Finance Commission of Texas

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

7 TAC §4.6, §4.11

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

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604252

Finance Commission of Texas

Proposal publication date: June 23, 2006

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

Part 2. TEXAS DEPARTMENT OF BANKING

Chapter 29. SALE OF CHECKS ACT

The Finance Commission of Texas (commission), on behalf of the Texas Department of Banking (department), adopts the repeal of §29.2, concerning fees, assessments and reimbursements, and §29.11, concerning reporting and recordkeeping. The repeal of §29.2 is adopted without changes to the proposal as published in the June 23, 2006, issue of the Texas Register (31 TexReg 4981). The repeal of §29.11 is adopted without changes to the proposal as published in the May 12, 2006, issue of the Texas Register (31 TexReg 3769).

Chapter 29 consists of the administrative rules the commission previously adopted to implement the repealed Sale of Checks Act.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 adopts new Chapter 33 sections, the commission is repealing existing sections of Chapter 29. Ultimately, all Chapter 29 sections will be repealed.

The commission is repealing §29.2 and §29.11 because these sections are obsolete. As explained in this preamble, the substance of these sections is incorporated into or rendered unnecessary by the MSA or is included in the new sections of Chapter 33 that the commission is simultaneously adopting in this issue of the Texas Register .

Section 29.2 establishes the fees, assessments and reimbursements imposed under the repealed Sale of Checks Act. The fees, assessments and reimbursements imposed under the MSA are set out in adopted new 7 TAC §33.27. Section 29.11 establishes reporting and recordkeeping requirements under the repealed Sale of Checks Act. The reporting and recordkeeping requirements that apply to money transmitters and currency exchangers under the MSA are set out in Finance Code, §§151.602 - 151.604, and adopted new 7 TAC §§33.31, 33.33, 33.35, and 33.37. Sections 29.2 and 29.11 should therefore be repealed.

No comments were received regarding the proposed repeal of §29.2 and §29.11.

7 TAC §29.2

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

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604254

Proposal publication date: June 23, 2006

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

7 TAC §29.11

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

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604255

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

Chapter 33. MONEY SERVICES BUSINESSES

The Finance Commission of Texas (commission), on behalf of the Texas Department of Banking (department), adopts new §33.7, concerning a currency exchange exemption for persons that engage in currency exchange in connection with retail, wholesale or service transactions, §33.27, concerning fees, assessments and reimbursements, §33.31, concerning currency exchange recordkeeping, §33.33, concerning currency exchange receipts, §33.35, concerning money transmission recordkeeping, and §33.37, concerning money transmission receipts.

The commission adopts new §33.7 and §33.27 without changes to the proposed text as published in the June 23, 2006, issue of the Texas Register (31 TexReg 4982). New §§33.31, 33.33, 33.35, and 33.37 are adopted with minor nonsubstantive changes to the proposed text as published in the May 12, 2006, issue of the Texas Register (31 TexReg 3769). The text of adopted new §§33.31, 33.33, 33.35, and 33.37 will be republished.

The new sections are adopted under the recently enacted Money Services Act (Act of May 26, 2005, 79th Leg., R.S., H.B. 2218, §1) (MSA), which took effect September 1, 2005, and is codified as Finance Code, Title 3, Subtitle E, Chapter 151. The MSA regulates persons that engage in money services businesses in Texas, specifically the money transmission and the currency exchange businesses. Prior to the enactment of the MSA, Texas law regulated money services businesses under Finance Code, Chapter 152 (Sale of Checks Act), and Chapter 153 (Currency Exchange Act). The MSA consolidates the regulation of these businesses into one statute and repeals the Sale of Checks and Currency Exchange Acts.

The adopted new sections implement and clarify the MSA. As explained in this preamble, the adopted new sections replace 7 TAC §§29.2, 29.11, 4.3, 4.6, and 4.11, regulations that the commission previously adopted under the repealed Sale of Checks and Currency Exchange Acts and is simultaneously repealing in this issue of the Texas Register . The adopted new sections retain much of the substance of the repealed sections but reflect and conform to the provisions of the MSA.

Adopted new §33.7 relates to the exemption from currency exchange licensing provided for in §151.502(d) of the MSA, which authorizes the Banking Commissioner (commissioner) to exempt a person that exchanges currency in connection with a retail, wholesale or service provider transaction if the person satisfies certain eligibility requirements. The new section clarifies the scope and requirements of the statutory exemption and replaces repealed 7 TAC §4.6.

Adopted new §33.27 establishes fees, assessments and reimbursements (fees). The new section implements §151.102(a)(5) of the MSA, which authorizes the commission to establish fees and costs that are equitable and provide for recovery of the department's costs related to the regulation of money services businesses. The new section also implements specific sections of the MSA that authorize the commission to adopt fees and costs related to certain filings and processes. The new section replaces repealed 7 TAC §4.11 and §29.2.

The commission has successfully avoided fee increases for a number of years. Despite inflation and rising program costs, the amount of annual assessments charged license holders under the repealed Sale of Checks Act has not increased since 1996, and the amount charged license holders under the repealed Currency Exchange Act since 2002. However, the department has determined that the fees the commission previously established in repealed 7 TAC §4.11 and §29.2 are insufficient to pay for the department's MSA regulatory costs and must be increased to satisfy the statutory mandate that the MSA be self-funding. Therefore, as a general matter, license holders and license applicants will pay more in fees under adopted new §33.27 than they have paid under the repealed sections.

The increase in fees is necessitated by several factors. The primary factor is the loss, effective September 1, 2005, of federal grant money the department has received for the past ten years. Additionally, the department has been required to expand its examination staff. Examinations are more complex and require additional time to complete. Department examiners must verify compliance with a number of state and federal laws and regulations applicable to money services businesses. More examiners are needed to complete examinations within the time parameters established by the department's statutorily mandated performance measures.

Based upon the department's experience in processing and acting upon applications, renewals and other approvals required in connection with the regulation of money services businesses, and the number of license holders and the department's experience in regulating them, the commission believes that the fees established under adopted new §33.27 provide the funding required to administer and enforce the MSA and do so in a manner that is fair and equitable to all license holders. Because the MSA does not allow the department to retain fee revenue in excess of that required for regulatory purposes, the adopted new section authorizes the commissioner to reduce a fee if the commissioner determines that a lesser amount is sufficient.

Adopted new §33.27(a), (b), and (c) identify to whom the new section applies, define terms, and reference the MSA provisions that authorize the adopted fees.

Adopted new §33.27(d) establishes the fee an applicant for a new money transmission or currency exchange license must pay and provides that the applicant may also be required to pay certain additional fees and investigative costs. Subsection (d) also sets the fee an applicant for a temporary money transmission license must pay in addition to the new license application fees.

Adopted new §33.27(e) establishes the fees a license holder must pay to renew its money transmission or currency exchange license.

Adopted new §33.27(f) establishes the fees a license holder must pay in connection with a proposed change of control of the license holder's business or to obtain the department's prior determination regarding a possible "person in control" or whether a change of control application is required.

Adopted new §33.27(g) establishes the fees a person must pay related to an investigation of the person the commissioner considers necessary or appropriate to administer and enforce the MSA.

Adopted new §33.27(h) establishes the annually assessed examination fee (annual assessment) a license holder must pay. The amount of the annual assessment is based on the total annual dollar amount of the license holder's money transmission or currency exchange transactions in Texas, the basis that was used for calculating assessments under repealed 7 TAC §4.11 and §29.2. The adopted new subsection retains the former assessment structure by establishing "ranges" of dollar amounts and a corresponding assessment for each, but provides for more "ranges" to better and more closely tie the assessment to the license holder's dollar volume of business. Finally, the new subsection caps the annual assessment a license holder may be required to pay at $15,000.

Adopted new §33.27(h) also carries over the substance of repealed 7 TAC §4.11 and §29.2 with respect to costs related to additional examinations and examination travel. The annual assessment provided for under the subsection includes the cost of one examination and the associated travel expenses for an on-site examination conducted in Texas. The new subsection establishes the per day fee a license holder must pay if an additional examination is required during a one year period because of the license holder's failure to comply with the MSA, commission rules, or a department directive and requires payment of associated travel costs. Under the adopted new subsection, the per day fee and travel expense payment also applies to new license holders that have not yet filed an annual report and for whom the information necessary to calculate the first annual assessment is unavailable, as well as to the on-site examination of a license holder's authorized delegate. Finally, the new subsection requires a license holder to pay the department's travel expenses related to out-of-state examinations.

Adopted new §33.27(i) establishes the time and method of payment for the fees and requires license holders to pay annual assessments and renewal fees by ACH debit.

Adopted new §33.27(j) authorizes the commissioner to temporarily reduce a currency exchange license holder's annual assessment if the license holder is experiencing financial difficulties and certain requirements are met. The new subsection also establishes procedures for requesting the temporary reduction.

Adopted new §§33.31, 33.33, 33.35, and 33.37 establish recordkeeping and receipt requirements for currency exchange and money transmission transactions conducted by license holders and their authorized delegates, as applicable (collectively license holders). The new sections replace repealed 7 TAC §29.11 and §4.3.

