commonly available in word processing software, including
Microsoft Word and Corel WordPerfect. Because mechanical readability formulas
do not evaluate the substantive content of a document, the department will
exercise judgment when considering the readability statistics generated by
these tests. However, absent explanatory circumstances or additional justification
persuasive to the commissioner, your proposed non-model document will ordinarily
not be approved if:
(A)
over 21% of the sentences are passive in structure;
(B)
the average sentence length exceeds 19 words;
(C)
the Flesch reading ease score is less than 47.0; and
(D)
the Flesch-Kincaid grade level score is higher than 11.0.
(2)
As part of your application for department approval, you
must disclose the readability statistics you generated in evaluating the final
draft of your proposed document and explain the circumstances and justifications
for any scores outside the parameters expressed in this subsection.
§25.5.How Do I Obtain Approval of a Non-Model Contract or Waiver?
(a)
Authority. Finance Code, §154.151(a), requires the
department to approve a prepaid funeral benefits contract form before you
use the form. Finance Code, §154.156(a), requires the department to approve
a waiver of cancellation rights form in the same manner. You may use the department's
model contracts or model waiver as provided in §25.2(a) of this title
(relating to Am I Required to Use the Model Contract and Model Waiver). This
section describes:
(1)
how to apply to the department for approval of your proposed
non-model contract, what information, documents, and fees you must file as
part of your application before the department will accept it for filing,
and what fees the department may impose, in subsection (b) of this section;
(2)
what procedures the department will follow to approve or
deny approval of your proposed non-model document and when you may reasonably
expect the department to decide, in subsection (c) of this section;
(3)
what actions you must take to obtain a second review by
the department or a hearing before the commissioner if the department denies
approval of your proposed non-model document, in subsection (d) of this section;
(4)
how you may request a hearing before the commissioner,
how the hearing will be conducted, and what the staff of the department must
prove to uphold the disapproval, in subsection (e) of this section; and
(5)
when you may no longer use an approved contract form, in
subsection (f) of this section.
(b)
Application for approval. Your application for approval
of your proposed non-model document must be in writing and include all additional
information, documents, and fees required by this subsection. You should file
your application as far in advance of the date you intend to use your proposed
document as possible.
(1)
The additional information, documents, and fees that you
must file as part of your application include:
(A)
both a printed copy of your proposed non-model document
and an electronic version of the document, prepared using Microsoft Word or
Corel WordPerfect software;
(B)
except as provided in §25.2(d) of this title, an English
translation if the proposed non-model document is in Spanish and a certification
from a translation service acceptable to the department that the filed English
version is a true and correct translation of the proposed Spanish non-model
document filed for approval;
(C)
if your application is for approval of amendments to a
previously approved non-model document:
(i)
a printed copy of the proposed non-model document that
is specifically marked to show all text proposed to be added and all text
proposed to be deleted; and
(ii)
a written summary of the amendments, both additions and
deletions, explaining their purpose;
(D)
a certification on a form supplied by the department, signed
and acknowledged by you or your authorized agent, that you have reviewed the
proposed non-model document that you filed for approval and to the best of
your knowledge:
(i)
your proposed non-model document complies with all applicable
state and federal law, including Finance Code, Chapter 154, and this chapter;
and
(ii)
if your application is for approval of amendments to a
previously approved non-model document, the proposed non-model document is
identical to the previously approved document except for text specifically
marked as additions and deletions;
(E)
unless you notify the department that it already has a
copy on file:
(i)
a copy of all related contracts and agreements that are
part of your prepaid funeral arrangement, such as a separate finance charge
agreement; and
(ii)
if the proposed non-model document is an insurance-funded
contract, a copy of the insurance policy form you intend to use and written
evidence from the Texas Department of Insurance that the insurance policy
has been approved for use in conjunction with the sale of prepaid funeral
benefits; and
(F)
payment of a $250 filing fee.
(2)
Your application is considered accepted for filing and
eligible for consideration if the application is substantially complete with
all information, documents, and fees required by paragraph (1) of this subsection.
At your request, the department will inform you in writing of the date it
considers your application accepted for filing.
(3)
If the department's review of a non-model document takes
longer than four employee hours, you must pay a review fee of $60 per employee
hour in excess of four hours. If you fail to pay review fees on or before
the 10th day after you receive a written statement of charges due from the
department, the department may exercise its discretion to conclude that you
have withdrawn your application.
(c)
Review process. This subsection describes when you may
reasonably expect the department to approve or deny approval of your proposed
non-model document and the procedure the department will follow in making
its initial decision.
(1)
The time the department's decision is due regarding your
proposed non-model document will vary depending upon the date your application
is accepted for filing under subsection (b)(2) of this section and on the
nature of the document you seek to have approved.
