Part 1. FINANCE COMMISSION OF TEXAS

Chapter 1. CONSUMER CREDIT REGULATION

Subchapter E. INTEREST CHARGES ON LOANS

7 TAC §§1.501 - 1.505

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Finance Commission of Texas or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (the commission) proposes the repeal of 7 TAC, Part 1, Chapter 1, Subchapter E, §§1.501 - 1.505, concerning Charges on Loans. The commission has determined as part of a rule review that this subchapter more effectively belongs in Part 5, in a new chapter (Chapter 83, concerning Consumer Loans). Therefore, these rules are being proposed for repeal and new rules are proposed elsewhere in this issue of the Texas Register .

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

Commissioner Pettijohn also has determined that for each year of the first five years the repeal as proposed will be in effect, the public benefit anticipated as a result of the repeal will be more logically organized and readily available rules for lenders and consumers. There is no anticipated cost to persons who are required to comply with the repeal as proposed. There will be no adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the repeal as proposed.

Comments on the proposed repeal may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed repeal is published in the Texas Register . At the conclusion of the 31st day after the proposed repeal is published in the Texas Register , no further written comments will be considered or accepted by the commission.

The repeal is proposed 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 provisions (as currently in effect) affected by the proposed repeal are contained in Texas Finance Code, Chapter 342.

§1.501.Maximum Interest Charge.

§1.502.Treatment of Periods Less Than a Full Month before the First Installment Date.

§1.503.Administrative Loan Fee.

§1.504.Default Charges.

§1.505.Deferment.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604229

Leslie L. Pettijohn

Commissioner

Finance Commission of Texas

Earliest possible date of adoption: September 24, 2006

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

7 TAC §§1.601, 1.603 - 1.606

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Finance Commission of Texas or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (the commission) proposes the repeal of 7 TAC, Part 1, Chapter 1, Subchapter F, §§1.601 and 1.603 - 1.606, concerning Alternate Charges for Consumer Loans. The commission has determined as part of a rule review that this subchapter more effectively belongs in Part 5, in a new chapter (Chapter 83, concerning Consumer Loans). Therefore, these rules are being proposed for repeal and new rules are proposed elsewhere in this issue of the Texas Register .

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

Commissioner Pettijohn also has determined that for each year of the first five years the repeal as proposed will be in effect, the public benefit anticipated as a result of the repeal will be more logically organized and readily available rules for lenders and consumers. There is no anticipated cost to persons who are required to comply with the repeal as proposed. There will be no adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the repeal as proposed.

Comments on the proposed repeal may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed repeal is published in the Texas Register . At the conclusion of the 31st day after the proposed repeal is published in the Texas Register , no further written comments will be considered or accepted by the commission.

The repeal is proposed 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 provisions (as currently in effect) affected by the proposed repeal are contained in Texas Finance Code, Chapter 342.

§1.601.Authorized Charges.

§1.603.Default Charges.

§1.604.Deferment Charges.

§1.605.Payday Loans; Deferred Presentment Transactions.

§1.606.Limitation on Acquisition Charge.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604230

Leslie L. Pettijohn

Commissioner

Finance Commission of Texas

Earliest possible date of adoption: September 24, 2006

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

7 TAC §§1.701 - 1.708

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Finance Commission of Texas or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (the commission) proposes the repeal of 7 TAC, Part 1, Chapter 1, Subchapter G, §§1.701 - 1.708, concerning Interest and Other Charges on Secondary Mortgage Loans. The commission has determined as part of a rule review that this subchapter more effectively belongs in Part 5, in a new chapter (Chapter 83, concerning Consumer Loans). Therefore, these rules are being proposed for repeal and new rules are proposed elsewhere in this issue of the Texas Register .

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

Commissioner Pettijohn also has determined that for each year of the first five years the repeal as proposed will be in effect, the public benefit anticipated as a result of the repeal will be more logically organized and readily available rules for lenders and consumers. There is no anticipated cost to persons who are required to comply with the repeal as proposed. There will be no adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the repeal as proposed.

Comments on the proposed repeal may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed repeal is published in the Texas Register . At the conclusion of the 31st day after the proposed repeal is published in the Texas Register , no further written comments will be considered or accepted by the commission.

The repeal is proposed 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 provisions (as currently in effect) affected by the proposed repeal are contained in Texas Finance Code, Chapter 342.

§1.701.Maximum Interest Charge.

§1.702.Treatment of Periods Less Than a Full Month.

§1.703.Default Charges.

§1.704.Deferment.

§1.705.Amounts Authorized To Be Charged after Consummation.

§1.706.Amounts Authorized to be Collected on or before Closing.

§1.707.Other Fees.

§1.708.Balloon Payments.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604231

Leslie L. Pettijohn

Commissioner

Finance Commission of Texas

Earliest possible date of adoption: September 24, 2006

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

7 TAC §§1.751, 1.752, 1.754, 1.755, 1.758 - 1.761

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Finance Commission of Texas or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (the commission) proposes the repeal of 7 TAC, Part 1, Chapter 1, Subchapter H, §§1.751, 1.752, 1.754, 1.755, and 1.758 - 1.761, concerning Refunds in Precomputed Loans. The commission has determined as part of a rule review that these subchapters more effectively belong in Part 5, in a new chapter (Chapter 83, concerning Consumer Loans). Therefore, these rules are being proposed for repeal and new rules are proposed elsewhere in this issue of the Texas Register .

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

Commissioner Pettijohn also has determined that for each year of the first five years the repeal as proposed will be in effect, the public benefit anticipated as a result of the repeal will be more logically organized and readily available rules for lenders and consumers. There is no anticipated cost to persons who are required to comply with the repeal as proposed. There will be no adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the repeal as proposed.

Comments on the proposed repeal may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed repeal is published in the Texas Register . At the conclusion of the 31st day after the proposed repeal is published in the Texas Register , no further written comments will be considered or accepted by the commission.

The repeal is proposed 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 provisions (as currently in effect) affected by the proposed repeal are contained in Texas Finance Code, Chapter 342.

§1.751.Scope.

§1.752.Specific Application to Subchapter E and G Loans.

§1.754.Refund of Precomputed Interest in Regular Subchapter E.

§1.755.Refund of Precomputed Interest in Subchapter G Loans.

§1.758.Specific Application to Subchapter F Loans.

§1.759.Refund of Precomputed Interest in Subchapter F Loans; Prepayment in Full before the First Installment Due Date.

§1.760.Refund of Precomputed Interest in Subchapter F Loans; Prepayment in Full after the First Installment Due Date and before the Final Installment Due Date.

§1.761.Excess Refunds.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604232

Leslie L. Pettijohn

Commissioner

Finance Commission of Texas

Earliest possible date of adoption: September 24, 2006

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

7 TAC §§1.801 - 1.811, 1.814

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Finance Commission of Texas or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (the commission) proposes the repeal of 7 TAC, Part 1, Chapter 1, Subchapter I, §§1.801 - 1.811 and 1.814, concerning Insurance. The commission has determined as part of a rule review that these subchapters more effectively belong in Part 5, in a new chapter (Chapter 83, concerning Consumer Loans). Therefore, these rules are being proposed for repeal and new rules are proposed elsewhere in this issue of the Texas Register .

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

Commissioner Pettijohn also has determined that for each year of the first five years the repeal as proposed will be in effect, the public benefit anticipated as a result of the repeal will be more logically organized and readily available rules for lenders and consumers. There is no anticipated cost to persons who are required to comply with the repeal as proposed. There will be no adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the repeal as proposed.

Comments on the proposed repeal may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed repeal is published in the Texas Register . At the conclusion of the 31st day after the proposed repeal is published in the Texas Register , no further written comments will be considered or accepted by the commission.

The repeal is proposed 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 provisions (as currently in effect) affected by the proposed repeal are contained in Texas Finance Code, Chapter 342.

§1.801.Definitions.

§1.802.Authorized Property Insurance.

§1.803.Limitations on Property Insurance.

§1.804.Claim Provisions for Property Insurance Other Than Insurance Covering Automobiles.

§1.805.Authorized Credit Insurance.

§1.806.Provision of Policy or Certificate.

§1.807.Single-interest Insurance.

§1.808.Termination and Refund.

§1.809.Prepayment of Loan from Insurance Proceeds.

§1.810.Evidence of Equal Insurance Coverage.

§1.811.Nonfiling Insurance.

§1.814.Gap Waiver Agreement.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604228

Leslie L. Pettijohn

Commissioner

Finance Commission of Texas

Earliest possible date of adoption: September 24, 2006

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

7 TAC §§1.826, 1.828, 1.830 - 1.832, 1.834 - 1.839, 1.848

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Finance Commission of Texas or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (the commission) proposes the repeal of 7 TAC, Part 1, Chapter 1, Subchapter J, §§1.826, 1.828, 1.830 - 1.832, 1.834 - 1.839, and 1.848, concerning Authorized Lender's Duties and Authority. The commission has determined as part of a rule review that these subchapters more effectively belong in Part 5, in a new chapter (Chapter 83, concerning Consumer Loans). Therefore, these rules are being proposed for repeal and new rules are proposed elsewhere in this issue of the Texas Register .

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

Commissioner Pettijohn also has determined that for each year of the first five years the repeal as proposed will be in effect, the public benefit anticipated as a result of the repeal will be more logically organized and readily available rules for lenders and consumers. There is no anticipated cost to persons who are required to comply with the repeal as proposed. There will be no adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the repeal as proposed.

Comments on the proposed repeal may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed repeal is published in the Texas Register . At the conclusion of the 31st day after the proposed repeal is published in the Texas Register , no further written comments will be considered or accepted by the commission.

The repeal is proposed 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 provisions (as currently in effect) affected by the proposed repeal are contained in Texas Finance Code, Chapter 342.

§1.826.Quotation of Net Pay-Offs.

§1.828.Return of Instruments to Borrower.

§1.830.Files and Records Required (Subchapter E and F Lenders).

§1.831.Files and Records Required (Subchapter G Lenders).

§1.832.Files and Records Required (Subchapter G Mortgage Brokers).

§1.834.Approval of Electronic Recordkeeping Systems and Optical Imaging Systems.

§1.835.Review of Records.

§1.836.Correction of Errors or Violations.

§1.837.Unclaimed Funds.