Under federal law, money services businesses must comply with 31 CFR Part 103, the regulations adopted by the United States Department of Treasury's Financial Crimes Enforcement Network (FinCEN) under the Bank Secrecy Act (collectively BSA) to combat money laundering and other financial crimes. These federal regulations specify the customer and transaction information that must be obtained and recorded in connection with certain types of transactions.

Repealed 7 TAC §29.11 and §4.3 required Texas sale of checks and currency exchange license holders to obtain and maintain certain information that is not required to be recorded under the BSA (additional information). In developing new MSA recordkeeping and receipt requirements, the commission carefully considered whether to continue to require license holders to obtain and record this additional information. The commission received input from and worked closely with the money services industry, the Texas Attorney General's Office, and FinCEN regarding this issue.

The commission recognizes the need to balance the respective interests of law enforcement and the money services industry in a manner that is reasonable and appropriate and believes that the adopted new sections achieve that objective. The new sections require license holders to obtain and record certain additional information that the commission has determined is necessary for regulatory and law enforcement purposes. However, the new sections eliminate unnecessary requirements, provide greater flexibility regarding record retention and allow license holders to maintain the information in a manner consistent with their business practices. The new sections clarify requirements and conform them to the reporting and recordkeeping requirements in §§151.602 - 151.604 of the MSA and the department's actual practice.

As detailed in this preamble, the currency exchange and money transmission recordkeeping and receipt requirements are set out in four separate sections. The recordkeeping requirements are categorized and organized in a manner that is consistent with and reflects the organization of the BSA. The adopted new sections identify the requirements that apply to specific types and amounts of transactions, and also make clear the extent to and manner in which recordkeeping requirements under the Money Services Act differ from BSA requirements.

Adopted new §33.31, related to currency exchange recordkeeping, specifies the information and records a license holder must obtain and record related to currency exchange transactions. Subsection (a) clarifies to whom the section applies. Subsection (b) sets out general recordkeeping requirements and permits the records to be retained in a log or by any other means that allows the information to be readily retrieved. Subsection (c) identifies specific records that must be kept for currency exchange transactions depending upon the amount of the exchange. Subsection (d) authorizes the banking commissioner to waive a requirement of §33.31 in appropriate circumstances.

Adopted new §33.33, related to currency exchange receipts, requires a license holder to issue or obtain a receipt in connection with certain currency exchange transactions. Subsection (a) clarifies to whom the section applies. Subsection (b) sets out specific requirements related to receipts for currency exchange transactions in an amount over $1,000. The subsection identifies the information the receipt must include and also requires that the receipt be linked to the exchange transaction records required under adopted new §33.31. Finally, the subsection establishes the receipt requirements applicable to exchange transactions conducted with other financial institutions.

Adopted new §33.35, related to money transmission recordkeeping, specifies the information and records a license holder must obtain and record related to money transmission transactions. Subsection (a) clarifies to whom the proposed new section applies and subsection (b) sets out general recordkeeping requirements, including a provision that permits the records to be retained in a log or by any other means that allows the information to be readily retrieved. Subsections (c), (d), (e) and (f) identify specific types of money transmission transactions that are subject to the MSA and the recordkeeping requirements that apply to each type of transaction, and subsection (g) authorizes the banking commissioner to waive a recordkeeping requirement in appropriate circumstances.

With respect to specific types of money transmission transactions, adopted new §33.35(c) sets out the requirements that apply to transactions involving the issuance or sale of travelers checks, money orders, or similar payment instruments to one purchaser for $3,000 or more in currency.

Adopted new §33.35(d) establishes recordkeeping requirements related to transactions for the issuance or sale of stored value cards, devices, or services for currency or an instrument payable in currency. The subsection notes that FinCEN has not yet adopted specific stored value recordkeeping requirements under the BSA, but that MSA license holders will be required to comply with applicable federal requirements as and when such requirements are adopted.

Adopted new §33.35(e) sets out the recordkeeping requirements that apply to transmission of funds transactions. Paragraph (1) explains the transactions to which the subsection's requirements generally apply and excludes transmission of funds transactions that are not subject to the BSA regulations. Paragraphs (2), (3), and (4) provide additional clarification.

Paragraph (5) of §33.35(e) specifies the information that a license holder must obtain and the records a license holder must keep with respect to transmission of funds transactions of $3,000 or more. Paragraph (5) follows the organization and format of the BSA and groups the requirements into subparagraphs according to whether a license holder's customer is the sender who orders the transmission or the recipient who receives payment of the transmitted funds, and, further, whether the transaction is an in-person transaction. Each subparagraph identifies the specific BSA section that must be satisfied, clarifies the department's customer identification and verification documentation requirements to the extent the requirements differ from the BSA, and lists the additional, non-BSA information that must be recorded.

Paragraph (6) of §33.35(e) sets out the records required for transmission of funds transactions less than $3,000.

Adopted new §33.35(f) sets out the recordkeeping requirements for transactions involving the transportation of currency or instruments payable in currency. The subsection clarifies to whom it applies, sets out general requirements, and also establishes specific recordkeeping requirements based upon the amount transported and whether a license holder's customer sends or receives the transported currency or instrument(s).

Adopted new §33.37, related to money transmission receipts, requires a license holder to issue a receipt for each transmission of funds transaction and currency transportation transaction subject to the recordkeeping requirements of adopted new §33.35(e) or (f) regardless of the amount of the transaction. Subsection (a) clarifies to whom the section applies. Subsection (b), which explains and establishes the specific receipt requirements, defines "receipt" in a manner that applies to electronic or online transactions, in addition to in person transactions. The subsection identifies the information the receipt must include and also requires that the receipt be linked to the exchange transaction records required under adopted new §33.33(e) and (f). Finally, subsection (b) provides that a license holder may use one receipt to satisfy the requirements of both new §33.37 and Finance Code, Chapter 278.

The commission received no comments in response to the published notice regarding proposed §§33.7, 33.27, 33.31, 33.33, and 33.37.

The commission received comments regarding proposed §33.35, relating to money transmission recordkeeping, from an authorized delegate of a money transmission license holder. As a general matter, the commenter asked for clarification with respect to several §33.35 provisions. The commission believes that, with one exception, the requested clarifications are unnecessary.

The commenter first asked for clarification regarding where information required under §33.35(b)(1)(A) and (2)(A) must be maintained. The department notes that the location at which information related to a transaction conducted by a license holder's authorized delegate must be maintained depends upon the requirements of the BSA and the agreement between the license holder and the authorized delegate. The department's primary concern regarding the location of information is that the information be readily available to the department for examination and other regulatory purposes, which is addressed in §33.35(b)(3). Further clarification is unneccessary.

The commenter next asked whether an electronic record is sufficient for purposes of §33.35(b)(2), which allows information to be retained in a log or "by another means of retention that allows the information to be readily retrieved." The commission believes that clarification is unnecessary because §151.602(b) of the MSA specifically authorizes records to be maintained in electronic form.

The commenter also asked for clarification regarding the §33.35(b)(2)(B) requirement that records be made available to the department "within a reasonable period of time", specifically the meaning of "reasonable". Absent unusual circumstances, the department's practice is to provide at least thirty days notice of a records request. However, the meaning of the word "reasonable", a consistently used regulatory term, depends upon and may vary with the circumstances, for example, the size of the business, the type and volume of records requested, and the reason for a particular request. The commission therefore declines to revise the provision to provide a specific time period and does not believe that further clarification of the term is necessary.

The commenter next asked whether a vendor's bill pay system qualifies as a point-of-sale system for purposes of §33.35(e)(1), which excludes a funds transfer made through a point-of-sale system from the section's recordkeeping requirements. The point-of-sale exclusion under §33.35(e)(1) is intended to exclude the same type of transaction excluded from the recordkeeping requirements of the BSA by the definition of "transmittal of funds" in 31 CFR 103.11(j). Therefore, if a vendor's bill pay system qualifies as a point of sale system under 31 CFR 103.11(j), the bill pay system also qualifies under §33.35(e)(1). The commission has revised §33.35(e)(1) to specifically reference 31 CFR 103.11(j) and thereby clarify the scope of the exclusions.

The commenter next asked whether a state driver's license constitutes acceptable identification under §33.35(e)(4). Paragraph (4) specifies the "identifying number" documentation that is acceptable for purposes of establishing foreign nationality or residence when a customer has no social security or employee identification number or passport number and is an alien. Clearly, a state driver's license does not evidence a person's foreign nationality or residence, and thus does not constitute acceptable documentation as an "identifying number". The commission does not believe that further clarification is necessary.

The commenter's final request for clarification asked whether §33.35(e)(6), which specifies the records that must be maintained for transmission transactions in an amount less than $3,000, applies to money orders. Section 33.35(c), (d), (e) and (f) identifies specific types of money transmission transactions that are subject to the MSA and the recordkeeping requirements that apply to each type of transaction. Subsection (c) sets out the requirements that apply to transactions involving the issuance or sale of travelers checks, money orders, or similar payment instruments. Subsection (e) applies to transmission of funds transactions. Money orders are clearly subject to subsection (c) and not subsection (e), and the commission does not believe that clarification is necessary.