(A)
If your proposed non-model document is a new non-model
contract under Finance Code, §154.151, as effective September 1, 2001,
the department will approve or deny approval on or before:
(i)
the 90th day after the date your application is accepted
for filing if the date of filing is before March 1, 2003; or
(ii)
the 45th day after the date your application is accepted
for filing if the date of filing is on or after March 1, 2003.
(B)
If your proposed non-model document is a non-model waiver
or an amended version of a non-model contract previously approved by the department
under this section, the department will approve or deny approval on or before
the 30th day after the date your application is accepted for filing, except
the department will either approve or deny approval on or before the 10th
day after the date your application is accepted for filing if the proposed
amendments are limited to changed or added information about you or a funeral
home.
(2)
The department may extend the date its decision is due
under this subsection by up to an additional 30 days if it determines that
your application raises issues requiring additional information or additional
time for analysis. The department may request additional information from
you in writing if the information is reasonably necessary for an informed
decision to approve or deny approval of your proposed non-model document.
If you receive a written request for additional information, you must file
the information or a satisfactory written explanation of when the information
can be filed with the department on or before the 30th day after the date
you receive the request. If you fail to reply within this time period the
department may exercise its discretion to conclude that you have withdrawn
your application.
(3)
The department will approve your proposed non-model document
unless a specific basis exists to deny approval. The department will deny
approval if your proposed non-model document fails to comply with the standards
of this subchapter that apply. If the department discovers and confirms that
use of the proposed non-model document will clearly violate a mandatory requirement
of an applicable state or federal law other than Finance Code, Chapter 154,
and this chapter, the department will deny approval. However, the department
will ordinarily not review a proposed non-model document for compliance with
other law, and approval of a non-model document under this section does not
mean the department has determined that the non-model document complies with
any state and federal law other than Finance Code, Chapter 154, and this chapter.
(4)
If the department denies approval of your proposed non-model
document, the department will send you a written notice of denial that:
(A)
states the specific basis for the denial in writing and
cites the specific provisions of law that the document does not satisfy;
(B)
informs you that, on or before the 30th day after the date
you receive the notice of denial, you must exercise your rights under subsection
(d) of this section, to file either a written request for hearing or a revised
non-model document for second review, or the denial will become final.
(d)
Your rights after initial denial. This subsection describes
the further actions you may take to obtain approval of your non-model document
if the department initially denies approval under subsection (c) of this section.
(1)
If the department denies approval of your proposed non-model
document under subsection (c) of this section, you may file a written request
for hearing before the commissioner under subsection (e) of this section or
seek the department's second review by filing a new version of your proposed
non-model document that you have specifically revised to address the reasons
for denial.
(2)
If you elect to file a new version of your proposed non-model
document for second review, the department will consider the revised document
to be part of your original application and will not require a new filing
fee but may charge additional review fees under subsection (b)(3) of this
section. The department will approve or deny approval of your revised non-model
document on or before the 10th day following the date of its filing.
(3)
If the department denies approval of your revised non-model
document, the department will send you a second written notice of denial that:
(A)
states the specific basis for the denial in writing and
cites the specific provisions of law that the revised non-model document does
not satisfy;
(B)
if minor changes to the proposed document would result
in approval and you have not previously been given the opportunity to make
these changes, informs you of the opportunity to obtain approval by submitting
your document with the specified changes on or before the 10th day after the
date you receive the department's second written notice of denial; and
(C)
informs you that you must file a written request for hearing
with the department under subsection (e) of this section on or before the
30th day after the date you receive the department's second written notice
of denial or the denial will become final.
(e)
Commissioner hearing. This subsection describes how you
may obtain a hearing before the commissioner and how the hearing will be conducted.
(1)
To obtain a hearing before the commissioner, you must file
a written request for hearing with the department on or before the 30th day
after the date you receive the department's written notice of denial. Your
written request for hearing must state with specificity the reasons you allege
the department's denial of approval is in error.
(2)
The department will forward your request for hearing to
the administrative law judge, who shall enter appropriate orders and conduct
the hearing on or before the 60th day after the date your request for hearing
was received, under Chapter 9 of this title (relating to Rules of Procedure
for Contested Case Hearings, Appeals, and Rulemaking) and Government Code,
Chapter 2001. Your complete application, the department's notice or notices
of denial, and your request for hearing will be made a part of the record.
(3)
At the hearing, the staff of the department bears the burden
of proof that approval of your proposed non-model document should be denied.
(4)
The proposal for decision, exceptions and replies to the
proposal for decision, the order of the commissioner, and motions for rehearing
are governed by Chapter 9 of this title and Government Code, Chapter 2001.