§1.838.Annual Report.

§1.839.Follow-Up Examination Fees.

§1.848.Disclosure When Automobile Club Membership Offered in Connection with a Loan.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604227

Leslie L. Pettijohn

Commissioner

Finance Commission of Texas

Earliest possible date of adoption: September 24, 2006

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

7 TAC §§1.851 - 1.858, 1.860 - 1.863

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Finance Commission of Texas or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (the commission) proposes the repeal of 7 TAC, Part 1, Chapter 1, Subchapter K, §§1.851 - 1.858 and 1.860 - 1.863, concerning Prohibitions on Authorized Lenders. The commission has determined as part of a rule review that these subchapters more effectively belong in Part 5, in a new chapter (Chapter 83, concerning Consumer Loans). Therefore, these rules are being proposed for repeal and new rules are proposed elsewhere in this issue of the Texas Register .

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

Commissioner Pettijohn also has determined that for each year of the first five years the repeal as proposed will be in effect, the public benefit anticipated as a result of the repeal will be more logically organized and readily available rules for lenders and consumers. There is no anticipated cost to persons who are required to comply with the repeal as proposed. There will be no adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the repeal as proposed.

Comments on the proposed repeal may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed repeal is published in the Texas Register . At the conclusion of the 31st day after the proposed repeal is published in the Texas Register , no further written comments will be considered or accepted by the commission.

The repeal is proposed 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 provisions (as currently in effect) affected by the proposed repeal are contained in Texas Finance Code, Chapter 342.

§1.851.Duplication of Loans.

§1.852.Loan Size, Duration, and Schedule of Installments: Limitation.

§1.853.Misleading Advertising.

§1.854.Conditional Offers of Credit.

§1.855.Advertisements in Form of Negotiable Instruments.

§1.856.Use of State Agency Name.

§1.857.Full Disclosure Requirements--Other Than Open-End or Revolving Loan Plans.

§1.858.Full Disclosure Requirements--Open-End or Revolving Loan Plans.

§1.860.Collection Practices.

§1.861.Collection Contacts.

§1.862.Simulated Legal Process or Documents Prohibited.

§1.863.Impersonation and Fictitious Names Prohibited.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604226

Leslie L. Pettijohn

Commissioner

Finance Commission of Texas

Earliest possible date of adoption: September 24, 2006

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

7 TAC §1.901, §1.902

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Finance Commission of Texas or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (the commission) proposes the repeal of 7 TAC, Part 1, Chapter 1, Subchapter P, §1.901 and §1.902, concerning Registration of Retail Creditors. The commission has determined as part of a rule review that this subchapter more effectively belongs in Part 5, as part of a new chapter (Chapter 86, concerning Retail Creditors). Therefore, these rules are being proposed for repeal and new rules are proposed elsewhere in this issue of the Texas Register .

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

Commissioner Pettijohn also has determined that for each year of the first five years the repeal as proposed will be in effect, the public benefit anticipated as a result of the repeal will be more logically organized and readily available rules for lenders and consumers. There is no anticipated cost to persons who are required to comply with the repeal as proposed. There will be no adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the repeal as proposed.

Comments on the proposed repeal may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed repeal is published in the Texas Register . At the conclusion of the 31st day after the proposed repeal is published in the Texas Register , no further written comments will be considered or accepted by the commission.

The repeal is proposed 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, §345.351 and §347.451 authorize the commission to adopt rules concerning the registration of retail creditors.

The statutory provisions (as currently in effect) affected by the proposed repeal are contained in Texas Finance Code, Chapters 345, 347, and 348.

§1.901.Consumer Notifications.

§1.902.Annual Registration Fees.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604233

Leslie L. Pettijohn

Commissioner

Finance Commission of Texas

Earliest possible date of adoption: September 24, 2006

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

7 TAC §4.2, §4.5

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Finance Commission of Texas or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (commission), on behalf of the Texas Department of Banking (department), proposes the repeal of §4.2, concerning change of principal, and §4.5, concerning acquisition of control of corporate license.

Prior to September 1, 2005, Texas law regulated money services businesses under Finance Code, Chapter 152 (Sale of Checks Act) and Chapter 153 (Currency Exchange Act). During the 79th Regular Session, the Texas Legislature enacted the Money Services Act (Act of May 26, 2005, 79th Legislature, Regular Session, House Bill 2218, §1), effective September 1, 2005. The Money Services Act (MSA), codified as Finance Code, Title 3, Subtitle E, Chapter 151, consolidates the regulation of persons engaged in the money transmission and currency exchange businesses in Texas into one statute and repeals the Sale of Checks and Currency Exchange Acts.

Chapter 4 consists of the administrative rules the commission previously adopted to implement the repealed Currency Exchange Act. The commission is adopting new regulations under the MSA, which are located in Texas Administrative Code, Title 7, Chapter 33 (Money Services Businesses). As the commission has adopted new Chapter 33 sections, the commission has repealed existing sections of Chapter 4. Section 4.2 and §4.5 are the only remaining Chapter 4 sections.

The commission proposes to repeal §4.2 and §4.5 because the sections are obsolete. Section 4.2 establishes requirements that apply if a license holder under the Currency Exchange Act employs a new principal, or if certain changes occur with respect to the ownership of a license holder organized as a partnership. Section 4.5 establishes requirements that apply to the acquisition of control of a corporate license holder. The substance of these sections is inconsistent with the MSA or is incorporated into or rendered unnecessary by its provisions. Section 4.2 and §4.5 should therefore be repealed.

Stephanie Newberg, Deputy Commissioner, Texas Department of Banking, has determined that for the first five year period the proposed repeal is in effect, there will be no fiscal implications for state or local governments as a result of enforcing or administering the repeal of these sections.

Ms. Newberg has also determined that, for each of the first five years the repeal as proposed will be in effect, the anticipated benefit will be the deletion of regulations that are unnecessary or obsolete. There will be no economic cost to individuals required to comply with the repeal, and there will be no effect on small businesses or micro businesses.

To be considered, comments on the proposed repeal must be submitted not later than 30 days after the date of publication of this notice. Comments should be addressed to Sarah Shirley, General Counsel, Texas Department of Banking, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294, or by e-mail to: sarah.shirley@banking.state.tx.us.

The repeal is proposed under Finance Code, §151.102, which authorizes the commission to adopt rules to administer and enforce Finance Code, Chapter 151.

Finance Code, Chapter 151, is affected by the proposed repeal.

§4.2.Change of Principal.

§4.5.Acquisition of Control of Corporate License.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604250

Sarah J. Shirley

General Counsel

Finance Commission of Texas

Proposed date of adoption: October 20, 2006

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

Chapter 29. SALE OF CHECKS ACT

7 TAC §29.1, §29.5

(Editor's note: The text of the following sections proposed for repeal will not be published. The sections may be examined in the offices of the Texas Department of Banking or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (commission), on behalf of the Texas Department of Banking (department), proposes the repeal of §29.1, concerning permissible investments, and §29.5, concerning conduct of business through an agent.

Prior to September 1, 2005, Texas law regulated money services businesses under Finance Code, Chapter 152 (Sale of Checks Act) and Chapter 153 (Currency Exchange Act). During the 79th Regular Session, the Texas Legislature enacted the Money Services Act (Act of May 26, 2005, 79th Leg., R.S., H.B. 2218, §1), effective September 1, 2005. The Money Services Act (MSA), codified as Finance Code, Title 3, Subtitle E, Chapter 151, consolidates the regulation of persons engaged in the money transmission and currency exchange businesses in Texas into one statute and repeals the Sale of Checks and Currency Exchange Acts.

Chapter 29 consists of the administrative rules the commission previously adopted to implement the repealed Sale of Checks Act. The commission is adopting new regulations under the MSA which are located in Texas Administrative Code, Title 7, Chapter 33 (Money Services Businesses). As the commission has adopted new Chapter 33 sections, the commission has repealed existing sections of Chapter 29. Sections 29.1 and 29.5 are the only remaining Chapter 29 sections.

The commission proposes to repeal §29.1 and §29.5 because the sections are obsolete. As explained in this preamble, the substance of the sections has been incorporated into or rendered unnecessary by the MSA or is included in the new sections of Chapter 33 that the commission is simultaneously proposing in this issue of the Texas Register .

Section 29.1 sets out categories of securities and assets that may qualify as "permissible investments" and establishes related requirements. The substance of §29.1 is incorporated into Finance Code, §151.309, and proposed new 7 TAC §33.23. Section 29.5 establishes certain requirements that apply to a license holder that conducts the sale of checks business through an agent. The MSA establishes comprehensive requirements related authorized delegates (agents) and license holders that conduct money transmission through authorized delegates. Sections 29.1 and 29.5 should therefore be repealed.

Ms. Stephanie Newberg, Deputy Commissioner, Texas Department of Banking, has determined that for the first five year period the proposed repeal is in effect, there will be no fiscal implications for state or local governments as a result of enforcing or administering the repeal of this section.

Ms. Newberg has also determined that, for each of the first five years the repeal as proposed will be in effect, the anticipated benefit will be the deletion of regulations that are unnecessary or obsolete. No economic costs will be incurred by a person required to comply with the repeal of these sections. There will be no adverse economic effect on small businesses or micro-businesses.

To be considered, comments on the proposed repeal must be submitted not later than 30 days after the date of publication of this notice. Comments should be addressed to Sarah Shirley, General Counsel, Texas Department of Banking, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294, or by e-mail to: sarah.shirley@banking.state.tx.us.

The repeal is proposed under Finance Code, §151.102, which authorizes the commission to adopt rules to administer and enforce Finance Code, Chapter 151.

Finance Code, Chapter 151, is affected by the proposed repeal.

§29.1.Permissible Investments.

§29.5.Conduct of Business through Agent.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604253

Sarah J. Shirley

General Counsel

Texas Department of Banking

Proposed date of adoption: October 20, 2006

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

7 TAC §33.23

The Finance Commission of Texas (commission), on behalf of the Texas Department of Banking (department), proposes to adopt new §33.23, concerning additional provisions that apply to permissible investments. The new section is proposed under the Money Services Act (Act of May 26, 2005, 79th Leg., R.S., H.B. 2218, §1), which took effect September 1, 2005.