In addition to requesting that the commission clarify certain provisions, the commenter objected to the requirement in §33.35(e)(3) that a license holder or authorized delegate ask a customer if the customer is conducting the transaction on behalf of another person. The commenter stated that the requirement is overly burdensome and may have an adverse business impact. The commission notes that the BSA and repealed 7 TAC §29.11 and §4.3 require that certain information be recorded in connection with an "on behalf of" transaction, a transmission that a customer conducts on behalf of another. The duty to ask, although not expressly stated in the regulations, has thus always existed. The commission believes the provision is necessary to insure compliance with the "on behalf of" recordkeeping requirement.

Finally, the commenter asks for an exemption from the recordkeeping requirements of §33.35 because the commenter is an agent and does not directly provide the services covered by the rule. The commission does not believe that a proposed rule comment is an appropriate vehicle for requesting an exemption and suggests that the commenter write the department and explain why a waiver under §33.35(g) should be granted. However, the commission notes that the BSA and §33.35 apply to license holders and persons conducting business on their behalf as authorized delegates or agents. As a general matter, it is necessary for license holders and their authorized delegates to be subject to and comply with the recordkeeping requirements to achieve the purposes of the BSA and the Money Services Act.

In addition to the clarification made to §33.35(e)(1) to specifically reference 31 CFR 103.11(j), certain minor, nonsubstantive changes have been made to the text of adopted new §§33.31, 33.33, 33.35, and 33.37 to achieve internal consistency and consistency with the Chapter 33 sections the commission has previously adopted. Specifically, the word "the" is deleted from citations to the Finance Code, the adopted sections cite to "Finance Code, Chapter 151" rather than to the "Money Services Act", and lower case "d" is substituted for capital "D" in references to the department. Additionally, several typographical errors are corrected.

The fees provided in adopted new §33.27 are established by the commission and not mandated by the Legislature.

7 TAC §33.7, §33.27

The new sections are adopted under the authority of §151.102(a) of the MSA, which generally authorizes the commission to adopt rules to administer and enforce the Act. New §33.27 is also adopted under §151.102(a)(5) and following sections of the MSA that specifically reference fees: Finance Code, §§151.104(e), 151.207(b)(1), 151.304(b)(1), 151.306(a)(5), 151.504(b)(1), 151.605(c)(3), and 151.605(i).

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604256

Proposal publication date: June 23, 2006

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

7 TAC §§33.31, 33.33, 33.35, 33.37

§33.31.What Records Must I Keep Related to Currency Exchange Transactions?

(a) Does this section apply to me? This section applies if you hold a license issued by the department under Finance Code, Chapter 151 (Money Services Act), or are the authorized delegate of a license holder, as applicable, and you conduct currency exchange transactions. Prior to August 15, 2006, this section also applies if you hold a valid license issued under repealed Finance Code, Chapter 152 (Sale of Checks Act) or Chapter 153 (Currency Exchange Act).

(b) What are the general recordkeeping requirements?

(1) As a general matter, you must maintain:

(A) records of all filings made, and that contain all information required, under applicable federal laws and regulations, including the BSA and 31 CFR Part 103;

(B) in addition to the records required under Finance Code, Chapter 151, the records required under this section related specifically to currency exchange transactions; and

(C) records sufficient to enable you to file accurate and complete reports with the commissioner or department in accordance with Finance Code, Chapter 151 and Chapter 33 of this title (relating to Money Services Businesses).

(2) You must obtain and retain the information required under this section in a log or by another means of retention that allows the information to be readily retrieved. In addition, you must:

(A) maintain your records in such a manner that you can identify and make available to the department the records related to your Texas transaction activity, and separately account for your Texas transaction activity; and

(B) make your records available to the department within the time period reasonably requested.

(1) With respect to currency exchange transactions in an amount in excess of $1,000, you must keep a record for each transaction that contains:

(A) the customer and transaction information required under 31 CFR §103.37(b)(3), provided that, if your customer does not have a taxpayer identification number (e.g., social security, employee identification number) or passport number and is an alien, you may use the number of an alien identification card or other official document evidencing your customer's foreign nationality or residence, such as foreign driver's license or foreign voter registration card; and

(B) the specific identifying information (number, type, issuer) of a document that contains the name and a photograph of your customer and that is customarily acceptable within the banking community as means of identification when cashing checks for nondepositors;

(D) the rate of exchange;

(E) the amount of any fee charged for the transaction;

(F) the location of the office where the transaction is conducted;

(G) information sufficient to identify your employee or representative who conducts the transaction, such as initials, unique employee or representative code, or other appropriate identifier and a corresponding legend, if necessary; and

(H) the unique number of the receipt required under §33.33 of this title (relating to Currency Exchange Receipts).

(2) With respect to a transaction subject to paragraph (1) of this subsection, you must ask your customer whether the customer is conducting the transaction on the customer's own behalf or on behalf of another person (individual or business). If your customer is conducting the transaction on behalf of another person, you must, in addition to the information required under paragraph (1)(A) - (H) of this subsection, obtain and record the name and address of the other person together with appropriate identification for the other person, such as taxpayer identification, passport, or alien registration number.

(3) With respect to currency exchange transactions in an amount of $1,000 or less, you must keep a record for each transaction that contains:

(A) the date and amount of the transaction;

(B) the currency names and total amount of each currency;

(D) the rate of exchange; and

(E) the amount of fee charged for the transaction.

(d) May I obtain a waiver of the recordkeeping requirements? The commissioner may waive any requirement of this section upon a showing of good cause if the commissioner determines that:

(1) you maintain records sufficient for the department to examine your currency exchange business; and

(2) the imposition of the requirement would cause an undue burden on you and conformity with the requirement would not significantly advance the state's interest under Finance Code, Chapter 151.

§33.33.What Receipts Must I Issue Related to Currency Exchange Transactions?

(b) Must I issue a receipt in connection with the currency exchange transactions I conduct?

(1) For purposes of this section, "receipt" means a receipt, electronic record or other written confirmation.

(2) With respect to a currency exchange transaction in an amount in excess of $1,000, you must issue a receipt for each transaction that:

(A) can be linked to the exchange transaction records required under §33.31(c)(1) and (2) of this title (relating to Currency Exchange Recordkeeping); and

(B) contains:

(i) the name of your licensed business and the business address or telephone number;

(ii) the unique transaction or identification number;

(iii) the date and amount of the transaction;

(iv) the currency names and total amount of each currency;

(v) the rate of exchange; and

(vi) the amount of fee charged for the transaction.

(3) With respect to a currency exchange transaction you conduct with another financial institution as that term is defined in 31 CFR §103.11(n) or with a financial institution located outside the United States, you must obtain a contemporaneous receipt for each transaction regardless of where the transaction is conducted. If the other financial institution is a money services business as that term is defined in 31 CFR §103.11(uu), or a money services business or financial institution located outside the United States, the receipt must contain:

(A) the date and amount of the transaction;

(B) the currency names and total amount of each currency;

(D) the name and address of the money services business issuing the receipt; and

(E) information sufficient to identify the employee or representative who conducts the transaction for the entity issuing the receipt, such as initials, unique employee or representative code, or other appropriate identifier.

§33.35.What Records Must I Keep Related to Money Transmission Transactions?

(a) Does this section apply to me? This section applies to you if you hold a money transmission license issued by the department under Finance Code, Chapter 151 (Money Services Act), or are the authorized delegate of a license holder, as applicable. Prior to August 15, 2006, this section also applies if you hold a valid license issued under repealed Finance Code, Chapter 152 (Sale of Checks Act) or Chapter 153 (Currency Exchange Act).

(b) What are the general recordkeeping requirements?

(1) As a general matter, you must maintain:

(A) records of all filings made, and that contain all information required, under applicable federal laws and regulations, including the Bank Secrecy Act and 31 CFR Part 103 (collectively BSA);

(B) in addition to the records required under Finance Code, Chapter 151, the records required in this section related to specific types of money transmission transactions; and

(2) You must obtain and retain the information required under this section in a log or by another means of retention that allows the information to be readily retrieved. In addition, you must:

(B) make your records available to the department within the time period reasonably requested.

(3) If the BSA requires your authorized delegate to obtain, record and maintain information in connection with transactions conducted as your authorized sales representative, you shall, upon request by the department, arrange with the authorized delegate to have the records made available to the department. For example, the BSA requires your authorized delegate to maintain records related to the sale of travelers checks issued by you because your authorized delegate, as seller, is the person that actually receives currency. The department may require you to arrange for the production of those records for examination or as otherwise necessary or, alternatively, obtain the records directly from your authorized delegate.

(4) If you exchange currency in connection with a money transmission transaction subject to this section, you must comply with the recordkeeping requirements of this section and not the requirements of §33.31 of this title (relating to Currency Exchange Recordkeeping).