(f)
Withdrawn approval. This subsection describes circumstances
under which you may not use a previously approved document.
(1)
The department may withdraw its approval of a model or
previously approved non-model document for future use if governing law is
changed or clarified by statute, rule, or judicial opinion. The department
will notify you in writing if you are affected by a withdrawn approval.
(2)
You may not use a prepaid funeral benefits contract form
that was approved by the department before January 31, 2002 (an obsolete contract),
except that you may continue using an obsolete contract if the model addendum
developed by the department is included as part of the contracting transaction
until the later of:
(A)
June 1, 2002;
(B)
October 1, 2002, if you filed a proposed non-model contract
with the department for approval before June 1, 2002; or
(C)
a later date if, before October 1, 2002, you request an
extension of time to permit completion of a pending approval proceeding under
this section and the commissioner approves your request in writing.
(3)
Notwithstanding the provisions of paragraph (2) of this
subsection, you may not continue using an obsolete contract after the 30th
day following the date the department approves your non-model contract.
§25.6.How and When are Contract Copies Distributed Between the Parties?
(a)
At the conclusion of a discussion about funeral arrangements,
if someone purchases prepaid funeral goods or services, whether trust-funded
or insurance-funded, you must give the purchaser a copy of the contract and
all related agreements.
(b)
On or before the 30th day after the contract is executed
by all parties, you must give a copy of the fully-executed contract to the
purchaser, to any third-party provider or administrator that has responsibility
for any portion of the contract, and, with respect to an insurance-funded
contract, to the insurance company issuing the insurance policy, if the insurance
company is a party to the contract.
(c)
If a purchaser signs a written waiver of cancellation rights,
you must give the purchaser a copy of the executed waiver at the time of execution.
This agency hereby certifies that the adoption has been reviewed
by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of
the Secretary of State on February 22, 2002.
TRD-200201112
Everette D. Jobe
Certifying Official
Texas Department of Banking
Effective date: March 14, 2002
Proposal publication date: November 2, 2001
For further information, please call: (512) 475-1300
7 TAC §29.21
The Finance Commission of Texas (the commission) adopts new §29.21,
concerning the filing of consumer complaints with the Texas Department of
Banking (department). New §29.21 is being adopted with nonsubstantive
changes to the proposal as published in the November 2, 2001,
Texas Register
(26 TexReg 8640). The text of new §29.21 will be
republished.
Section 29.21 implements the requirements of Finance Code, §11.307,
pertaining to the filing of consumer complaints with the department.
New §29.21 specifies the manner in which sale of checks licensees
provide consumers with information on how to file complaints with the department.
The new section also requires that the information on how to file complaints
be included with each privacy notice a sale of checks licensee is required
by law to provide to consumers.
The commission received one comment on the proposed section on behalf of
the Non-Bank Funds Transmitters Group, composed of Thomas Cook, Inc., Travelers
Express Company, Inc./Moneygram Payment Systems, Inc., Western Union Financial
Services, Inc., American Express Travel Related Services Company, Inc., Citicorp
Services, Inc., Comdata Network Inc., and RIA Financial Services, all licensees
under Chapter 152 of the Finance Code, the Sale of Checks Act.
The commenter noted that while the proposed rule in subsection (b)(5)(A)
appears to require sale of checks licensees to post the required notice in
every area where the licensee conducts business on a face-to-face basis, such
business is normally conducted by the agent of a licensee rather than the
licensee itself. The commenter also noted that if the proposed rule was read
by implication to require the licensee to post the notice where the agent
conducts business the proposed rule would be unworkable because licensees
do not post material at agent's locations and there is no practical way for
a licensee to insure that agents post the required notice.
The commenter included a proposed revision to the requirement to subsection
(b)(5)(A) which the commission has generally incorporated into the rule as
adopted. This revision clarifies that the required notice must be posted in
an area where the licensee or its agent conducts business with consumers on
a face-to-face basis, that the licensee is responsible for providing the notice
to its agents, and that the licensee is in compliance with this section if
it provides the required notice to its agents and requires posting of the
notice in its contract with the agent. A licensee that fails to hold an agent
accountable for actions or conduct on behalf of the licensee under this section
may be subject to enforcement sanctions under Finance Code, Chapter 152, Subchapter
F.
The commenter also discussed the potential application of Finance Code, §152.401(b)
which prohibits the commission from promulgating rules which "directly apply"
to a sale of checks license holders's agent. The commission does not consider
the adopted rule to directly apply to agents, but rather the requirements
of the rule are firmly placed on the sale of checks license holders.
