Part 1.
FINANCE COMMISSION OF TEXAS
Chapter 1.
CONSUMER CREDIT REGULATION
Subchapter E. INTEREST CHARGES ON LOANS
7 TAC §1.501
The Finance Commission of Texas (commission) adopts an amendment
to §1.501, concerning maximum interest charges on loans. The amendment
is adopted without changes to the proposal as published in the April 30, 2004,
issue of the
Texas Register
(29 TexReg 4043).
The purpose of the amendment is to implement technical corrections to §1.501.
The correction in §1.501(c)(2)(C) changes the word "Subchaper" to "Subchapter."
The commission received no written comments on the proposal.
The amendment is adopted under Texas Finance Code §11.304,
which authorizes the commission to adopt rules to enforce Title 4 of the Texas
Finance Code. Additionally, Texas Finance Code §342.551 authorizes the
commission to adopt rules for the enforcement of the consumer loan chapter.
The statutory provision (as currently in effect) affected by the adopted
amendment is Texas Finance Code §341.403.
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 June 18, 2004.
TRD-200404025
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: July 8, 2004
Proposal publication date: April 30, 2004
For further information, please call: (512) 936-7640
7 TAC §1.605
The Finance Commission of Texas (commission) adopts an amendment
to §1.605, concerning payday loans. The amendment is adopted without
changes to the proposal as published in the April 30, 2004, issue of the
The purpose of the amendment is to implement technical corrections to §1.605.
The correction in §1.605(f)(1) changes the word "relatin" to "relating."
The commission received no written comments on the proposal.
The amendment is adopted under Texas Finance Code §11.304,
which authorizes the commission to adopt rules to enforce Title 4 of the Texas
Finance Code. Additionally, Texas Finance Code §342.551 authorizes the
commission to adopt rules for the enforcement of the consumer loan chapter.
The statutory provision (as currently in effect) affected by the adopted
amendment is Texas Finance Code §341.403.
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 June 18, 2004.
TRD-200404026
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: July 8, 2004
Proposal publication date: April 30, 2004
For further information, please call: (512) 936-7640
7 TAC §1.801
The Finance Commission of Texas (commission) adopts an amendment
to §1.801, providing definitions pertaining to gap waiver agreement allowed
by Senate Bill (SB) 1429. SB 1429 was adopted during the 78th Legislature
and authorized the sale of gap waiver agreements in connection with a Chapter
342 loan that contains an interest charge computed under §342.201(a)
or (d). The amendment is adopted with changes to the proposal as published
in the April 30, 2004, issue of the
Texas Register
(29 TexReg 4044).
Section 1.801(7) and (8) define terms used in 7 TAC §1.814. This amendment
defines a gap waiver agreement and specifies the elements that may be contained
in a gap waiver agreement. The amendment also identifies charges by the lender
that are excluded from the calculation of net unpaid balance. These exclusions
are necessary because the amount of the gap waiver fee is based upon the amount
financed and the assumption that all the payments will be made as scheduled.
Additionally, the exclusions let parties know what charges are covered by
the fee and the charges for which each party is responsible. The new definitions
also address the conditions that may result in a constructive total loss.
This definition is necessary to acknowledge and provide for situations where
the cost to repair a vehicle may exceed the coverage under the gap waiver
agreement, but the vehicle may not otherwise be rendered a total loss.
The commission received one written comments on the proposal from Larry
Diehl of Consumer Credit Insurance Association.
The commenter suggested a modification to the proposed rule to add a phrase
that acknowledges a gap waiver may reduce, but not eliminate, the unpaid balance.
The agency reviewed the comment and agrees with the commenter. The agency
has modified the rule accordingly.
Senate Bill 1429 amended Chapter 342 of the Finance Code to allow
for a gap waiver agreement. This amendment implements the gap waiver agreement.
This amendment is also adopted under §11.308 of the Texas Finance Code.