(1) This subsection applies to transactions, including third-party bill paying transactions, in which you issue or sell, either as a license holder or the authorized delegate of a license holder, as applicable, travelers checks, money orders, checks or similar payment instruments to one purchaser for $3,000 or more in currency.

(2) You must keep a record for each transaction that contains the customer and transaction information required under 31 CFR §103.29(a)(2) and (b).

(d) What specific records must I keep related to the issuance and sale of stored value products?

(1) This subsection applies to transactions in which you issue or sell, as a license holder or the authorized delegate of a license holder, as applicable, stored value products (e.g., cards, devices, services) in any amount for currency or an instrument payable in currency.

(2) You must maintain transaction records regarding each stored value transaction that are appropriate for your business activities and the type of stored value product you issue or sell. The records must be sufficient to enable the department to determine the volume of your stored value transactions and the amount of your outstanding stored value liability.

(3) The BSA and 31 CFR Part 103 impose certain requirements upon money services businesses that issue, sell and redeem stored value products. As of the effective date of this section, however, the United States Department of Treasury has not adopted specific recordkeeping requirements for stored value transactions. You must comply with applicable BSA and other federal recordkeeping requirements when and as such requirements are adopted by the Department of Treasury.

(e) What specific records must I keep related to transmission of funds transactions?

(1) This subsection applies to transactions, including third-party bill paying transactions, in which you, either as a license holder or the authorized delegate of a license holder, as applicable:

(A) receive money from a sender for transmission to the sender's designated recipient and the sender pays for or otherwise funds the transmission with currency, an instrument payable in currency, such as a check or money order, or a credit card; or

(B) receive transmitted funds and pay the designated recipient with currency or an instrument payable in currency. The requirements do not apply to a transmission of funds transaction governed by the Electronic Fund Transfer Act of 1978 (title XX, Pub. L. 950630, 92 Stat. 3728, 15 USC 1693, et. seq .), as well as any other funds transfers that are made through an automated clearing house, an automated teller machine, or a point-of-sale system within the meaning of 31 CFR 103.11(j).

(2) If a transmission of funds otherwise subject to this subsection is funded by a credit card, you must obtain and record only the information required under the applicable provisions of 31 CFR §103.33(f).

(3) With respect to a transmission transaction subject to paragraph (5)(A) - (C) of this subsection, you must ask your customer whether the customer is conducting the transaction on the customer's own behalf or on behalf of another person (individual or business) and, if applicable, record the information regarding the other person required under those subparagraphs.

(4) For purposes of paragraph (5) of this subsection, "identifying number" means the taxpayer identification number (e.g., social security, employee identification number) or passport number of your customer or the person on whose behalf your customer conducts the transaction, as applicable, or, if your customer or other person has no such number and is an alien, then the number of an alien identification card or other official document evidencing foreign nationality or residence, such as a foreign driver's license or foreign voter registration card.

(5) With respect to a transmission transaction in an amount of $3,000 or more, you must keep a record for each transaction that contains:

(A) for an in-person transaction in which your customer is the sender and orders the transaction on the customer's own behalf or on behalf of another person:

(i) the customer and transaction information required under 31 CFR §103.33(f)(1)(i) and (f)(2)(i), except that you must review or record, as applicable:

(I) an identifying number for your customer and, if applicable, the person on whose behalf your customer is conducting the transaction;

(II) a photograph identification of your customer;

(III) the identity of the issuer of the photograph identification;

(IV) the recipient's name; and

(V) the name of the recipient's bank and bank account number if the funds are to be deposited in the recipient's bank account;

(ii) your customer's date of birth;

(iii) your customer's telephone number, or, if your customer has no telephone, a notation in the record of that fact;

(iv) the time of day the transaction is conducted;

(v) the location of the office where the transaction is conducted;

(vi) the method of payment (e.g., cash, check, credit card);

(vii) the amount of any fee charged for the transaction; and

(viii) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(B) for a not-in person transaction, for example, a transaction ordered by phone, fax, mail or online, in which your customer is the sender and orders the transaction on the customer's own behalf or on behalf of another person:

(i) the customer and transaction information required under 31 CFR §103.33(f)(1)(i) and (f)(2)(ii), except that you must review or record, as applicable:

(I) an identifying number for your customer and, if applicable, the person on whose behalf your customer is conducting the transaction;

(II) the recipient's name; and

(III) the name of the recipient's bank and bank account number if the funds are to be deposited in the recipient's bank account;

(ii) your customer's date of birth;

(iii) your customer's telephone number, or, if your customer has no telephone, a notation in the record of that fact;

(iv) the time of day the transaction is conducted;

(v) the location of the office where the transaction is conducted;

(vi) the method of payment (e.g., cash, check, credit card);

(vii) the amount of any fee charged for the transaction; and

(viii) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(C) for an in-person transaction in which your customer receives payment of the transmitted funds as the designated recipient or on behalf of the designated recipient:

(i) the customer and transaction information required under 31 CFR §103.33(f)(1)(iii) and (f)(3)(i), except that you must review or record, as applicable:

(I) an identifying number for your customer and, if applicable, the person on whose behalf your customer is conducting the transaction;

(II) a photograph identification of your customer;

(III) the identity of the issuer of the photograph identification; and

(IV) the sender's name;

(ii) your customer's date of birth;

(iii) your customer's telephone number, or, if your customer has no telephone, a notation in the record of that fact;

(iv) the time of day your customer receives payment of the transmitted funds;

(v) the location of the office where your customer receives payment of the transmitted funds;

(vi) the method of payment (e.g., cash, check); and

(vii) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(D) for a transaction where the transmission proceeds are delivered to the designated recipient other than in person:

(i) the customer and transaction records required under 31 CFR §103.33(f)(1)(iii) and (f)(3)(ii);

(ii) the sender's name;

(iii) the location of the office where the transmitted funds are received; and

(iv) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(6) With respect to a transmission transaction in an amount less than $3,000, whether your customer is the sender or the recipient, you must keep a record for each transaction that contains:

(A) the date of the transaction and time of day your customer orders the transmission or receives payment of the transmitted funds;

(B) the location of the office where the transaction is conducted;

(D) the amount of any fee charged for the transaction;

(E) the names of the sender and recipient; and

(F) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(f) What records must I keep related to currency transportation?

(1) This subsection applies to a transaction in which you, as a license holder or the authorized delegate of a license holder, receive currency or an instrument payable in currency to physically transport the currency or its equivalent from one location to another by motor vehicle or other means of transportation or through the use of the mail or a shipping, courier or other delivery services.

(2) With respect to a transaction subject to paragraphs (3) or (4) of this subsection, you must ask your customer whether the customer is conducting the transaction on the customer's own behalf or on behalf of another person (individual or business.) If your customer is conducting the transaction on behalf of another person, you must obtain and record, in addition to the information required under paragraphs (3) or (4) of this subsection, the name and address of the other person together with appropriate identification for the other person, such as taxpayer identification, passport, or alien registration number.

(3) With respect to a transportation transaction in an amount of $3,000 or more in which your customer is the sender and orders the transportation of the currency on the customer's own behalf or on behalf of another person, you must keep a record for each transaction that contains:

(A) your customer's name, address, date of birth and telephone number or, if your customer has no telephone, a notation in the record of that fact;

(B) your customer's taxpayer identification number (e.g., social security number, employee identification number) or passport number or, if your customer does not have such a number and is an alien, then the number of an alien identification card or other official document evidencing your customer's foreign nationality or residence, such as a foreign driver's license or foreign voter registration card;

(C) the specific identifying information (number, type, issuer) of a document that contains the name and a photograph of your customer and that is customarily acceptable within the banking community as a means of identification when cashing checks for nondepositors;

(D) the designated recipient's name;

(E) the designated recipient's address and telephone number to the extent that information is available to you after reasonable inquiry;

(F) the amount of currency or instrument(s) to be transported and, if an instrument, the type of instrument (e.g., money order, check);

(G) the date and time of day you receive from your customer the currency or instrument(s) to be transported;

(H) the location of the office where the transaction is conducted;

(I) the amount of any fee charged for the transaction; and

(J) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(4) With respect to a transportation transaction in an amount of $3,000 or more in which your customer receives the transported currency as the designated recipient or on behalf of the designated recipient, you must keep a record for each transaction that contains:

(A) your customer's name, address, date of birth and telephone number or, if your customer has no telephone, a notation in the record of that fact;

(D) the sender's name;

(E) the sender's address and telephone number to the extent that information is available to you after reasonable inquiry;

(F) the amount of currency or instrument(s) to be delivered to your customer and, if an instrument, the type of instrument (e.g., money order, check);

(G) the date and time of day your customer receives the transported currency or instrument(s);

(H) the location of the office where the transported currency or instrument(s) is delivered to your customer; and

(I) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(5) With respect to a transportation transaction in an amount less than $3,000, whether your customer is the sender or the recipient, you must keep a record for each transaction that contains:

(A) the date and time of day you receive from your customer the currency or instrument(s) to be transported or your customer receives the transported currency or instrument(s), as applicable;

(B) the location of the office where the transaction is conducted;

(D) the amount of any fee charged for the transaction;

(E) the names of the sender and recipient; and

(F) the unique number of the receipt required under §33.37 of this title (relating to Money Transmission Receipts).