The commenter also suggested the proposed rule be clarified to reflect
that the requirement to include consumer complaint notices with privacy notices
applies only to Texas consumers. The commission concurs and has revised subsection
(b)(3) accordingly.
Finally, the commission also made a number of clarifying revisions based
on internal issues. The commission revised the language of the required notice
for providing information to consumers on how to file complaints with the
department. The commission added an alternative to compliance with the posting
requirement of subsection (b)(5)(A). Instead of posting the required notice,
the required notice may be included on the sale of checks instruments or receipts.
The commission also provided that the notice required to be included with
each privacy notice under subsection (b)(3), and required to be accessible
on a website offering sale of checks services under subsection (b)(5)(B),
be in substantially the same language and form as the required notice set
out in subsection (b)(1).
Section 29.21 is adopted under the authority of Finance Code, §11.307,
which requires the commission to adopt rules specifying the manner in which
sale of checks licensees provide consumers with information on how to file
complaints with the department. The commission concluded that the changes
made to the proposal are nonsubstantive because no person's rights are adversely
affected by the changes in the adopted rule as compared to the proposal.
§29.21.How Do I Provide Information to Consumers on How to File a Complaint?
(a)
Definitions
(1)
"Consumer" means an individual who obtains or has obtained
a product or service from you that is to be used primarily for personal, family,
or household purposes.
(2)
"Privacy notice" means any notice which you give regarding
a consumer's right to privacy as required by a specific state or federal law.
(3)
"Required notice" means a notice in a form set forth or
provided for in subsection (b)(1) of this section.
(4)
"You" means a sale of checks licensee that is licensed
by the Texas Department of Banking under the Finance Code.
(b)
How do I provide notice of how to file complaints?
(1)
You must use the following notice in order to let your
consumers know how to file complaints: Complaints concerning sale of checks
activities should be directed to: Texas Department of Banking 2601 North Lamar
Boulevard, Austin, Texas 78705 1-877/276-5554 (toll free) www.banking.state.tx.us
(2)
You must provide the required notice in the language in
which a transaction is conducted.
(3)
You must include the required notice with each privacy
notice that you send to consumers in this state. The language and form of
the notice must substantially conform to the required notice set out in paragraph
(1) of this subsection.
(4)
Regardless of whether you are required by any state or
federal law to give privacy notices, you must take appropriate steps to let
your consumers know how to file complaints by giving them the required notice
in compliance with paragraph (1) of this subsection.
(5)
You must use the following measures to give the required
notice:
(A)
In each area where you or your agent conduct business on
a face-to-face basis under Chapter 152 of the Finance Code, the required notice
must be conspicuously posted. If such business is conducted by an agent, the
licensee must provide to the agent a notice which complies with this section
for posting at each such area. A license holder is considered in compliance
with this section if it provides to each of its agents in this state the required
notice and requires posting of the notice in its contract with the agent.
A licensee that fails to hold an agent accountable for actions or conduct
on behalf of the licensee under this section may be subject to enforcement
sanctions under Finance Code, Chapter 152, Subchapter F. A notice is conspicuously
posted if a consumer with 20/20 vision can read it from the place where he
or she would typically conduct business or if it is included on a bulletin
board, in plain view, on which all required notices to the general public
(such as equal housing posters, licenses, Community Reinvestment Act notices,
etc.) are posted.
(B)
As an alternative to subparagraph (A) of this paragraph
you may include the required notice on all sale of checks instruments or receipts.
(C)
This section applies equally to business conducted electronically.
For example, those portions of your or your agents website that offer to consumers
sale of checks services must contain access to the required notice. A license
holder is considered in compliance with this section if it provides to each
of its agents in this state the required notice and requires posting of the
notice on an agent's website in its contract with the agent. The language
and form of the notice must substantially conform to the required notice set
out in paragraph (1) of this subsection.
This agency hereby certifies that the adoption
has been reviewed by legal counsel and found to be a valid exercise of the
agency's legal authority.
Filed with the Office of
the Secretary of State on February 22, 2002.
TRD-200201117
Everette D. Jobe
Certifying Official
Texas Department of Banking
Effective date: March 14, 2002
Proposal publication date: November 2, 2001
For further information, please call: (512) 475-1300
Chapter 85.
RULES OF OPERATION FOR PAWNSHOPS
Subchapter B. PAWNSHOP LICENSE
Subchapter S. MOTOR VEHICLE SALES FINANCE LICENSES
Chapter 4.
CURRENCY EXCHANGE
Part 2.
TEXAS DEPARTMENT OF BANKING
Chapter 29.
SALE OF CHECKS ACT
Part 5.
OFFICE OF CONSUMER CREDIT COMMISSIONER