The statutory provision (as currently in effect) affected by the proposed
amendment is Texas Finance Code §342.4021.
§1.801.Definitions.
Words and terms used in this subchapter that are defined in Texas Finance
Code, Chapter 342, have the meanings as defined in Chapter 342. The following
words and terms, shall have the following meanings unless the context clearly
indicates otherwise.
(1)
Personal property insurance--coverage to insure tangible
personal property offered as security for a loan made under Chapter 342.
(2)
Property insurance--coverage to insure either an interest
in real estate or tangible personal property offered as security for a loan
made under Chapter 342.
(3)
Single-interest insurance--a form of property insurance
that protects only the lender's interest in the property.
(4)
Credit insurance--includes credit life insurance, credit
accident and health insurance, and involuntary unemployment insurance.
(5)
Total personal property loss--the loss of all items of
personal property listed as security for a loan and insured by a particular
insurance policy.
(6)
Partial personal property loss--any loss other than a total
personal property loss.
(7)
Gap Waiver Agreement--an agreement that eliminates or reduces
the deficiency when the proceeds from the borrower's insurance policy do not
cover the unpaid net balance after the vehicle has suffered a total loss or
constructive total loss. The unpaid net balance on the loan does not include:
(A)
Delinquent payments (any outstanding payment that is more
than 10 days past due);
(B)
Late charges;
(C)
Unearned interest;
(D)
Unearned insurance premiums;
(E)
Fees added after the date of the loan;
(F)
Any portion of the borrower's basic comprehensive and collision
policy deductible that exceeds $1,000.
(8)
Constructive Total Loss--a loss where the cost to repair
or replace the motor vehicle covered under the gap waiver agreement would
exceed an amount equal to the actual cash value of the motor vehicle minus
any salvage value. The actual cash value will be determined as of the date
of loss. The actual cash value will be based on the "retail value" in the
National Automobile Dealer's Association (NADA) or its equivalent, official
used car guide. The licensee will consider the mileage, condition, and optional
equipment of the motor vehicle when using the NADA, or its equivalent, official
used car guide.
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 June 18, 2004.
TRD-200404027
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: July 8, 2004
Proposal publication date: April 30, 2004
For further information, please call: (512) 936-7640
7 TAC §1.814
The Finance Commission of Texas (commission) adopts new 7
TAC §1.814, relating to procedures for gap waiver agreements as authorized
by Senate Bill (SB) 1429. SB 1429 was adopted during the 78th Legislature
and allowed the sale of gap waiver agreements in connection with a Chapter
342 loan that contains an interest charge computed under §342.201(d).
The rule is adopted with changes to the proposal as published in the April
30, 2004, issue of the
Texas Register
(29
TexReg 4045).
In 2003, the 78th Texas Legislature amended Chapter 342 of the Texas Finance
Code (Senate Bill 1429) to permit the assessment, imposition, and collection
of "debt cancellation agreement" fees, "debt suspension" fees, and "gap waiver
agreement" fees on regulated loans, given certain limitations and restrictions.
The intent of this legislation was to conform Texas usury statutes to current
practices of national banks rectifying the perceived disparity between state
and national banks by removing the state law prohibition on engaging in debt
cancellation, debt suspension, and gap waiver agreements. Specifically, the
Texas Legislature added §342.4021 to the Texas Finance Code.
On June 20, 2003, Governor Perry signed the bill into law and included
the following Signature Message on Senate Bill 1429: "...By way of this message,
I am directing the Department of Banking, Savings and Loan Department, Office
of Consumer Credit Commissioner and the Credit Union Department to be diligent
and aggressive in assuring that consumer protections are in place and that
all Texas lenders conduct themselves properly in our quest for a truly competitive
market."
One of the principal consumer protections in the law was that the amount
charged for the "gap waiver" fee must be reasonable; the rule establishes
the maximum reasonable fee accompanied by certain limitations that may be
addressed within a gap waiver agreement.