The Money Services Act (MSA), codified as Finance Code, Title 3, Subtitle E, Chapter 151, regulates persons that engage in the money transmission and currency exchange businesses in Texas. Prior to the enactment of the MSA, Texas law regulated these businesses under two separate chapters of the Finance Code, Chapter 152 (Sale of Checks Act) and Chapter 153 (Currency Exchange Act). The MSA consolidates regulation into one statute and repeals the Sale of Checks and Currency Exchange Acts.

The commission is in the process of adopting new regulations to implement the MSA. The proposed new section will replace existing 7 TAC §29.1, concerning permissible investments, which section was adopted under the repealed Sale of Checks Act. The commission is simultaneously proposing to repeal §29.1 in this issue of the Texas Register .

Finance Code, §151.309, requires a money transmission license holder to maintain a certain amount of "permissible investments", assets and investments considered to be safe and relatively liquid. As explained in this preamble, proposed new §33.23 applies to a person that holds a money transmission license under Finance Code, Chapter 151, and implements and clarifies the statutory permissible investment requirement.

Under Finance Code, §151.309(a), the aggregate market value of permissible investments a license holder must maintain is based on the license holder's average outstanding money transmission obligations in the United States. Proposed new §33.23(b) requires a license holder to calculate its average outstanding U.S. money transmission obligations on a quarterly basis and disclose the quarterly average in the permissible investments report prepared pursuant to Finance Code, §151.603(b)(2). The proposed new subsection also explains the method for calculating the quarterly averages.

Proposed new §33.23(c) clarifies the meaning of "past due and doubtful of collection" when a license holder reports "accounts receivable" as a permissible investment. Proposed new §33.23(d) recognizes certain commercial paper as a permissible investment for purposes of Finance Code, §151.309.

Proposed new §33.23(e) establishes requirements related to the records a license holder must maintain for purposes of calculating the amount of the license holder's required permissible investments.

Russell Reese, Director of Special Audits, Texas Department of Banking, has determined that for the first five-year period that the proposed new section is in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the new section.

Mr. Reese has also determined that, for each year of the first five years the proposed new section is in effect, the public benefit anticipated as a result of its adoption will be new, updated regulations that conform to and reflect the requirements of the MSA.

Finally, Mr. Reese has determined that, for each year of the first five years the proposed new section is in effect, there will be no economic costs to persons related to proposed new §33.23. There will be no adverse economic effect on small businesses or micro-businesses.

To be considered, comments on the proposed new section must be submitted in writing not later than 30 days after the date of publication of this notice. Comments should be addressed to Sarah Shirley, General Counsel, Texas Department of Banking, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294, or by e-mail to sarah.shirley@banking.state.tx.us.

The new section is proposed under the authority of Finance Code, §151.102(a) which authorizes the commission to adopt rules to administer and enforce the MSA, §151.309, relating to permissible investments, §151.602, relating to records, and §151.603(b)(2), relating to permissible investment reports.

Finance Code, Chapter 151, is affected by the proposed new section.

§33.23.What Additional Provisions Apply to Permissible Investments?

(a) Does this section apply to me? This section applies if you hold a money transmission license under Finance Code, Chapter 151.

(b) How do I calculate and report my average outstanding money transmissions for purposes of Finance Code, §151.309(a)?

(1) For purposes of this subsection and subsection (e), "outstanding" has the meaning assigned by Finance Code, §151.301(b)(5).

(2) Under Finance Code, §151.309(a), the aggregate amount of permissible investments that a money transmission license holder must maintain is calculated on the basis of the license holder's average outstanding money transmission obligations in the United States (U.S.). You must calculate and report your average outstanding U.S. money transmission obligations for purposes of §151.309(a) in the following manner:

(A) You must calculate your average outstanding U.S. money transmission obligations for the calendar quarters ending March 31st, June 30th, September 30th, and December 31st.

(B) At the end of each calendar quarter, you must aggregate the daily amount of your outstanding U.S. money transmissions computed for each day in the quarter. You must then divide the aggregate of the daily amount of outstanding U.S. money transmissions for the quarter by the number of days in the quarter. The resulting figure is the amount of average outstanding U.S. money transmission obligations for the quarter and must be disclosed in the report of permissible investments prepared under Finance Code, §151.603(b)(2).

(c) What does "past due and doubtful of collection" mean for purposes of Finance Code, §151.309(b)(1)? Under Finance Code, §151.309(b)(1), a permissible investment may include 40 percent of the receivables due a license holder from authorized delegates resulting from money transmission that is not "past due or doubtful of collection." For purposes of §151.309(b)(1), "past due and doubtful of collection" means cash due from an authorized delegate that is not remitted on or before the 10th business day after the date the authorized delegate is required to remit the money under the written agreement between the license holder and the authorized delegate.

(d) Does the department recognize any specific category of assets or securities as "permissible investments" in addition to the categories listed in Finance Code, §151.309(b)? In addition to the assets and securities listed in Finance Code, §151.309(b), to be a "permissible investment", a permissible investment for purposes of Finance Code, Chapter 151, includes commercial paper within the top three rating categories of a nationally recognized rating service.

(e) What general records must I maintain for purposes of calculating my permissible investment requirement?

(1) At a minimum, you must maintain a daily record of your outstanding money transmission transactions in the United States (U.S.). The record must be maintained:

(A) in a log or by another means of retention that allows the information to be readily retrieved; and

(B) in a manner that enables you to identify and make available to the department the records related to your U.S. money transmission activity and to separately account for your U.S. money transmission activity.

(2) You must make the records required under this subsection available to the department within the time period reasonably requested.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604258

Sarah J. Shirley

General Counsel

Texas Department of Banking

Proposed date of adoption: October 20, 2006

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

Chapter 83. CONSUMER LOANS

Subchapter E. INTEREST CHARGES IN LOANS

7 TAC §§83.501 - 83.505

The Finance Commission of Texas (the commission) proposes new 7 TAC Chapter 83, Subchapter E, §§83.501 - 83.505, concerning Interest Charges in Loans.

These rules are being relocated and reorganized. The agency believes that the reorganization will benefit licensees in that these rules will be in a more logical location and order and will be easier to find. The new rules are substantially similar to the rules pending repeal, as found in 7 TAC Chapter 1, Subchapter E, §§1.501 - 1.505, concerning Interest Charges on Loans. The commission's proposed repeal of Subchapter E is published elsewhere in this issue of the Texas Register .

The following paragraphs regarding the purpose of each rule track the original purpose language used when each rule was originally adopted. These purposes still exist. Additional explanation is provided under sections where recent changes in language have been incorporated into the proposed new rules as a result of the agency's rule review of current Subchapters E - K under Title 7, Part 1, Chapter 1 of the Texas Administrative Code. The remaining changes throughout all sections consist of revisions to formatting, grammar, punctuation, spelling, and other technical corrections. If no additional explanation is provided other than the main purpose of the rule, then the only changes made from the prior version of a rule pending repeal to the new rule being proposed are technical and nonsubstantive in nature.

New 7 TAC §§83.501 - 83.505 outline the methods for calculating maximum interest charges, and additional interest for default and deferment under Texas Finance Code, Chapter 342, Subchapter E. Additionally, the rules prescribe appropriate procedures for these transactions.

Section 83.501 (current §1.501) describes the manner for determining the maximum rate or amount of interest by type of transaction.

Section 83.502 (current §1.502) details the treatment of odd periods of time, generally those less than a full month, for calculating interest.

Section 83.502 has been revised in order to place into regulation the commission's previous interpretations on this issue. The changes also serve to align this Subchapter E loan provision with that of Subchapter G (§83.702). In addition, the rule has been amended to address the fact that any term of greater than 15 days constitutes a month for interest calculation purposes on only consumer loans utilizing the §342.201(a)-rate.

Section 83.503 (current §1.503) provides the procedures for assessing the administrative fee.

Section 83.503(5) has been revised in order to place into regulation the agency's policy position on this matter, which has been previously addressed in compliance bulletins. The revised language specifically states (in pertinent part) that "[a]n administrative fee is a prepaid interest charge . . . ."

Section 83.504 (current §1.504) clarifies the procedures for assessing and collecting default charges in connection with a Subchapter E loan.

Section 83.505 (current §1.505) explains the methods and procedures for calculating and collecting a deferment charge on a Subchapter E loan.

Subsections (a) and (e) of §83.505 have experienced substantial revisions. Concerning subsection (a), the definition of "deferment" has been changed so that it will be more consistent with the definition contained in 7 TAC §1.102. Further clarification and explanation have been provided in subsection (e), concerning the computations of deferment charges. However, the methods of calculation for deferment have not changed. In addition, subsection (h) has been added to provide a regulatory statement of the agency's position that a deferment charge must be waived on any payment that is covered by an insurance claim. This waiver is also authorized by subsection (f), but the agency believes that a separate, more definitive statement on this issue would benefit licensees.

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

Commissioner Pettijohn has also determined that for each year of the first five years §§83.501 - 83.505 are in effect, the public benefit anticipated as a result of the changes from the previously enacted version of these rules will be that the commission's rules will be more easily understood by licensees required to comply with the rules, and will be more easily enforced. The general substance of these rules has already been in effect, as the rules are being relocated with some substantive and technical corrections. However, the substantive corrections consist of updates required by law, placement of the agency's policy positions into regulation, clarifications, and revisions made for consistency purposes. Thus, there is no anticipated cost to persons who are required to comply with the new rules as proposed. There is no anticipated adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the sections as proposed.

Comments on the proposed new rules may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed rules are published in the Texas Register . At the conclusion of the 31st day after the proposed rules are published in the Texas Register , no further written comments will be considered or accepted by the commission.

The new rules are proposed 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 provisions (as currently in effect) affected by the proposal are contained in Texas Finance Code, Chapter 342.

§83.501.Maximum Interest Charge.

(a) Precomputed loans. An authorized lender may charge the add-on rates authorized by Texas Finance Code, §342.201(a) or the alternative simple interest rate authorized by Texas Finance Code, §342.201(d) or (e) as calculated by the scheduled installment earnings method, for precomputed loans that are either unsecured or secured by personal property. Prepaid interest in the form of points is not permitted, unless expressly authorized by statute (e.g. an administrative fee).