(g) May I obtain a waiver of the recordkeeping requirements? The commissioner may waive any requirement of this section upon a showing of good cause if the commissioner determines that:

(1) you maintain records sufficient for the department to examine your money transmission business; and

(2) the imposition of the requirement would cause an undue burden on you and conformity with the requirement would not significantly advance the state's interest under Finance Code, Chapter 151.

§33.37.What Receipts Must I Issue Related to Money Transmission Transactions?

(a) Does this section apply to me? This section applies if you hold a money transmission license issued under Finance Code, Chapter 151 (Money Services Act), or are the authorized delegate of a license holder, as applicable. Prior to August 15, 2006, this section also applies if you hold a valid license issued under repealed Finance Code, Chapter 152 (Sale of Checks Act) or Chapter 153 (Currency Exchange Act).

(b) Must I issue a receipt in connection with the money transmission transactions I conduct?

(1) For purposes of this section "receipt" means a receipt, electronic record or other written confirmation. If the customer conducts the transaction online or electronically, the term includes a means by which the customer can save or print a receipt or other record of the transaction that contains the information required under this section.

(2) With respect to a transmission of funds transaction subject to §33.35(e) or a currency transportation transaction subject to §33.35(f) of this title (relating to Money Transmission Recordkeeping), regardless of the amount of the transaction, you must issue a receipt for each transaction that:

(A) can be linked to the transaction records required under §33.35(e) or (f) of this title, as applicable; and

(B) contains:

(i) the name of your licensed business and the business address or telephone number;

(ii) the unique transaction or identification number;

(iii) the date of the transaction;

(iv) the amount of the transaction in United States dollars; and

(v) the amount of any fee charged for the transaction.

(3) With respect to a currency transmission transaction subject to Finance Code, Chapter 278, you must provide the receipt required under Finance Code, §278.051 and §278.053, as applicable. The information required under those sections may be included on the receipt required under paragraph (2) of this subsection.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604257

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

Part 5. OFFICE OF CONSUMER CREDIT COMMISSIONER

Chapter 84. MOTOR VEHICLE INSTALLMENT SALES

Subchapter A. SALES FINANCE LICENSES

7 TAC §§84.101 - 84.111

The Finance Commission of Texas (the commission) adopts new 7 TAC, Chapter 84, concerning Motor Vehicle Installment Sales. The new rules contained in 7 TAC §§84.101 - 84.111 outline sales finance licenses with regard to motor vehicle dealers licensed by the Office of Consumer Credit Commissioner.

The commission received no written comments on the proposal.

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. In reference to new Subchapter A, §§84.101 - 84.111, (former Subchapter S §§1.1401-1.1410), additional explanation is provided under sections where recent changes in language have been incorporated into the adopted new rules as a result of the agency's rule review of Subchapter S 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 being repealed to the new rule being adopted are technical and nonsubstantive in nature. Minor revisions in wording have been made to some rules and figures from their previously enacted version, but often such changes do not substantively affect the meaning of the rules, model clauses, or contracts and thus, further explanation is unnecessary.

Section 84.101 (former §1.1401) defines particular terms.

Section 84.101(5)(A) has been clarified regarding the inclusion of spouses with community property interest, which had been stated elsewhere in these licensing rules. In addition, the order of the entity types in §84.101(5) has been reorganized to group like entities together and to list the same sequence of entity types throughout the rules.

Section 84.102 (former §1.1402) describes the procedure for filing a new application for a motor vehicle sales finance, including instructions regarding what forms to use, what information is necessary on the application, and what information must be filed with the application.

Section 84.102 has been revised to conform to the agency's current practice, including the description of the requirement for a statement regarding previous installment transactions, as contained in §84.102(2)(D). The requirements for disclosure of owners and principal parties for general partnerships and limited partnerships, as well as the fingerprinting requirements have been clarified. The adoption also adds information related to applications by nonprofit organizations. In addition, the order of the entity types in §84.102 has been reorganized to group like entities together and to list the same sequence of entity types throughout the rules.

Section 84.103 (new rule) outlines the procedures for licensees to add new registered offices. Some of this language had been included in different sections within the previously enacted version of these rules, but the agency has determined that a separate section addressing new registered offices would be beneficial to the agency as well as licensees.

Section 84.104 (former §1.1403) describes the procedure for filing an application for transfer of a motor vehicle sales finance license, including the filing requirements.

Section 84.104 has been revised to clarify the circumstances for each entity type and situation as to when a transfer will be required. Additionally, the order of the entity types in §84.104(a) has been reorganized to group like entities together and to list the same sequence of entity types throughout the rules.

Section 84.105 (former §1.1405) describes what action the licensee must take when it changes the proportion of ownership in, or the form of, the licensed entity and lists the time frame within which the licensee must notify the commissioner.

Section 84.105(c) has been revised to clarify the circumstances as to when a change in proportionate ownership does not require a transfer of license. In addition, a new procedure whereby licensees are to submit a Notification of Proportionate Ownership Change form has been added to §84.105(c).

Section 84.106 (former §1.1404) describes how an application for a motor vehicle sales finance license is processed, including a description of when an application is complete, as well as an explanation of what may occur if an applicant fails to complete an application. In addition, this section describes the hearings process that occurs if the applicant contests the denial of its application.

Section 84.107 (former §1.1406) requires each applicant, upon discovery of new or changed information, to supplement its application within 10 calendar days of discovery of the new or changed information.

Section 84.108 (former §1.1407) describes the procedures for relocating a licensed office, including deadlines for notification to the commissioner.

Section 84.109 (former §1.1408) describes how a licensee may change its license from active to inactive status and how a licensee may activate an inactive license.

Additionally, a specific subsection, §84.109(c), has been added to clarify the difference between inactivating a license and canceling a license.

Section 84.110 (former §1.1409) sets out the fees for new licenses, license transfers, fingerprint checks, license amendments, license duplication, and cost of hearings.

In addition, a specific subsection, §84.110(c), has been added to provide a fee for a notification of proportionate ownership change.

Section 84.111 (former §1.1410) states the implementation provisions of licensing.

Section 84.111 has been revised in that former §1.1410(b) has been deleted, as the agency is no longer issuing provisional licenses.

These new sections are adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §348.513 grants the Finance Commission the authority to adopt rules to enforce the motor vehicle installment sales chapter.

These rules affect Texas Finance Code, Chapter 348.

§84.101.Definitions.

Words and terms used in this chapter that are defined in Texas Finance Code, Chapter 348, have the same meanings as defined in Chapter 348. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Affiliate--A business entity directly or indirectly through one or more intermediaries that is under common control with the applicant or licensee.

(2) Applicant--An entity that has filed the required forms and fees to operate under a license from the Office of Consumer Credit Commissioner pursuant to Texas Finance Code, Chapter 348.

(3) Foreign entity--An entity formed under the laws of a jurisdiction other than the State of Texas.

(4) Licensed location--The central or main location of the entity.

(5) Principal party--An individual with a substantial relationship to the proposed business of the applicant. The following individuals are considered to be principal parties:

(A) proprietors, to include spouses with community property interest;

(B) general partners;

(C) officers of privately-held corporations, to include the chief executive officer or president, the chief operating officer or vice president of operations, and those with substantial responsibility for operations or compliance with Texas Finance Code, Chapter 348;

(D) directors of privately-held corporations;

(E) individuals associated with publicly-held corporations designated by the applicant as follows:

(i) officers as provided by subparagraph (D) of this section (as if the corporation was privately-held); or

(ii) three officers or similar employees with significant involvement in the corporation's activities governed by Texas Finance Code, Chapter 348. One of the persons designated shall be responsible for assembling and providing the information required on behalf of the applicant and shall sign the application for the applicant;

(F) voting members of a limited liability corporation;

(G) trustees and executors;

(H) officers of nonprofit organizations; and

(I) individuals designated as a principal party where necessary to fairly assess the applicant's financial responsibility, experience, character, general fitness, and sufficiency to command the confidence of the public and warrant the belief that the business will be operated lawfully and fairly as required by the commissioner.

(6) Privately-held corporation--A corporation that is not publicly-held.

(7) Publicly-held corporation--A corporation:

(A) subject to the registration provisions of the Securities Act of 1933 in order to allow a public offering of voting stock; or

(B) owned directly or indirectly by a parent corporation that is subject to the registration provisions of the Securities Act of 1933.

(8) Registered Offices--Each location other than the licensed location where a licensee will originate, service, or collect on retail installment contracts subject to Texas Finance Code, Chapter 348. The term also includes any additional assumed name that the licensee uses at a single location to engage in a Chapter 348 transaction.

§84.102.Filing of New Application.

An application for issuance of a new motor vehicle sales finance license must be submitted on forms prescribed by the commissioner at the date of filing and in accordance with the commissioner's instructions. The application must include the appropriate fees and the following:

(1) Required forms.