Section 1.814(a) explains the disclosure requirements of a gap waiver agreement.
Section 1.814(b) clarifies the provisions that are permissible in a gap
waiver agreement.
Section 1.814(c) discusses the content and timing requirements providing
a certificate of coverage to the borrower.
Section 1.814(d) explains the allowable fees that can be charged for a
gap waiver as well as the financing of that fee.
Section 1.814(e) discusses the refund of unearned gap waiver agreement
fee. It explains the refunding and calculation methods and provides that a
borrower may not receive a complete refund for the gap waiver fee if the gap
agreement is cancelled within 60 days from the date of the loan and a settlement
has occurred within that timeframe.
Section 1.814(f) explains that a licensee has 60 days to comply with the
payment terms of a gap waiver agreement after a complete claim form has been
received by the lender.
Section 1.814(g) delineates the allowable methods of calculating the settlement
amount.
Section 1.814(h) discusses the proper calculations of insurance and interest
refunds on prepaid gap waiver agreement settlements after a total loss or
total constructive loss.
Section 1.814(i) delineates the practices that are prohibited by licensees
providing gap waiver agreements.
The commission received one written comments on the proposal from Larry
Diehl of Consumer Credit Insurance Association.
The commenter recommended that §1.814(a)(1) should state that disclosures
must be given when presenting the terms or before the borrower purchases the
agreement. The commenter believes this change would cover a contemporaneous
offer and disclosure. The commission disagrees with this comment in that the
commission believes it is in direct conflict with §342.4021(d). The statutory
provision requires delivery of the disclosure before the offer. The commission
declines to modify subsection (a)(1).
Next the commenter recommends a modification to subsection (b)(3)(B) that
would remove the necessity of a felony conviction in order to exclude a fraudulent
or illegal act from coverage on a gap waiver agreement. The commission considered
this suggestion by reviewing typical GAP insurance policy provisions. The
commission found that the felony conviction requirement is a standard provision.
The commission believes that it should act consistently with the approved
policy forms covering similar risks. The commission declines to modify subsection
(b)(3)(B).
In §1.814(c) the commenter recommends that the requirement to include
the borrower's telephone number on the certificate of coverage be revised.
The commenter points out that requiring this information is unnecessary and
could create additional costs for programming. The commission agrees with
the comment and modifies the rule to remove the requirement for the borrower's
telephone number, but also modifies the rule to require the contact information
for the claims administrator rather than the lender on the certificate of
coverage.
The commenter further expresses concern relating to the fundamental methodology
or standards used to establish maximum rates in subsection (d). The commenter
questions if the commission could find a commonality between the published
rates and the rates issued by the Texas Department of Insurance (TDI). Agency
staff consulted TDI in the development of the rule. One of the primary concerns
associated with the passage of SB 1429 was the need and desire for coordination
and cooperation among the financial regulatory agencies, including the Texas
Department of Insurance and the Office of Consumer Credit Commissioner. In
developing the rule, the commission carefully considered the methodology and
standards used by TDI in regulating similar products and patterned the gap
waiver structure and compensation of the rule consistently with the conditions
and provisions of these similar products. The commission believes the rule
is appropriately drafted and declines to modify subsection (d). Agency staff
will continue to monitor the rate structures for similar products regulated
by TDI.
Senate Bill 1429 amended Chapter 342 of the Finance Code to allow
for a gap waiver agreement. This rule implements the gap waiver agreement.
This rule is also adopted under Texas Finance Code, §11.308.
The statutory provision (as currently in effect) affected by the adopted
new rule is Texas Finance Code, §342.4021.
§1.814.Gap Waiver Agreement.
(a)
Disclosure Required by §342.4021(d).