(b) Interest-bearing loans. An authorized lender may charge any rate of interest that does not exceed the maximum rate authorized by Texas Finance Code, §342.201(d) or (e) as calculated by the true daily earnings method or the scheduled installment earnings method, for an interest-bearing loan that is either unsecured or secured by personal property. Prepaid interest in the form of points is not permitted, unless expressly authorized by statute (e.g. an administrative fee).

(c) Method of calculation.

(1) An authorized lender making loans under Texas Finance Code, §342.201(a), (d), or (e) may calculate the rate and amount of interest by any method of calculation as long as the amount of interest charged does not exceed the maximum rate or amount of interest set forth in Texas Finance Code, §342.201(a), (d), or (e) calculated using the specified earnings methods of Texas Finance Code, §342.201.

(2) An authorized lender making a loan under Texas Finance Code, §342.201(e) may contract for, charge, and receive an amount of interest, calculated according to the scheduled installment earnings method or true daily earnings method, not exceeding the equivalent total of a:

(A) simple annual rate of 30% on that portion of the unpaid balance of the cash advance that is less than or equal to the amount computed under Texas Finance Code, Chapter 341, Subchapter C, using the reference base amount of $500;

(B) simple annual rate of 24% on that portion of the unpaid balance of the cash advance that is more than the amount computed for subparagraph (A) of this paragraph but less than or equal to an amount computed under Texas Finance Code, Chapter 341, Subchapter C, using the reference base amount of $1,050; and

(C) simple annual rate of 18% on that portion of the unpaid balance of the cash advance that is more than the amount computed for subparagraph (B) of this paragraph but less than or equal to an amount computed under Texas Finance Code, Chapter 341, Subchapter C, using the reference base amount of $2,500.

§83.502.Treatment of Periods Less Than a Full Month Before the First Installment Date.

(a) For a precomputed loan using the earnings method specified under Texas Finance Code, §342.201(a), an authorized lender may consider:

(1) any period before the first installment date that includes a part of a month longer than 15 days as a full month for interest calculation purposes; and

(2) any period before the first installment date that includes a part of a month that is 15 days or less as additional odd days for interest calculation purposes. The amount of interest for the additional odd days of 15 days or less must be calculated under the true daily earnings method. This amount may be added to the first installment or, alternatively, it may be allocated among all of the installments.

(b) An authorized lender may use one of the methods listed below, in a regular transaction, when counting additional odd days in a first installment period, so long as the method utilized is consistently applied to all applicable loan transactions initiated by the authorized lender.

(1) Texas Credit Title method. Under this method, the odd days are determined by counting the number of days beyond one month from the date of the loan to the scheduled installment due date; or

(2) Regulation Z method. Under this method, the odd days should be determined in accordance with Regulation Z - Truth in Lending, 12 C.F.R. Part 226, Appendix J. The odd days are determined by first ascertaining the one-month anniversary date preceding the first scheduled installment due date. After determining the one-month anniversary date preceding the first scheduled installment due date, the odd days are determined by counting the number of days between the date of the loan and the one-month anniversary date.

(c) An authorized lender may not charge more than the maximum effective rate authorized by Texas Finance Code, §342.201(a), (d), or (e) for calculating the interest charge for the additional odd days. An authorized lender may not charge more than the authorized lender contracted for in the loan.

§83.503.Administrative Fee.

An authorized lender may collect an administrative fee pursuant to Texas Finance Code, §342.201(f), on interest-bearing and precomputed loans.

(1) To determine the maximum amount of the administrative fee, an authorized lender should ascertain the amount of the cash advance of the loan. If the cash advance is more than $1,000, then the authorized lender may contract for, charge, or receive $25. If the cash advance is $1,000 or less, then the authorized lender may contract for, charge, or receive $20.

(2) An administrative fee may not be contracted for, charged, or received by an authorized lender directly or indirectly on a renewal or modification of an existing obligation that has an interest charge authorized by Texas Finance Code, §342.201(e) more than once in any 365-day period. An administrative fee may not be contracted for, charged, or received by an authorized lender directly or indirectly on a renewal or modification of an existing obligation that has an interest charge authorized by Texas Finance Code, §342.201(a) or (d) more than once in any 180-day period. The administrative fee may be contracted for, charged, or received in a renewal or modification if the authorized lender did not contract for, charge, or receive the administrative fee on any previous obligation within the appropriate period.

(3) An administrative fee may not be contracted for, charged, or received by an authorized lender on the refinance of a loan that utilizes Texas Finance Code, §342.201(a), (d), or (e) rates for a period of 365 days after the lender has entered into a Texas Finance Code, §342.201(e) rate loan in which an administrative fee was contracted for, charged, or received.

(4) Interest may not be assessed, charged, or received on an administrative fee if the assessment causes the total amount of interest to exceed the maximum amount authorized under Texas Finance Code, Chapter 342.

(5) An administrative fee is a prepaid interest charge and may be contracted for, charged, or received in addition to the contractual interest charge authorized by Texas Finance Code, §342.201(a), (d), or (e).

§83.504.Default Charges.

(a) Precomputed loans. Additional interest for default may be charged on a precomputed loans, whether regular or irregular, or on a precomputed loan contracted for on a scheduled installment earnings method, to the extent it is authorized by Texas Finance Code, §342.203 or §342.206.

(b) Interest-bearing loans. Additional interest for default may be charged on an interest-bearing Chapter 342, Subchapter E loan as authorized under Texas Finance Code, §342.203 or §342.206.

(c) Contract required. No default charge may be assessed, imposed, charged, or collected unless contracted for in writing by the parties.

(d) Default period. A default charge may not be assessed until the 10th day after the installment due date. For example, if the installment due date is the 1st of the month, a default charge may not be assessed until the 12th of the month.

(e) Missed payment covered by insurance. When any payment or partial payment in default is later paid by some form of insurance, such as credit disability insurance, unemployment insurance, or collateral protection insurance, any prior assessment of additional interest for default must be waived.

(f) Pyramiding prohibited. An authorized lender seeking to assess additional interest for default on a precomputed loan under Texas Finance Code, §342.203 or §342.206 must comply with the prohibition on the pyramiding of late charges set forth in the Federal Trade Commission Credit Practices Rule at 16 C.F.R. §444.4 or in Regulation AA, 12 C.F.R. Part 227, promulgated by the Board of Governors of the Federal Reserve Board, as applicable.

(g) Default charge on final installment of multiple payment loan. A default charge is allowed on the final installment of a multiple installment loan.

(h) Default charge on single payment loan. A default charge under Texas Finance Code, §342.203(d) or §342.206(b) is not allowed on a single payment loan. After maturity interest may be contracted for, charged, and collected on a single payment loan.

§83.505.Deferment.

(a) Definition. A deferment means the payment of an additional interest charge to defer the payment date of a scheduled payment on a contract. A deferment charge prescribed by this section may only occur in loan transactions that employ either the precomputed or the scheduled installment earnings methods of calculation.

(b) Unilateral deferment. A deferment may be made solely by the lender if the full amount of any installment remains in default for one month or more after its due date. The note or similar loan agreement must contain a provision allowing the unilateral deferment. Only one unilateral deferment may be made during any one six-month period while the loan contract is in effect. Any deferment documented on the account record will be considered to be unilateral in the absence of proof or documentation of a mutual or bilateral deferment.

(c) Bilateral or mutual deferment. A borrower and a lender may mutually agree to defer any scheduled installment. There is no limit on the number of bilateral deferments that can be made during the time that a loan contract is in effect. Bilateral deferments must be agreed upon in writing.

(d) Deferment notice. Each deferment must be noted on the account record at the time the deferment is made. A written notice containing the conditions of the deferment must be furnished to the borrower. The deferment notice shall include the name of the lender, the name of the borrower, the loan number, the date of the deferment, the installment or installments being deferred, the deferment period, the amount of the deferment charge, the balance on the account, and the date and amount of the next installment due. A signature of the borrower denotes the borrower's agreement to a bilateral deferment.

(e) Computation of deferment charge for regular transaction. Each deferment charge on a regular loan transaction shall be computed in accordance with the method prescribed by the loan contract. If the loan contract does not provide for a deferment charge, then no deferment charge may be assessed or collected. A lender may employ any of the prescribed computational methods described herein so long as the computational method employed is consistently utilized throughout the term of the loan. An authorized lender may calculate the deferment charge using the balance method or the date method.

(1) Balance method. The balance method is used to determine the difference between the refund of unearned interest as of the due date of the last entirely unpaid installment and the due date of the next succeeding installment.

(A) Calculation for deferment before first installment. The interest for the deferment may be no more than the difference between the refund that would be required for prepayment in full on the first installment due date, if it were one month from the date of the loan, and the total interest charged on the loan, exclusive of any charge for any additional odd days or an administrative fee. The deferment charge for the first installment is essentially the charge for the first month of interest.

(B) Calculation for deferment after first installment. The first step in determining the deferment charge using the balance method for any installment after the first installment is to determine the deferment period.

(i) "Deferment period." The deferment period is the period from the last entirely paid installment to the "next succeeding unpaid installment." The deferment period will constitute the deferment of the "first entirely unpaid installment."

(ii) Determination of the "first entirely unpaid installment." In order to determine the "first entirely unpaid installment," first the remaining precomputed balance must be computed. To arrive at the remaining precomputed balance, any add-on charges and any final installment that is smaller than the regular installment must be subtracted. When the first installment is greater than the regular installment and when the borrower has paid the regular installment amount, the precomputed balance must be reduced by the amount of the first payment extension charge. After determining the remaining precomputed balance, the remaining precomputed balance must be divided by the regular installment amount. This calculation will indicate the number of remaining installments to be paid. By determining the number of remaining installments to be paid, the due date of the last paid installment may be determined (this must be a wholly unpaid installment). Texas Finance Code, §342.204(a)(1) only permits a deferment charge to be assessed on an installment that is completely unpaid.

(iii) Determination of the "next succeeding unpaid installment." The due date of the next succeeding unpaid installment is the end of the "deferment period."

(iv) Calculation for the deferment charge. The calculation for the deferment charge is the scheduled interest charge for the "deferment period."