(A) Application for Motor Vehicle Sales Finance License.

(i) Location. A physical street address must be listed for the applicant's proposed licensed location. If the address has not yet been determined or the application is for an inactive license, then the application must indicate an application for an inactive license.

(ii) Responsible person. The person responsible for the day-to-day operations of applicant's proposed office must be listed.

(iii) Signature.

(I) If the applicant is a proprietor each owner must sign.

(II) If the applicant is a partnership, each general partner must sign.

(III) If the applicant is a corporation, an authorized officer must sign.

(IV) If the applicant is a limited liability company, an authorized member or manager must sign.

(V) If the applicant is a trust or estate, the trustee or executor, as appropriate, must sign.

(VI) If the applicant is a nonprofit organization, an authorized officer must sign.

(B) List of Registered Offices for a Motor Vehicle Sales Finance License. Each additional location, other than the licensed location shown on the Application for Motor Vehicle Sales Finance License, must be listed on this form. The applicant should provide the assumed name (DBA), physical address, telephone number, and the person responsible for day-to-day operations for each registered office. A registered office is required for any additional assumed name that the licensee uses at a single location to engage in a Texas Finance Code, Chapter 348 transaction.

(i) Proprietorship. The applicant must disclose who owns and who is responsible for operating the business. All community property interest must also be disclosed. If the business interest is owned by a married individual as separate property, documentation establishing or confirming separate property status must be provided.

(ii) General partnership. Each partner must be listed and the percentage of ownership stated. If a general partner is wholly or partially owned by a legal entity and not a natural person, a narrative or diagram must be attached that includes the names and titles of all "managerial officials," as that term is defined in Texas Business Organization Code, §1.002 and a description of the ownership of each legal entity must be provided. General partnerships that register as limited liability partnerships should provide the same information as that required for general partnerships.

(iii) Limited partnership. Each partner, general and limited, must be listed and the percentage of ownership stated.

(I) General partners. The applicant should provide the complete ownership, regardless of percentage owned, for all general partners. If a general partner is wholly or partially owned by a legal entity and not a natural person, a narrative or diagram must be attached that includes the names and titles of all "managerial officials," as that term is defined in Texas Business Organization Code, §1.002, and a description of the ownership of each legal entity must be provided.

(II) Limited partners. The applicant should provide a complete list of all limited partners owning 10% or more of the partnership.

(III) Limited partnerships that register as limited liability partnerships. The applicant should provide the same information as that required for limited partnerships.

(iv) Corporation. The officers and directors' sections on the form must be completed. Each shareholder holding 10% or more of the voting stock must be listed if the corporation is privately-held. If a parent corporation is the sole or part owner of the proposed business, a narrative or diagram must be attached that describes each level of ownership of 10% or greater.

(v) Limited liability company. Each manager, officer, agent, and member owning 10% or more of the company, as those terms are defined in the Texas Business Organization Code, §1.002, and as used in Texas Business Organization Code, Title 3, Chapter 101, Limited Liability Companies, must be listed. If a member is a legal entity and not a natural person, a narrative or diagram must be attached that describes each level of ownership of 10% or greater.

(vi) Trust or Estate. Each trustee or executor, as appropriate, must be listed.

(vii) Nonprofit organizations. Each officer must be listed.

(D) Application Questionnaire. All questions must be answered. Questions requiring a "yes" answer must be accompanied by an explanatory statement and any appropriate documentation requested on the form.

(E) Appointment of Statutory Agent and Consent to Service. This form must be completed by each applicant. The statutory agent is the person or entity to whom any legal notice may be delivered. The agent must be a Texas resident and list an address for legal service. If the statutory agent is a natural person, the address must be a physical residential address. If the applicant is a corporation or limited liability company, the statutory agent should be the registered agent on file with the Texas Secretary of State. If the statutory agent is not the same as the registered agent filed with the Texas Secretary of State, then the applicant must submit certified minutes appointing the new agent.

(F) Personal Affidavit. Each individual listed on the Disclosure of Owners and Principal Parties meeting the definition of principal party as defined in §84.101 of this title (relating to Definitions) must complete this form. All requested information must be provided.

(G) Personal Questionnaire. Each individual listed on the Disclosure of Owners and Principal Parties meeting the definition of principal party as defined in §84.101 of this title must complete this form. Each question must be answered. If any question, except question 1, is answered "yes," an explanation must be provided.

(H) Employment History. Each individual listed on the Disclosure of Owners and Principal Parties meeting the definition of principal party as defined in §84.101 of this title must complete this form. Each principal party should provide a continuous 10-year history, with no gaps, accounting for time spent as a student, unemployed, or retired. The employment history must also include the individual's association with the entity applying for the license.

(I) Fingerprint cards.

(i) For all persons meeting the definition of principal party as defined in §84.101 of this title, a complete set of legible fingerprints must be provided. All fingerprints should be submitted in a format prescribed by the agency and approved by the Department of Public Safety and the Federal Bureau of Investigation.

(ii) For limited partnerships, if the Disclosure of Owners and Principal Parties under subparagraph (C)(iii)(I) of this paragraph does not produce a natural person, the applicant must provide a complete set of legible fingerprints for individuals who are associated with the general partner as principal parties.

(iii) For entities with complex ownership structures that result in the identification of individuals to be fingerprinted who do not have a substantial relationship to the proposed applicant, the applicant may submit a request to fingerprint three officers or similar employees with significant involvement in the proposed business. The request should describe the relationship and significant involvement of the individuals in the proposed business. The agency may approve the request, seek alternative appropriate individuals, or deny the request.

(iv) For individuals who have previously been licensed by the agency and principal parties of entities currently licensed, fingerprints are not required.

(2) Other required filings.

(A) Contract forms. The applicant must provide information regarding the retail installment contract forms generally expected to be used.

(i) Custom forms. If a custom contract form is anticipated for regular use, a complete preliminary draft indicating the number and distribution of copies expected for each transaction must be submitted.

(ii) Stock forms. If an applicant plans to purchase stock forms from a supplier, the applicant must attach a statement that includes the supplier's name and address and a list identifying the forms to be used.

(B) Statement of Experience. An applicant should provide information that relates to the applicant's prior experience in the motor vehicle sales finance business. If the applicant or its principal parties do not have significant experience in the business, the applicant must provide a written statement explaining the applicant's relevant business experience or education, why the commissioner should find that the applicant has the requisite experience, and how the applicant plans to obtain the necessary knowledge to operate lawfully and fairly.

(i) an estimate of how many motor vehicles will be financed by the applicant each year;

(ii) whether the applicant will hold the retail installment contracts or whether the applicant will assign its retail installment contracts;

(iii) whether the applicant will only be accepting contracts from another entity (assignor), and, if so, list the types of entities; and

(iv) whether the collections will occur at the licensed location.

(D) Statement regarding previous installment transactions. Each applicant must submit a statement that it has or has not made or collected on any retail installment contract or accepted the cash payment for a motor vehicle in one or more installments from September 1, 2002, to date. This includes any contracts signed by applicant as seller that are subsequently assigned to a third party. If the applicant is purchasing another dealership and has permission to operate under an existing license, as described in §84.104 of this title (relating to Transfer of License), the statement outlined by this subparagraph is not required. If the applicant has engaged in any of the referenced activities, the applicant must provide the following information:

(i) A list of all contracts used to finance the sale of a motor vehicle in one or more installments (whether the applicant was the original seller or whether the applicant became a holder). The list should include the name of the buyer, contract date, vehicle cash price, amount of down payment, net trade-in amount, total amount financed, payment frequency (monthly, semi-monthly, bi-weekly, weekly), total number of payments, and payment amount(s).

(ii) From the list provided by the applicant, submit copies of ten (10) complete files. The complete file includes, but is not limited to, the buyer's order, signed retail installment contract, payment history, certificate of title, and other documents related to that transaction. If there are fewer than ten (10) accounts, provide a complete copy of each file.

(E) Assumed name. If applicable, provide evidence that all assumed names have been filed with either the county clerk's office (proprietors and general partnerships) or the Texas Secretary of State (corporations, limited liability companies, and limited partnerships).

(F) Entity documents.

(i) Partnerships. A partnership applicant must submit a copy of the relevant portions of the partnership agreement addressing ownership and the responsibility for operations. If the applicant is a limited partnership or a limited liability partnership, provide evidence of filing with the Texas Secretary of State.

(ii) Corporations. A corporate applicant, domestic or foreign, must provide the following documents:

(I) copies of the relevant portions of the by-laws addressing the required number of directors and the required officer positions for the corporation; and

(II) minutes of corporate meetings that record the election of the statutory agent and all current officers and directors as listed on the Disclosure of Owners and Principal Parties, or a certification from the secretary of the corporation identifying the statutory agent and current officers and directors as listed on the Disclosure of Owners and Principal Parties.

(iii) Publicly-held corporations. In addition to the items required for corporations, a publicly-held corporation must file the most recent 10K or 10Q for the applicant or for the parent company.