(1)
A lender must provide the borrower with the gap waiver
agreement disclosure before presenting the borrower with the terms of the
gap waiver agreement. The disclosure must not be in the loan agreement and
must state that the borrower is not required to purchase the gap waiver agreement
in order to obtain the loan. A lender may request that the borrower authenticate
the gap waiver agreement disclosure acknowledging applicant's timely receipt
of the disclosure. A licensee may rely upon verifiable procedure to show that
the gap waiver agreement disclosure was provided to an applicant.
(2)
Multiple Applicants. In the case of multiple applicants,
it is only necessary for the licensee to deliver the gap waiver agreement
disclosure to one applicant.
(b)
Authorized Gap Waiver Agreement Provisions. The gap waiver
agreement may include a provision that:
(1)
limits the calculation of the unpaid net balance;
(2)
limits the scope of the gap waiver agreement to loans which
require the borrower to make a balloon payment between 24 and 48 months or
to loans which are repayable in 48 months or more;
(3)
excludes loss or damage as a result of:
(A)
An act occurring prior to the date of the loan;
(B)
Any dishonest, fraudulent, criminal, or illegal act resulting
in a felony conviction of the borrower;
(C)
A mechanical or electrical breakdown or failure of the
motor vehicle;
(D)
Conversion, embezzlement, or secretion by any person in
lawful possession of the motor vehicle;
(E)
Confiscation; and
(F)
The operation, use, or maintenance of the motor vehicle
in any race, speed contest, or other contest.
(4)
requires the borrower to notify the licensee of any potential
loss under the gap waiver agreement; or
(5)
requests the borrower to provide or complete the following
documents:
(A)
A gap waiver agreement claim form;
(B)
Proof of loss and settlement check from the borrower's
basic comprehensive, collision, or uninsured/underinsured motorist policy
or other parties' liability insurance policy for the settlement of the insured
total loss of the motor vehicle;
(C)
Verification of the borrower's primary insurance deductible;
and
(D)
A copy of the police report, if any, filed in connection
with the total loss to the motor vehicle.
(c)
Certificate of Coverage. If a borrower purchases a gap
waiver agreement, the licensee must provide the borrower, within a reasonable
amount of time not to exceed 10 days from the date of the loan, a certificate
or similar form that clearly sets forth:
(1)
the name of the borrower and the name, address, and telephone
number of the place where claims are administered;
(2)
the coverage amount and term of the gap waiver agreement;
(3)
the cost of the gap waiver agreement; and
(4)
the terms, including the limitations, exclusions and restrictions.
(d)
Premium or Rate for Gap Waiver Agreement. A licensee may
charge a reasonable gap waiver agreement fee that does not exceed the rates
contained in the chart in Exhibit 1. The amount of the fee is based upon the
amount financed. The fee for the gap waiver agreement can be adjusted to the
nearest whole dollar. The fee may be included in the amount financed and a
finance charge may be charged on the fee.
(e)
Refund of Unearned Gap Waiver Agreement Fee.
(1)
Refunding Method. Upon termination of a gap waiver agreement
prior to the scheduled maturity date of a loan, the licensee shall provide
the borrower a refund or credit calculated using the pro rata method. The
refund must be given upon prepayment of the loan or if the lender demands
payment in full of the unpaid balance. The pro rata method of making refunds
involves computing a factor to apply to the total premium to determine the
unearned portion. The factor is determined by dividing the term remaining
on the loan by the total loan term.
(2)
The refund credit for the gap waiver agreement can be rounded
to the nearest whole dollar.
(3)
A refund credit is not required if the amount of the refund
credit is less than $1.
(4)
If the borrower cancels the gap waiver agreement within
sixty days from the date of the loan, the licensee will refund the entire
gap waiver agreement fee. A borrower may not cancel the gap waiver agreement
and then receive any benefits under the agreement.
(f)
Prompt Payment of Claims. A licensee must comply with the
payment terms of the gap waiver agreement within 60 days of receiving a completed
gap waiver agreement claim form. If the licensee has all of the information
that a borrower would provide in the completion of a gap waiver agreement
claim form, the licensee must comply with the payment terms of the gap waiver
agreement within 60 days of receipt of all of the information.