(v) Example of deferment calculation. The terms of a precomputed Texas Finance Code, §342.201(e) loan are as follows: Date of loan: 09/01/2001; First installment due date: 10/01/2001; Cash Advance: $2,356.21; Finance Charge (no administrative fee): $1,243.79; Total of Payments: $3,600.00; Term: 36 months; Regular installment amount: $100; Refunding method: Scheduled installment earnings method; and Annual Percentage Rate: 30%. If an authorized lender agrees to a deferment roughly six months into the contract and the remaining precomputed balance is $3,095.00 (no adjustments are necessary), to determine the "first entirely unpaid installment," the authorized lender must divide the precomputed balance by the regular installment amount ($3,095.00 divided by $100.00 = 30.95). Because the entire amount of the installment must be unpaid, the result must be rounded to the next lowest whole number, 30. For calculation purposes, there are 30 remaining installments and 6 installments have been made. In this case, the 7th scheduled installment is being deferred. The deferment charge is calculated by determining the scheduled interest charge for the deferment period, or, from the last entirely paid installment to the "first entirely unpaid installment" (the 6th entirely paid scheduled installment) to the "next succeeding unpaid installment" (7th scheduled installment). The "next succeeding unpaid installment" is determined by subtracting one unit period from the "first entirely paid installment" (30 - 1 = 29). The calculation of the deferment charge is the difference between the interest refund of the 6th entirely paid installment (36 - 30) and the 7th first entirely unpaid installment (36 - 29). This difference would be $53.28.

(2) Date method. The date method determines the deferment charge by computing the difference between the amount of the refund of unearned interest as if a full prepayment of the loan occurred as of the date of the deferment, and the amount of the refund of unearned interest for a full prepayment of the loan one full month prior to the date of the deferment.

(f) No deferment when payment applied to account balance. When a payment has been applied to reduce an account balance, no deferment of any prior balance or installments may be made. This does not preclude the collection of a deferment fee previously assessed, but not collected.

(g) No deferment when default charge already collected. No installment may be deferred if a default charge has already been collected on the account or if a partial payment in any amount has been credited to any installment. If an amount equal to one whole installment has already been credited to an account, this entry cannot be altered in order to credit part of the installment to a deferment charge.

(h) Missed payment covered by insurance. When any payment or partial payment is deferred that is later paid by some form of insurance, such as credit disability insurance, unemployment insurance, or collateral protection insurance, any prior assessment of additional interest for deferment must be waived.

(i) Accounting of payment. If a payment is submitted from which a deferment charge is taken, the excess of the amount necessary to bring the account current shall be applied to the remaining balance of the loan. However, any difference that exceeds three dollars ($3.00) shall be returned to the borrower upon the borrower's request.

(j) Noncompliance. Deferment fees not assessed or collected in accordance with the requirements of this section are subject to refund to the borrower. In the event deferment fees are refunded to the borrower, no rescheduling of the loan contract is permitted.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604234

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: September 24, 2006

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

7 TAC §§83.601 - 83.605

The Finance Commission of Texas (the commission) proposes new 7 TAC Chapter 83, Subchapter F, §§83.601 - 83.605, concerning Alternate Charges for Consumer Loans.

These rules are being relocated and reorganized. The agency believes that the reorganization will benefit licensees in that these rules will be in a more logical location and order and will be easier to find. The new rules are substantially similar to the rules pending repeal, as found in 7 TAC Chapter 1, Subchapter F, §1.601 and §§1.603 - 1.606, concerning Alternate Charges for Consumer Loans. The commission's proposed repeal of Subchapter F is published elsewhere in this issue of the Texas Register .

The following paragraphs regarding the purpose of each rule track the original purpose language used when each rule was originally adopted. These purposes still exist. Additional explanation is provided under sections where recent changes in language have been incorporated into the proposed new rules as a result of the agency's rule review of current Subchapters E - K under Title 7, Part 1, Chapter 1 of the Texas Administrative Code. The remaining changes throughout all sections consist of revisions to formatting, grammar, punctuation, spelling, and other technical corrections. If no additional explanation is provided other than the main purpose of the rule, then the only changes made from the prior version of a rule pending repeal to the new rule being proposed are technical and nonsubstantive in nature.

New 7 TAC §§83.601 - 83.605 outline the methods for calculating maximum interest charges, and additional interest for default and deferment under Texas Finance Code, Chapter 342, Subchapter F. Additionally, the rules prescribe appropriate procedures for these transactions.

Section 83.601 (current §1.601) describes the manner for determining the maximum rate or amount of interest for this type of transaction.

Section 83.602 (current §1.603) clarifies the procedures for assessing and collecting default charges in connection with a Subchapter F loan.

Subsections (a) - (c) have been added to §83.602 due to the recent authorization for late charges on loans of $100 or greater as per Texas Finance Code, §342.257. The remaining subsections contained in (d) - (h) echo the language of the Subchapter E rule (§83.504). However, instead of referring back to that rule as reflected in the current language, the agency decided it would be best to list all of the Subchapter F default charge provisions together in one rule.

Section 83.603 (current §1.604) provides that the methods and procedures for calculating and collecting a deferment charge on a Subchapter E loan are applicable to Subchapter F loans and refers the reader to §83.505.

Section 83.604 (current §1.605) authorizes regulated lenders to engage in deferred presentment transactions under the authority of Texas Finance Code, Chapter 342, Subchapter F. In essence, this rule permits the lender to take and hold a check as collateral for the payment of a consumer loan. The rule recognizes and authorizes this type of "payday loan" within the Texas statutory usury framework.

Section 83.604 has been amended to add references to Texas Finance Code, §342.259, a recently passed statutory provision which doubled the bracket amounts for Subchapter F loans. In addition, the definition of "[p]ayday loan or deferred presentment transaction" contained in §83.604(2) has been revised to conform with the definition found in Texas Finance Code, §341.001(6).

Section 83.605 (current §1.606) relates to consistent limitations on acquisition charges under Subchapter F. Section 83.605 provides that an acquisition charge ($10 on a cash advance of $100 to $1,120) may only be assessed to a borrower once in a given month for loans with a term of one month or less. This is a conforming charge, consistent with the application of the agency's examination policy for more than thirty years. Additionally, this rule provides consistency on the earning of acquisition charges between the intent of the creation of Subchapter F and its application through the present day, including the treatment of payday loans under this area of law. This rule is necessary to provide clarity and consistency to lenders who construct their transactions in compliance with Chapter 342.

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

Commissioner Pettijohn has also determined that for each year of the first five years §§83.601 - 83.605 are in effect, the public benefit anticipated as a result of the changes from the previously enacted version of these rules will be that the commission's rules will be more easily understood by licensees required to comply with the rules, and will be more easily enforced. The general substance of these rules has already been in effect, as the rules are being relocated with some substantive and technical corrections. However, the substantive corrections consist of updates required by law, placement of the agency's policy positions into regulation, clarifications, and revisions made for consistency purposes. Thus, there is no anticipated cost to persons who are required to comply with the new rules as proposed. There is no anticipated adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the sections as proposed.

Comments on the proposed new rules may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed rules are published in the Texas Register . At the conclusion of the 31st day after the proposed rules are published in the Texas Register , no further written comments will be considered or accepted by the commission.

The new rules are proposed 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 provisions (as currently in effect) affected by the proposal are contained in Texas Finance Code, Chapter 342.

§83.601.Authorized Charges.

(a) An authorized lender may contract for, charge, or collect on a loan made pursuant to Texas Finance Code, Chapter 342, Subchapter F:

(1) an acquisition charge;

(2) an installment account handling charge;

(3) a default charge;

(4) a deferment charge;

(5) a processing fee for the return of a dishonored check pursuant to Texas Business and Commerce Code, §3.506; and

(6) interest after maturity that does not exceed the Texas Finance Code, Chapter 303, Subchapter A rate.

(b) No other charges are authorized in connection with a Subchapter F loan.

§83.602.Default Charges.

(a) Precomputed loans. Additional interest for default may be charged on a Texas Finance Code, Chapter 342, Subchapter F precomputed loan to the extent it is authorized by Texas Finance Code, §342.257.

(b) Subchapter F loans less than $100. If the cash advance of the loan is less than $100, an authorized lender may assess, charge, and collect a default charge equal to 5% of the scheduled installment amount if any part of the installment remains unpaid after the 10th day after the date on which the installment is due, including Sundays and holidays.

(c) Subchapter F loans equal to or greater than $100. If the cash advance of the loan is equal to or greater than $100, an authorized lender may contract for a default charge:

(1) that does not exceed 5% of the scheduled installment amount if any part of the installment remains unpaid after the 10th day after the date on which the installment is due, including Sundays and holidays; or

(2) that does not exceed 5% of the scheduled installment amount or $10, whichever is greater, if any part of the installment remains unpaid after the 10th day after the date on which the installment is due, including Sundays and holidays.

(d) Contract required. No default charge may be assessed, imposed, charged, or collected unless contracted for in writing by the parties.

(e) Default period. A default charge may not be assessed until the 10th day after the installment due date. For example, if the installment due date is the 1st of the month, a default charge may not be assessed until the 12th of the month.

(f) Pyramiding prohibited. An authorized lender seeking to assess additional interest for default on a precomputed loan under Texas Finance Code, §342.257 must comply with the prohibition on the pyramiding of late charges set forth in the Federal Trade Commission Credit Practices Rule at 16 C.F.R. §444.4 or in Regulation AA, 12 C.F.R. Part 227, promulgated by the Board of Governors of the Federal Reserve Board, as applicable.

(g) Default charge on final installment of multiple payment loan. A default charge is allowed on the final installment of a multiple installment loan.

(h) Default charge on single payment loan. A default charge under Texas Finance Code, §342.257 is not allowed on a single payment loan. After maturity interest may be contracted for, charged, and collected on a single payment loan.

§83.603.Deferment Charges.

The rules for deferment charges applicable to Texas Finance Code, Chapter 342, Subchapter E loans as set forth in §83.505 of this title (relating to Deferment) are also applicable to loans made under Subchapter F.

§83.604.Payday Loans; Deferred Presentment Transactions.

(a) Definitions. For the purposes of this chapter, the following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Check--A check, draft, share draft, or other instrument for the payment of money.

(2) Payday loan or deferred presentment transaction--

(A) A transaction in which:

(i) a cash advance in whole or part is made in exchange for a personal check or authorization to debit a deposit account;

(ii) the amount of the check or authorized debit equals the amount of the advance plus a fee; and

(iii) the person making the advance agrees that the check will not be cashed or deposited or the authorized debit will not be made until a designated future date.