(iv) Limited liability companies. A limited liability company applicant, domestic or foreign, must provide the following documents:

(I) a copy of the relevant portions of the operating agreement and regulations addressing responsibility for operations; and

(II) minutes of meetings that record the election of the statutory agent and all current officers, directors, and managers as listed on the Disclosure of Owners and Principal Parties, or a certification identifying the statutory agent and current officers, directors, and managers as listed on the Disclosure of Owners and Principal Parties.

(v) Trusts. A copy of the relevant portions of the instrument that created the trust addressing management of the trust and operations of the applicant must be filed with the application.

(vi) Estates. A copy of the relevant portions of the instrument establishing the estate addressing management of the estate and operations of the applicant must be filed with the application.

(vii) Nonprofit organizations. The applicant must provide a copy of the relevant portions of the instrument creating the nonprofit organization addressing management of the organization and operations of the applicant. A nonprofit applicant must also provide a copy of its filing with the Internal Revenue Service or other evidence to verify that the applicant is a nonprofit organization exempt from taxation under Internal Revenue Code of 1986, §501(c)(3).

(viii) Foreign entities. In addition to the items required by this chapter, a foreign entity must provide a statement of where records of Texas transactions will be kept. If these records will be maintained at a location outside of Texas, the applicant must acknowledge responsibility for the travel costs associated with examinations in addition to the usual assessment, or agree to make all the records available for examination in Texas.

(3) Late filing. An applicant who desires to retroactively file a license application may do so by complying with Texas Finance Code, §349.303, and the rules adopted under this chapter.

§84.103.New Registered Offices.

(a) A licensee may conduct Texas Finance Code, Chapter 348 transactions at different locations or under additional assumed names at a single location by filing a New Registered Office Notification and paying the applicable fee.

(b) The New Registered Office Notification must be filed before a licensee can engage in a Chapter 348 transaction at the different location or under the additional assumed name.

(1) Date registered office began conducting Chapter 348 transactions. If the registered office has commenced business, provide the date the registered office began conducting Texas Finance Code, Chapter 348 transactions. If the form is filed in advance, provide the date the licensee anticipates commencing business under this registered office.

(2) License number of licensed location. Provide the license number shown on the license of the licensed location issued by the Office of Consumer Credit Commissioner.

(3) Assumed name. If the registered office is using an assumed name, provide evidence that it has been filed with either the county clerk's office (proprietors and general partnerships) or the Texas Secretary of State (corporations, limited liability companies, and limited partnerships).

(c) Late filing. A licensee who desires to retroactively register an office may do so by complying with Texas Finance Code, §349.302, and the rules adopted under this chapter.

§84.104.Transfer of License.

(a) Definition. As used in this chapter, a "transfer of ownership" does not include a change in proportionate ownership as defined in §84.105(c) of this title (relating to Change in Form or Proportionate Ownership). Transfer of ownership includes the following:

(1) an existing owner of a sole proprietorship relinquishes that owner's entire interest in a license or an entirely new entity has obtained an ownership interest in a sole proprietorship license;

(2) any purchase or acquisition of control of a licensed general partnership, in which a partner owning 10% or more relinquishes that owner's entire interest or a new general partner obtains an ownership interest of 10% or more;

(3) any purchase or acquisition of a licensed limited partnership interest:

(A) of 10% or more of ownership;

(B) in which a general partner relinquishes that owner's entire interest in a licensee; or

(C) in which a new general partner obtains an ownership interest in the licensee. A transfer of ownership occurs regardless of the percentage of ownership exchanged of the general partner;

(4) any purchase or acquisition of control of 10% or more of the outstanding voting stock of any licensed privately-held corporation, or of 51% or more of any privately-held corporation which is the parent or controlling stockholder of a licensed corporation. The term also includes stock ownership changes that result in a change of control (i.e. 51% or more) for a publicly-held company;

(5) any purchase or acquisition of control of 10% or more of a membership interest of any licensed limited liability company, or of 51% or more of any limited liability company which is the parent or controlling member of a licensed limited liability company;

(6) any acquisition of a license by gift, devise, or descent; and

(7) any purchase or acquisition of control of a licensed entity whereby a substantial change in management or control of the business occurs, despite not fulfilling the requirements of subsection (a)(1) - (5) of this section, and the commissioner has reason to believe that proper regulation of the licensee dictates that a transfer must be processed.

(b) Approval of transfer. No license may be sold, transferred, or assigned without written approval by the commissioner.

(c) Filing requirements. An application for transfer of a license must be submitted on forms prescribed by the commissioner and in accordance with the rules and instructions. The application for transfer shall include the appropriate fees and the following:

(1) Application. The instructions in §84.102 of this title (relating to Filing of New Application) are applicable to this filing.

(2) Registered offices. The instructions in §84.102 of this title are applicable to this filing.

(3) Disclosure of Owners and Principal Parties. The instructions in §84.102 of this title are applicable to this filing.

(4) Appointment of Statutory Agent and Consent to Service. The instructions in §84.102 of this title are applicable to this filing.

(5) Personal Affidavit, Personal Questionnaire, and Employment History. The instructions in §84.102 of this title are applicable to these filings.

(6) Fingerprint cards. The instructions in §84.102 of this title are applicable to this filing.

(7) Evidence of the transfer of ownership. Documentation evidencing the transfer of ownership must be filed with the application and should include one of the following:

(A) a copy of the asset purchase agreement when only the assets have been purchased;

(B) a copy of the stock purchase agreement or other evidence of acquisition if voting stock of a corporate licensee has been purchased or otherwise acquired; or

(d) Permission to operate. No business under the license shall be conducted by any transferee until the application has been received, all applicable fees have been paid, and a request for permission to operate has been approved. A request for permission to operate during the pendency of the application may be denied. This subsection does not apply to a change of control of a publicly-held corporation or a change due to the death or disability of an individual.

(e) Purchaser operating under seller's license. A written agreement whereby a seller grants a buyer the authority to operate under the seller's license pending approval of the buyer's new license application is authorized. The agreement must provide that the seller accepts full responsibility to any customer of the licensed business for any acts of the buyer in connection with the operation of the business. The written agreement between the seller and the buyer must be submitted to the commissioner with a request to operate under the seller's license not less than 10 business days after the closing or the date of the sale. The agreement shall be for a defined period of time as provided in the agreement. Two companies may not simultaneously operate under a single license. If a seller grants another company permission to operate under the seller's license, the seller must cease operating under the authority of the license.

(f) Application filing deadline. Applications filed in connection with transfers of ownership may be filed in advance but must be filed no later than 10 calendar days following the actual transfer. Failure to meet the application filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.

§84.105.Change in Form or Proportionate Ownership.

(a) Organizational form. When any licensee desires to change the organizational form of its business (e.g., from proprietorship to corporation), the licensee must advise the commissioner in writing of the change within 10 calendar days by filing the appropriate fees and transfer application documents as provided in this title. In addition, the licensee shall submit a copy of the relevant portions of the organizational document for the new entity (e.g., the articles of incorporation) addressing the ownership and management of the new entity. Failure to meet the application filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.

(b) Merger. A merger of a licensee is a change of ownership that results in a new or different surviving entity and requires the filing of a transfer application pursuant to this title. A merger of the parent entity of a licensee that leads to the creation of a new entity requires a transfer application pursuant to this title. A merger of the licensee's parent entity resulting in a different surviving parent entity requires a transfer application pursuant to this title. Mergers or transfers of other entities with a beneficial interest beyond the parent entity level only require notification within 10 calendar days. Failure to meet the application or notification filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.

(1) When a change in proportionate ownership results in the exact same owners still owning the business, a transfer will not be required, even if some of those same owners have a change in proportionate ownership resulting in control of 10% or more of the business where it did not exist previously. Such a proportional change in ownership among the current owners does not require the filing of a transfer application, but does require notification when the cumulative ownership change to a single entity or individual amounts to 5% or greater. No later than 10 calendar days following the actual change, the licensee is required to complete and submit a Notification of Proportionate Ownership Change form as prescribed by the commissioner and pay an appropriate fee as outlined in §84.110 of this title (relating to Fees).

(2) This subsection does not apply to a publicly-held corporation that has filed with the agency the most recent 10K or 10Q filing of the licensee or the publicly-held parent corporation.

(3) Failure to meet the notification filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.

§84.106.Processing of Application.

(a) Initial review. Applications shall be responded to within 14 calendar days of receipt stating that the application is complete and accepted for filing or stating that the application is incomplete and specifying the information required for acceptance.

(b) Complete application. An application is complete when:

(1) it conforms to the rules and published instructions;

(2) all fees have been paid; and

(3) all requests for additional information have been satisfied.

(c) Failure to complete application. If a complete application has not been filed within 30 calendar days after notice of deficiency has been sent to the applicant, the application may be denied.