(g)
Calculation of Settlement Amount. The calculation of the
settlement amount will be calculated under one of the following methods:
(1)
If the loan uses the scheduled installment earnings method,
the licensee will calculate the settlement amount by adding the remaining
original scheduled installments together and then subtracting any refunds
due as of the date of total loss or constructive total loss.
(2)
If the loan uses the true daily earnings method, the licensee
will calculate the settlement amount by determining the scheduled principal
balance due of the date of total loss or constructive total loss.
(h)
Prepayment of Loan by Gap Waiver Agreement. If the gap
waiver agreement is triggered by the total loss or the constructive total
loss of the vehicle all refunds should be calculated as of the date of loss.
(1)
Insurance Refunds. Examples of refunds include credit life,
credit accident and health insurance premium, credit involuntary unemployment
insurance premium, single-interest insurance premium, and personal property
insurance premium.
(2)
Interest Refund. If the loan uses the scheduled installment
earnings method, the interest refund should be calculated as of the date of
loss. If the loan uses the true daily earnings method, the licensee should
not earn any interest after the date of loss.
(i)
Prohibited Practices. A licensee cannot offer a gap waiver
agreement if:
(1)
the loan is unsecured, secured by personal property other
than a motor vehicle, or real property;
(2)
the interest charge on the loan is calculated under §342.201(a)
and (e) of the Texas Finance Code;
(3)
the loan is already protected by gap insurance;
(4)
the licensee has not provided the disclosure required by §342.4021(d)
of the Texas Finance Code;
(5)
the purchase of the gap waiver agreement is required for
the borrower to obtain the extension of credit;
(6)
the original term of the loan is less than 48 months, unless
the loan contracts for a balloon payment; and
(7)
the agreement includes any exclusions or limitations other
than those listed in 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 June 18, 2004.
TRD-200404028
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: July 8, 2004
Proposal publication date: April 30, 2004
For further information, please call: (512) 936-7640
7 TAC §§1.1206, 1.1207, 1.1216, 1.1217, 1.1226, 1.1227, 1.1236, 1.1237, 1.1246, 1.1247
The Finance Commission of Texas (commission) adopts amendments
to Chapter 1, Subchapter Q, §§1.1206, 1.1207, 1.1216, 1.1217, 1.1226,
1.1227, 1.1236, 1.1237, 1.1246, and 1.1247, concerning model clauses and permissible
changes. The amendments are adopted without changes to the proposal as published
in the April 30, 2004, issue of the
Texas Register
(29 TexReg 4047).
The purpose of the amendments is to make technical changes to increase
the maximum permissible dishonored check fee from $25 to $30 as enacted by
the 78th Legislature, Regular Session. Also, the amendments are to implement
a technical correction to change the zip code from "78750" to "78705" in §1.1217(a)(7)
and (8).
The commission received no written comments on the proposal.
The amendments are adopted under Texas Finance Code §11.304,
which authorizes the commission to adopt rules to enforce Title 4 of the Texas
Finance Code. Additionally, Texas Finance Code §342.551 authorizes the
commission to adopt rules for the enforcement of the consumer loan chapter.
The statutory provision (as currently in effect) affected by the adopted
amendments is Texas Finance Code §341.403.
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 June 18, 2004.
TRD-200404029
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: July 8, 2004
Proposal publication date: April 30, 2004
For further information, please call: (512) 936-7640
Chapter 91.
CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS
Subchapter J. CHANGES IN CORPORATE STATUS
Subchapter F. ALTERNATE CHARGES FOR CONSUMER LOANS
Subchapter I. INSURANCE
Subchapter Q. CHAPTER 342, PLAIN LANGUAGE CONTRACT PROVISIONS
Part 6.
CREDIT UNION DEPARTMENT