(B) This type of transaction is often referred to as a "payday loan," "payday advance," or "deferred deposit loan."

(b) Authorization. A licensee may engage in a payday loan or deferred presentment transaction under this chapter and subject to the provisions of Texas Finance Code, Chapter 342, Subchapter F. A payday loan or deferred presentment transaction is a loan of money. The check given in the transaction may serve as security for the payment of the loan. A person who negotiates, arranges, or acts as an agent for an authorized lender in a payday loan or deferred presentment transaction that has an effective annual rate of greater than 10% is required to be licensed.

(c) Maximum charge. A licensee may charge an amount that does not exceed the rates authorized in Texas Finance Code, §§342.251-342.259. The chart in Figure: 7 TAC §83.604(c) provides examples of the maximum authorized rates for loans made under Texas Finance Code, Chapter 342, Subchapter F. Texas Finance Code, §342.254 which prohibits other charges applies to this section.

Figure: 7 TAC §83.604(c) (.pdf)

(d) Minimum term. A licensee may engage in a payday loan or deferred presentment transaction with a term of not less than 7 days.

(e) Procedures.

(1) If a check is accepted, the licensee must require that the check be made payable to the actual name of the company printed on the license and must be dated the day the loan is made.

(2) The transaction must be documented by a written agreement signed by the borrower and the licensee. The agreement must contain the name of the licensee; the transaction date; the amount of the check; a statement of the total amount charged, expressed both as a dollar amount and as an annual percentage rate (APR); and the earliest date on which the check may be deposited. The agreement must also contain a notice of the name and address of the Office of Consumer Credit Commissioner and the telephone number of the consumer helpline. Additionally, the lender shall provide a notice to the consumer that reads as follows: "This cash advance is not intended to meet long-term financial needs. This loan should only be used to meet immediate short-term cash needs. Renewing the loan rather than paying the debt in full when due will require the payment of additional charges."

(3) The borrower shall have a right to prepay the loan and redeem the check at any time prior to the due date. If the loan is prepaid in full, the lender must refund any unearned finance charges.

(4) A check may not be held for more than 31 days and then subsequently presented to the bank for payment.

(5) The licensee must post a notice of the fee schedule for engaging in a payday or deferred presentment loan.

(f) Conditions. A lender may accept a check to secure payment of a payday loan if the lender complies with the following paragraphs.

(1) Duplicate and multiple loans. The provisions of Texas Finance Code, §342.501 and §83.851 of this title (relating to Duplication of Loans) apply to loans made under the authority of this section. In accordance with Texas Finance Code, §342.501, a lender and a borrower may renew a loan, but the loan must be converted from a single payment balloon loan to a declining balance installment note. Alternatively, the payday loan or deferred presentment transaction may be renewed without limitation to the number of renewals where the effect of the total amount of the interest charge would not exceed the total amount authorized by Texas Finance Code, §342.252 and §342.259 having due regard for the amount of the cash advance and the time the cash advance is outstanding. The result is that the acquisition charge may only be earned once in a month and the installment account handling charge may continue to be earned on a equivalent daily charge basis in accordance with the limitations of Texas Finance Code, Chapter 342, Subchapter F. In lieu of a renewal, a lender and a borrower may agree to extend the maturity date of the existing payday loan or deferred presentment transaction.

(2) Collection practices. A payday loan constitutes a credit relationship for all purposes, including collection. If a borrower defaults, including the return of the check to the licensee from a financial institution due to insufficient funds, closed account, or stop payment order, the licensee may pursue all legally available civil means to collect the debt. Collection practices must be in accordance with this chapter and with the Texas Debt Collection Practices Act, Texas Finance Code, §392.001 et seq.

(3) Fair lending. A lender must make a good faith effort to assess the borrower's ability to repay the payday loan or deferred presentment transaction under the loan terms.

§83.605.Limitation on Acquisition Charge.

For a Texas Finance Code, Chapter 342, Subchapter F loan with a term of one month or less, an acquisition charge may only be contracted for, charged, or collected once during a month to the same borrower for that loan, any refinancing of that loan, or any new loan made to the borrower within the same month.

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604235

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: September 24, 2006

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

7 TAC §§83.701 - 83.708

The Finance Commission of Texas (the commission) proposes new 7 TAC Chapter 83, Subchapter G, §§83.701 - 83.708, concerning Interest and Other Charges on Secondary Mortgage Loans.

These rules are being relocated and reorganized. The agency believes that the reorganization will benefit licensees in that these rules will be in a more logical location and order and will be easier to find. The new rules are substantially similar to the rules pending repeal, as found in 7 TAC Chapter 1, Subchapter G, §§1.701 - 1.708, concerning Interest and Other Charges on Secondary Mortgage Loans. The commission's proposed repeal of Subchapter G is published elsewhere in this issue of the Texas Register .

The following paragraphs regarding the purpose of each rule track the original purpose language used when each rule was originally adopted. These purposes still exist. Additional explanation is provided under sections where recent changes in language have been incorporated into the proposed new rules as a result of the agency's rule review of current Subchapters E - K under Title 7, Part 1, Chapter 1 of the Texas Administrative Code. The remaining changes throughout all sections consist of revisions to formatting, grammar, punctuation, spelling, and other technical corrections. If no additional explanation is provided other than the main purpose of the rule, then the only changes made from the prior version of a rule pending repeal to the new rule being proposed are technical and nonsubstantive in nature.

New 7 TAC §§83.701 - 83.708 outline the methods for calculating maximum interest and other charges, and additional interest for default and deferment under Texas Finance Code, Chapter 342, Subchapter G. Additionally, the rules prescribe procedures for these transactions.

Section 83.701 (current §1.701) describes the manner for determining the maximum rate or amount of interest by type of transaction.

Section 83.702 (current §1.702) details the treatment of odd periods of time, generally those less than a month in the first installment period, for calculating interest.

Section 83.702(b) contains some clarifying language related to the calculation of interest for periods of less than a full month.

Section 83.703 (current §1.703) clarifies the procedures for assessing and collecting default charges in connection with a Subchapter G loan.

Section 83.704 (current §1.704) explains the methods and procedures for calculating and collecting a deferment charge on a Subchapter G loan.

Subsections (a) and (d) of §83.704 have experienced substantial revisions. Concerning subsection (a), the definition of "deferment" has been changed so that it will be more consistent with the definition contained in 7 TAC §1.102. Further clarification and explanation have been provided in subsection (d), concerning the computations of deferment charges. However, the methods of calculation for deferment have not changed. In addition, subsection (g) has been added to provide a regulatory statement of the agency's position that a deferment charge must be waived on any payment that is covered by an insurance claim. This waiver is also authorized by subsection (e), but the agency believes that a separate, more definitive statement on this issue would benefit licensees.

Section 83.705 (current §1.705) enumerates additional charges that may be assessed on a Subchapter G loan after consummation of the loan.

Section 83.706 (current §1.706) enumerates additional charges that may be collected on or before the closing of a Subchapter G loan.

Section 83.706(4) has been revised in order to place into regulation the agency's policy position on this matter, which has been previously addressed in compliance bulletins. The revised language specifically states (in pertinent part) that "[a]n administrative fee is a prepaid interest charge . . . ."

Section 83.707 (current §1.707) discusses the treatment and applicability of other fees in the context of a Subchapter G loan.

Section 83.708 (current §1.708) addresses contracting for balloon payments on a Subchapter G loan.

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

Commissioner Pettijohn has also determined that for each year of the first five years §§83.701 - 83.708 are in effect, the public benefit anticipated as a result of the changes from the previously enacted version of these rules will be that the commission's rules will be more easily understood by licensees required to comply with the rules, and will be more easily enforced. The general substance of these rules has already been in effect, as the rules are being relocated with some substantive and technical corrections. However, the substantive corrections consist of updates required by law, placement of the agency's policy positions into regulation, clarifications, and revisions made for consistency purposes. Thus, there is no anticipated cost to persons who are required to comply with the new rules as proposed. There is no anticipated adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the sections as proposed.

Comments on the proposed new rules may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed rules are published in the Texas Register . At the conclusion of the 31st day after the proposed rules are published in the Texas Register , no further written comments will be considered or accepted by the commission.

The new rules are proposed 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 provisions (as currently in effect) affected by the proposal are contained in Texas Finance Code, Chapter 342.

§83.701.Maximum Interest Charge.

(a) Precomputed secondary mortgage loans. In a precomputed secondary mortgage loan, an authorized lender may contract for, charge, or receive an amount of interest that does not exceed the applicable simple interest rate authorized by Texas Finance Code, Chapter 303, Subchapter A. Prepaid interest is not permitted unless expressly authorized by statute (e.g., an administrative fee).

(b) Interest-bearing loans. In an interest-bearing secondary mortgage loan, an authorized lender may contract for, charge, or receive any rate of interest that does not exceed the applicable amount authorized by Texas Finance Code, Chapter 303, Subchapter A, as calculated under the true daily earnings method or the scheduled installment earnings method. Prepaid interest in the form of points, such as origination or discount points, may be contracted for, charged, or received by an originating lender, so long as the total amount of interest contracted for, charged, or received, when spread over the full term of the loan as permitted by Texas Finance Code, §302.101 does not exceed the applicable interest limit in Texas Finance Code, Chapter 303, Subchapter A.

(c) Method of calculation. An authorized lender making loans under Texas Finance Code, §342.301(c) may calculate the rate and amount of interest by any method of calculation as long as the amount of interest charged does not exceed the maximum rate or amount of interest set forth in Texas Finance Code, §342.301, calculated using the specified earnings methods contained in Texas Finance Code, §342.301.

§83.702.Treatment of Periods Less Than a Full Month.

(a) To calculate a period of time less than a full month on a precomputed loan:

(1) any period before the first installment due date that includes a part of a month longer than 15 days may be treated as a full month for interest calculation purposes; and

(2) any period before the first installment due date that includes a part of the month that is 15 days or less may not be treated as a full month for interest calculation purposes. The amount of interest for the period of 15 days or less must be calculated under the true daily earnings method. This amount may be added to the first installment or, alternatively, it may be allocated among all of the installments.

(b) An authorized lender may use one of the methods listed below, in a regular transaction, when counting additional odd days in a first installment period, so long as the method utilized is consistently applied to all applicable loan transactions initiated by the authorized lender.

(1) Texas Credit Title method. Under this method, the odd days are determined by counting the number of days beyond one month from the date of the loan to the scheduled installment due date; or

(2) Regulation Z method. Under this method, the odd days should be determined in accordance with Regulation Z - Truth in Lending, 12 C.F.R. Part 226, Appendix J. The odd days are determined by first ascertaining the one-month anniversary date preceding the first scheduled installment due date. After determining the one-month anniversary date preceding the first scheduled installment due date, the odd days are determined by counting the number of days between the date of the loan and the one-month anniversary date.

(c) An authorized lender may not contract for or charge more than the maximum rate authorized by Texas Finance Code, Chapter 303, Subchapter A in calculating the interest charge for the additional odd days in the first installment period. An authorized lender may not charge more than the authorized lender contracted for in the loan.

§83.703.Default Charges.

(a) Precomputed loans. Additional interest for default may be charged on a precomputed secondary mortgage loan, whether regular or irregular, or on a secondary mortgage loan that employs the scheduled installment earnings method, to the extent it is authorized by Texas Finance Code, §342.302 or §342.305.

(b) Interest-bearing loans. Additional interest for default may be charged on an interest-bearing Texas Finance Code, Chapter 342, Subchapter G loan as authorized under Texas Finance Code, §342.302.

(c) Contract required. No default charge may be assessed, imposed, charged, or collected unless contracted for in writing by the parties.

(d) Default period. A default charge may not be assessed until the 10th day after the installment due date. For example, if the installment due date is the 1st of the month, a default charge may not be assessed until the 12th of the month.

(e) Missed payment covered by insurance. If any payment or partial payment in default is later paid by some form of insurance, such as credit disability insurance or collateral protection insurance, any prior assessment of additional interest for default must be waived.

(f) Pyramiding prohibited. An authorized lender seeking to assess additional interest for default on a precomputed secondary mortgage loan under Texas Finance Code, §342.302 or §342.305 must comply with the prohibition on the pyramiding of late charges set forth in the Federal Trade Commission Credit Practices Rule at 16 C.F.R. §444.4 or in Regulation AA, 12 C.F.R. Part 227, promulgated by the Board of Governors of the Federal Reserve Board, as applicable.

§83.704.Deferment.

(a) Definition. A deferment means the payment of an additional interest charge to defer the payment date of a scheduled payment on a contract. A deferment charge prescribed by this section may occur in a loan transaction that employs either the precomputed or the scheduled installment earnings methods of calculation. A separate deferment charge is not applicable to a loan transaction that employs the true daily earnings method since an extension of time would be calculated on elapsed daily charges, and the parties may agree to modify the terms of the transaction as long as the modification conforms to the requirements of Texas Finance Code, Chapter 342, Subchapter G.

(b) Bilateral or mutual deferment. A borrower and a lender may mutually agree to defer any scheduled installment. There is no limit on the number of bilateral deferments that can be made during the time that a loan contract is in effect. Bilateral or mutual deferments must be agreed upon in writing.

(c) Deferment notice. Each deferment must be noted on the account record at the time the deferment is made. A written notice containing the conditions of the deferment must be furnished to the borrower. The deferment notice shall include the name of the lender, the name of the borrower, the loan number, the date of the deferment, the installment or installments being deferred, the deferment period, the amount of the deferment charge, the balance on the account, and the date and amount of the next installment due. The signature of the borrower denotes the borrower's agreement to a bilateral deferment.

(d) Computation of deferment charge for regular transaction. Each deferment charge on a regular loan transaction shall be computed in accordance with the method prescribed by the loan contract. If the loan contract does not provide for a deferment charge, then no deferment charge may be assessed or collected. A lender may employ any of the prescribed computational methods described herein so long as the computational method employed is consistently utilized throughout the term of the loan. An authorized lender may calculate the deferment charge using the balance method or the date method.

(1) Balance method. The balance method is used to determine the difference between the refund of unearned interest as of the due date of the last entirely unpaid installment and the due date of the next succeeding installment.

(A) Calculation for deferment before first installment. The interest for the deferment may be no more than the difference between the refund that would be required for prepayment in full on the first installment due date, if it were one month from the date of the loan, and the total interest charged on the loan, exclusive of any charge for any additional odd days or an administrative fee. The deferment charge for the first installment is essentially the charge for the first month of interest.

(B) Calculation for deferment after first installment. The first step in determining the deferment charge using the balance method for any installment after the first installment is to determine the deferment period.

(i) "Deferment period." The deferment period is the period from the last entirely paid installment to the "next succeeding unpaid installment." The deferment period will constitute the deferment of the "first entirely unpaid installment."

(ii) Determination of the "first entirely unpaid installment." In order to determine the "first entirely unpaid installment," first the remaining precomputed balance must be computed. To arrive at the remaining precomputed balance, any add-on charges and any final installment that is smaller than the regular installment must be subtracted. When the first installment is greater than the regular installment and when the borrower has paid the regular installment amount, the precomputed balance must be reduced by the amount of the first payment extension charge. After determining the remaining precomputed balance, the remaining precomputed balance must be divided by the regular installment amount. This calculation will indicate the number of remaining installments to be paid. By determining the number of remaining installments to be paid, the due date of the last paid installment may be determined (this must be a wholly unpaid installment). Texas Finance Code, §342.204(a)(1) only permits a deferment charge to be assessed on an installment that is completely unpaid.

(iii) Determination of the "next succeeding unpaid installment." The due date of the next succeeding unpaid installment is the end of the "deferment period."

(iv) Calculation for the deferment charge. The calculation for the deferment charge is the scheduled interest charge for the "deferment period."

(v) Example of deferment calculation. The terms of a precomputed Texas Finance Code, §342.301 loan are as follows: Date of loan: 09/01/1997; First payment due date: 10/01/1997; Cash Advance: $2,766.48; Finance Charge: $833.52; Total of Payments: $3,600.00; Term: 36 months; Monthly installment: $100; Refunding method: Sum of the periodic balances; and Annual Percentage Rate: 18%. If an authorized lender agrees to a deferment roughly six months into the contract and the remaining precomputed balance is $3,095.00 (no adjustments are necessary), to determine the "first entirely unpaid installment," the authorized lender must divide the precomputed balance by the regular installment amount ($3,095.00 divided by $100.00 = 30.95). Because the entire amount of the installment must be unpaid, the result must be rounded to the next lowest whole number, 30. For calculation purposes, there are 30 remaining installments and 6 installments have been made. In this case, the 7th scheduled installment is being deferred. The deferment charge is calculated by determining the scheduled interest charge for the deferment period, or, from the last entirely paid installment to the "first entirely unpaid installment" (the 6th entirely paid scheduled installment) to the "next succeeding unpaid installment" (7th scheduled installment). The "next succeeding unpaid installment" is determined by subtracting one unit period from the "first entirely paid installment" (30 - 1 = 29). The calculation of the deferment charge is the difference between the interest refund of the 6th entirely paid installment (36 - 30) and the 7th first entirely unpaid installment (36 - 29). This difference would be $37.54. A scheduled installment earnings refund method would yield a slightly different result of $36.69.

(2) Date method. The date method determines the deferment charge by taking the difference between the amount of the refund of unearned interest as if a full prepayment of the loan occurred as of the date of the deferment, and the amount of the refund of unearned interest for a full prepayment of the loan one full month prior to the date of the deferment.

(e) No deferment when payment applied to account balance. If a payment has been applied to reduce an account balance, no deferment of any prior balance or installments may be made. This does not preclude the collection of a deferment fee previously assessed but not collected.

(f) No deferment when default charge already collected. No installment may be deferred if a default charge has already been collected on the account or if a partial payment in any amount has been credited to any installment. If an amount equal to one whole installment has already been credited to an account, this entry cannot be altered in order to credit part of the installment to a deferment charge.

(g) Missed payment covered by insurance. When any payment or partial payment is deferred that is later paid by some form of insurance, such as credit disability insurance, unemployment insurance, or collateral protection insurance, any prior assessment of additional interest for deferment must be waived.

(h) Accounting of payment. If a payment is submitted from which a deferment charge is taken, the excess of the amount necessary to bring the account current shall be applied to the remaining balance of the loan. However, any difference that exceeds three dollars ($3.00) shall be returned to the borrower upon the borrower's request.

(i) Noncompliance. Deferment fees not assessed or collected in accordance with the requirements of this section are subject to refund to the borrower. In the event deferment fees are refunded to the borrower, no rescheduling of the loan contract is permitted.

§83.705.Amounts Authorized To Be Charged After Consummation.

(a) Generally. A secondary mortgage loan contract may provide for any one or more of the four listed categories of charges set forth in Texas Finance Code, §342.307. These charges may then be assessed and collected by an authorized lender after consummation of the loan if appropriately included in the contract.

(b) Check return fee. An authorized lender may contract for, assess, or collect the fee authorized by Texas Business and Commerce Code, §3.506, on a secondary mortgage loan.

§83.706.Amounts Authorized To Be Collected on or Before Closing.

(a) Generally. On or before the closing of a secondary mortgage loan, an authorized lender may collect any one or more of the eight categories of charges set forth in Texas Finance Code, §342.308(a).

(b) Administrative fee. An authorized lender may collect an administrative fee pursuant to Texas Finance Code, §342.308(a)(9) on interest-bearing and precomputed loans.

(1) To determine the maximum amount of the administrative fee, an authorized lender should ascertain the amount of the cash advance of the loan. If the cash advance is more than $1,000, then the authorized lender may contract for, charge, or receive $25. If the cash advance is $1,000 or less, then the authorized lender may contract for, charge, or receive $20.

(2) An administrative fee may not be contracted for, charged, or received by an authorized lender directly or indirectly on a renewal or modification of an existing obligation more than once in any 180-day period. The administrative fee may be contracted for, charged, or received in a renewal or modification if the authorized lender did not contract for, charge, or receive the administrative fee on any previous obligation within the 180-day period.

(3) Interest may not be assessed, charged, or received on an administrative fee if the assessment causes the total amount of interest to exceed the maximum amount authorized under Texas Finance Code, Chapter 342.

(4) An administrative fee is a prepaid interest charge and may be contracted for, charged, or received in addition to the contractual interest charge authorized by Texas Finance Code, §342.301(a).

(c) Cost of credit report. An authorized lender may collect the cost paid to a credit reporting agency to obtain a credit report pursuant to Texas Finance Code, §342.308(a)(5), but may not charge an additional fee for reviewing or evaluating a credit report.

(d) Survey fees. A survey fee may be charged when a survey has been performed by a surveyor, who is registered or licensed by the Texas Board of Professional Land Surveying pursuant to Texas Occupations Code, Chapter 1071, and who is not a salaried employee of the lender.

(e) Flood zone determination fees. An authorized lender may collect a flood zone determination fee when a flood zone determination is required by a federal agency.

§83.707.Other Fees.

(a) Generally. Fees not otherwise permitted by §83.705 or §83.706 of this title (relating to Amounts Authorized To Be Charged After Consummation and Amounts Authorized To Be Collected on or Before Closing) may not be charged or collected in a secondary mortgage loan transaction.

(b) Examples of unauthorized fees. Fees not authorized by either §83.705 or §83.706 of this title include, but are not limited to, commitment fees, broker fees not covered by subsection (d) of this section, pay-off statement fees, prepayment penalties, fax fees, courier fees, and escrow management fees.

(c) Escrow services. An authorized lender making a secondary mortgage loan may require a borrower to make payments into an escrow trust account for payment of anticipated tax and property insurance expenses. A fee may not be charged for managing an escrow trust account.

(d) Broker fees. An authorized lender may pay a broker fee in a secondary mortgage loan if the consideration paid by the borrower in the loan which involves a broker does not exceed the consideration paid by the borrower in a loan which does not involve a broker.

(1) Example 1: A prospective borrower is quoted a contract rate of 12% plus a 2% origination fee when he makes his inquiry directly to an authorized lender. On this same individual, a broker quotes a contract rate of 12% plus a 4% origination fee for a loan of the same amount from the same authorized lender. The charge for an additional 2% origination fee is an unauthorized charge.

(2) Example 2: A prospective borrower is quoted a finance charge of 12% plus a 2% origination fee when the borrower makes the inquiry directly to an authorized lender. On this same individual, a broker quotes a contract rate of 12% plus a 2% origination fee for a loan of the same amount from the same authorized lender. The loan was then consummated with the authorized lender paying a 2% fee to the broker for originating the loan. Since the authorized lender has absorbed the expense of the fee, no unauthorized charge has been assessed, charged, or received.

(e) Seller's points. Seller's points are treated as interest. Seller's points are aggregated with other interest charges for the purposes of a usury calculation.

(f) Discount points. Discount points are treated as interest. Discount points are aggregated with other interest charges for the purposes of a usury calculation.

(g) Origination fees. Origination fees are treated as interest. Origination fees are aggregated with other interest charges for the purposes of a usury calculation.

§83.708.Balloon Payments.

Balloon payments are authorized in a secondary mortgage loan unless prohibited by other applicable law (for example, the high cost mortgage rules of Truth in Lending, Regulation Z, 12 C.F.R. §226.32(d)(1)).

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

Filed with the Office of the Secretary of State on August 11, 2006.

TRD-200604236

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: September 24, 2006

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

7 TAC §§83.751 - 83.758

The Finance Commission of Texas (the commission) proposes new 7 TAC Chapter 83, Subchapter H, §§83.751 - 83.758, concerning Refunds for Precomputed Loans.

These rules are being relocated and reorganized. The agency believes that the reorganization will benefit licensees in that these rules will be in a more logical location and order and will be easier to find. The new rules are substantially similar to the rules pending repeal, as found in 7 TAC Chapter 1, Subchapter H, §§1.751, 1.752, 1.754, 1.755 and 1.758 - 1.761, concerning Refunds in Precomputed Loans. The commission's proposed repeal of Subchapter H is published elsewhere in this issue of the Texas Register .

The following paragraphs regarding the purpose of each rule track the original purpose language used when each rule was originally adopted. These purposes still exist. Additional explanation is provided under sections where recent changes in language have been incorporated into the proposed new rules as a result of the agency's rule review of current Subchapters E - K under Title 7, Part 1, Chapter 1 of the Texas Administrative Code. The remaining changes throughout all sections consist of revisions to formatting, grammar, punctuation, spelling, and other technical corrections. If no additional explanation is provided other than the main purpose of the rule, then the only changes made from the prior version of a rule pending repeal to the new rule being proposed are technical and nonsubstantive in nature.

New 7 TAC §§83.751 - 83.758 outline the methods for computing refunds of unearned interest due to prepayment or acceleration of transactions under Texas Finance Code, Chapter 342, Subchapter E, F, or G transactions that are precomputed.

Section 83.751 (current §1.751) explains the scope and applicability of the subchapter.

Section 83.752 (current §1.752) prescribes the method for calculating refunds of interest on Subchapter E and G loans.

Section 83.753 (current §1.754) explains the method for refunding interest on Subchapter E and G loans with a term of 60 months or less.

Subsection (c) has been added to §83.753 to provide clarification that authorized lenders must consider deferment charges in the calculation of interest refunds.

Section 83.754 (current §1.755) explains the method for refunding interest on Subchapter E and G loans with a term of more than 60 months and for which prepayment occurs before the first installment due date.

Subsection (c) has been added to §83.754 to provide clarification that authorized lenders must consider deferment charges in the calculation of interest refunds.

Section 83.755 (current §1.758) explains the charges subject to refunding on Subchapter F loans.

Subsection (c) has been added to §83.755 to provide clarification that authorized lenders must consider deferment charges in the calculation of interest refunds.

Section 83.756 (current §1.759) explains the method for refunding installment account handling charges and acquisition charges on Subchapter F loans for which prepayment occurs before the first installment due date.

Subsection (c) has been added to §83.756 to provide clarification that authorized lenders must consider deferment charges in the calculation of interest refunds.

Section 83.757 (current §1.760) explains the method for refunding installment account handling charges and acquisition charges on Subchapter F loans for which prepayment occurs after the first installment due date and before the final installment due date.

Subsection (c) has been added to §83.757 to provide clarification that authorized lenders must consider deferment charges in the calculation of interest refunds.

Section 83.758 (current §1.761) details the situation in which a lender provides excess refunds to a borrower and the applicable procedures for handling the situation.

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

Commissioner Pettijohn has also determined that for each year of the first five years §§83.751 - 83.758 are in effect, the public benefit anticipated as a result of the changes from the previously enacted version of these rules will be that the commission's rules will be more easily understood by licensees required to comply with the rules, and will be more easily enforced. The general substance of these rules has already been in effect, as the rules are being relocated with some substantive and technical corrections. However, the substantive corrections consist of updates required by law, placement of the agency's policy positions into regulation, clarifications, and revisions made for consistency purposes. Thus, there is no anticipated cost to persons who are required to comply with the new rules as proposed. There is no anticipated adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the sections as proposed.

Comments on the proposed new rules may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed rules are published in the Texas Register . At the conclusion of the 31st day after the proposed rules are published in the Texas Register , no further written comments will be considered or accepted by the commission.

The new rules are proposed 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 provisions (as currently in effect) affected by the proposal are contained in Texas Finance Code, Chapter 342.

§83.751.Scope.

(a) Scope. This subchapter applies to all precomputed loan transactions made pursuant to Texas Finance Code, Chapter 342, Subchapters E, F, and G. This subchapter is inapplicable to interest-bearing loans made under Texas Finance Code, Chapter 342.

(b) Refund methods. The chosen method of determining refunds must be contracted for in the loan agreement. An authorized lender may utilize one of the following methods of determining the amount of a refund:

(1) the sum of the periodic balances method;

(2) the installment earnings method; or

(3) the true daily earnings method.

(c) Refund method for Chapter 342, Subchapter E loans. An authorized lender may not use the sum of the period balances method for a Subchapter E loan.

§83.752.Specific Application to Subchapter E and G Loans.

(a) Interest subject to refund. Precomputed interest in Texas Finance Code, Chapter 342, Subchapter E and G loans is subject to refund.

(b) Interest not subject to refund.

(1) Administrative fees. Administrative fees authorized by Texas Finance Code, §342.201(f) and §342.308(c) are not subject to refund.

(2) Per diem interest. Per diem interest on odd days in the first installment period is not subject to being refunded if the per diem interest for the first installment period has been earned and collected during the first installment period.

(3) Refunds less than one dollar. Refunds of unearned interest are not required when a partial prepayment is made or when the sum of interest to be refunded is less than $1.00.

§83.753.Refund of Precomputed Interest in Regular Subchapter E Loans.

(a) If prepayment in full is made by cash, renewal, or otherwise after the first installment due date, the authorized lender shall refund or credit to the borrower the unearned interest by the scheduled installment earnings method authorized by §83.751 of this title (relating to Scope) and identified in the loan agreement as the chosen refund method. If prepayment in full or demand for payment in full occurs during an installment period, the lender may retain an interest charge for previous elapsed periods and the number of days beginning after the installment due date and ending on the date of the prepayment or demand in full.

(b) If prepayment is made in full before the first installment due date, an authorized lender may retain an interest charge for each elapsed day between the date of the loan and the date of prepayment. The interest charge may not exceed the amount of interest allowed under the true daily earnings method for the same time period. The authorized lender shall refund or credit to the borrower the unearned interest.

(c) In calculating the amount of the refund of the unearned interest, an authorized lender must consider any installments that were deferred.

§83.754.Refund of Precomputed Interest in Subchapter G Loans.

(a) Regular Transactions.

(1) If prepayment in full is made by cash, renewal, or otherwise, the authorized lender shall refund or credit to the borrower the unearned interest by the refund method authorized by §83.751 of this title (relating to Scope) and identified in the loan agreement as the chosen refund method. One day earned into a month will allow the lender to earn the interest applicable to the full month.

(2) If prepayment in full is made by cash, renewal, or otherwise, before the first installment due date, the authorized lender shall compute the refund as provided by this paragraph.

(A) If the first installment due date is 15 days or less from the date of the loan, the lender may retain for each elapsed day between the date of the loan and prepayment before the first installment due date, 1/30th of the interest that could be retained if the first installment period were one month and the loan was prepaid in full on the first installment due date. All interest in excess of such amount shall be refunded or credited to the borrower.

(B) If the first installment due date is 16 days or greater, but less than one month, from the date of the loan, the lender may retain for each elapsed day between the date of the loan and prepayment befo