(d) Hearing. Whenever an application is denied, the affected applicant has 30 calendar days from the date the application was denied to request in writing a hearing to contest the denial. This hearing shall be conducted pursuant to the Administrative Procedure Act, Texas Government Code, Chapter 2001, and §9.1 et seq . of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings), before an administrative law judge who will recommend a decision to the commissioner. The commissioner will then issue a final decision after review of the recommended decision.

(e) Denial. If an application has been denied, the investigation fee and the fingerprint processing fee in §84.110 of this title (relating to Fees) shall be forfeited.

(f) Processing time.

(1) A license application shall ordinarily be approved or denied within a maximum of 60 calendar days after the date of filing of a completed application.

(2) When a hearing is requested following an initial license application denial, the hearing shall be held within 60 calendar days after a written request for a hearing is made unless the parties agree to an extension of time. A final decision approving or denying the license application shall be made after receipt of the proposal for decision from the administrative law judge.

(3) Exceptions. More time may be taken where good cause exists, as defined by Texas Government Code, §2005.004, for exceeding the established time periods in paragraphs (1) and (2) of this subsection.

(g) Applications and notices as public records. Once a license application or notice is filed with the agency, it becomes a "state record" under Texas Government Code, §441.180(11), and "public information" under Texas Government Code, §552.002. Under Texas Government Code, §441.190, §441.191 and §552.004, the original applications and notices must be preserved as "state records" and "public information" unless destroyed with the approval of the director and librarian of the State Archives and Library Commission under Texas Government Code, §441.187. Under Texas Government Code, §441.191, the agency may not return any original documents associated with a license application or notice to the applicant or licensee. An individual may request copies of a state record under the authority of the Texas Public Information Act, Texas Government Code, Chapter 552.

§84.107.Amendments to Pending Application.

(a) Upon request, each applicant shall provide information supplemental to that contained in the applicant's original application documents and attachments.

(b) Any action, fact, or information that would require a materially different answer than that given in the original license application and which relates to the qualifications for license must be reported within 10 calendar days after the person has knowledge of the action, fact, or information.

§84.108.Relocation.

(a) Relocation of a licensed location. A licensee may move a licensed location to any other location by paying the appropriate fees and giving notice of intended relocation to the commissioner not less than 10 calendar days prior to the anticipated moving date.

(b) Relocation of a registered office. A licensee may move a registered office from the registered location to any other location by paying the appropriate fees and giving notice of intended relocation to the commissioner not less than 10 calendar days prior to the anticipated moving date.

(c) The notice must include the contemplated new address of the licensed location or registered office and the approximate date of relocation. Failure to meet the notification deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.

§84.109.License Status.

(a) Inactivation of an active license. A licensee may cease operating a licensed location and choose to inactivate the license. A license may be inactivated by giving notice of the cessation of operations on the appropriate form not less than 10 calendar days prior to the anticipated inactivation date and remitting the fee for license amendment. Registered offices will be designated as closed when a license is inactivated. A licensee must continue to pay the yearly renewal fees for an inactive license, or the license will expire.

(b) Activation of an inactive license. A licensee may activate a license by giving notice of the intended activation on the appropriate form not less than 10 calendar days prior to the anticipated activation date and remitting the fee for license amendment. Registered offices must be listed and appropriate fees paid upon activation of a license.

(c) Cancellation of a license. A licensee may cancel an inactive license by providing written notice of the cessation of operations and a request to cancel the license.

(d) Expiration. A license will expire unless a fee is paid by the due date on the license renewal form. A licensee that pays the annual renewal and examination assessment will automatically be renewed even though a new license may not be issued.

§84.110.Fees.

(a) New licenses.

(1) Investigation fees. A $100 non-refundable investigation fee is assessed each time an application for a new license is filed.

(2) Registered office fees. The fee for each registered office is $25.

(b) License transfers. An applicant must pay a non-refundable investigation fee of $100 for the transfer of a license.

(c) Notification of proportionate ownership change. An applicant must pay a non-refundable fee of $25 when filing a Notification of Proportionate Ownership Change form as provided by §84.105(c) of this title (relating to Change in Form or Proportionate Ownership).

(d) Fingerprint record checks. The non-refundable fee to investigate each applicant's fingerprint record is $40 per set. This fee must be paid for each set of fingerprints filed with an application for a new license or a license transfer.

(e) License amendment.

(1) License amendment fees. A fee of $25 must be paid each time a licensee seeks to amend a license by rendering a license inactive, activating an inactive license, changing the assumed name of the licensee, or relocating a licensed location.

(2) Registered office amendment fees. The fee for amending or relocating a registered office is $10.

(f) Annual renewal and examination assessment.

(1) An annual renewal fee is required for each licensee consisting of:

(A) a licensed location fee of $75;

(B) a registered office fee of $10 per location; and

(C) a variable fee based upon the annual dollar volume of contracts originated or acquired during the preceding calendar year.

(2) The maximum annual assessment for each active license shall be no more than $250 excluding the registered office fees.

(g) Licensed location or registered office duplicate certificate. The fee for a duplicate certificate is $10.

(h) Costs of hearings. The commissioner may assess the costs of an administrative appeal pursuant to Texas Finance Code, §14.207 for a hearing afforded under §84.106 of this title (relating to Processing of Application), including the cost of the administrative law judge, the court reporter, and agency staff representing the agency at a hearing.

§84.111.Implementation Provisions of Licensing.

(a) Effective date. The effective date of the statutory licensing requirement is September 1, 2002. After September 1, 2002, a motor vehicle seller may not engage in any retail installment transaction without a motor vehicle sales finance license granted under this title. Any motor vehicle seller engaging in a motor vehicle sales finance transaction prior to September 1, 2002, must comply with Texas Finance Code, §348.401 and §348.402, and 7 TAC, Part 1, Chapter 1, Subchapter P, as those provisions were in effect. Failure to comply with previously required registration provisions is grounds for denial of an application made under §84.106 of this title (relating to Processing of Application).

(b) Securitization of transactions. In the case of securitized transactions, such as a transaction in which motor vehicle retail installment contracts are held in trust or similar structure with participatory interests in the structure transferred to investors, the licensing requirements may be fulfilled either by the trust or other securitization entity or by the servicer that is responsible for servicing the contracts included in the securitized entity.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604208

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

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

Subchapter B. INSTALLMENT SALES CONTRACT PROVISIONS

7 TAC §§84.201 - 84.210

The Finance Commission of Texas (the commission) adopts new 7 TAC Chapter 84 , concerning Motor Vehicle Installment Sales. The new rules contained in 7 TAC §§84.201 - 84.210 outline installment sales contract provisions with regard to motor vehicle dealers licensed by the Office of Consumer Credit Commissioner.

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 being repealed, as found in 7 TAC, Subchapter R, §§1.1301 - 1.1309, concerning Motor Vehicle Installment Sales Contract Provisions. The commission's adopted repeal of Subchapter R is published elsewhere in this issue of the Texas Register . The commission is also adopting new §84.202, concerning non-standard contract filing procedures, modeled after former §1.841. The commission adopts new Chapter 84, with changes to the proposal published in the May 12, 2006, issue of the Texas Register (31 TexReg 3783).

The commission received no written comments on the proposal.

In reference to §84.209, on the initial proposal some language concerning balloon payments in §84.209(24)(B) had been inadvertently omitted. Section 84.209 was reproposed for comment with the balloon payments language in the June 23, 2006, issue of the Texas Register (31 TexReg 4986). The agency received no comments on the reproposal of §84.209.

Regarding new Subchapter B, §§84.201 - 84.210, the new rules implement the provisions of Texas Finance Code, §341.502, which require contracts under Chapter 342 or 348, whether in English or in Spanish, to be written in plain language. The adopted rules provide model contract provisions for use by creditors who are licensed by the Office of Consumer Credit Commissioner. Use of the model contact is optional; however, should a licensee choose not to use the model contract, or a contract comprised of model clauses, then the licensee's non-standard contract must be submitted to the agency in accordance with the provisions of new 7 TAC §84.202.

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. 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 being repealed to the new rule being adopted are technical and nonsubstantive in nature. Minor revisions in wording have been made to some rules and figures from their previously enacted version, but often such changes do not substantively affect the meaning of the rules, model clauses, or contracts and thus, further explanation is unnecessary.

Please note that the rules adopted in new Subchapter B, §§84.201 - 84.210 (former Subchapter R, §§1.1301 - 1.1309) were reviewed during 2005, will have only technical corrections, and are merely being relocated.

Section 84.201 (former §1.1301) sets forth the purpose clause and discusses the benefits of plain language contracts. Section 84.201 explains the motor vehicle model contract provisions and states the intention that the provisions should constitute a complete plain language motor vehicle retail sales installment contract. Established model contract provisions will encourage uniformity and provide benefits to consumers by making contracts easier to understand. A creditor is not limited to the contract provisions contained in these rules and retains flexibility to design contract forms suitable for the creditor's use. These multi-purpose contract provisions are intended for use by franchised dealers, independent dealers, holders of motor vehicle retail installment sales contracts, and individuals who sell less than five motor vehicles per year.

Section 84.202 (new rule) provides the procedures for licensees to submit non-standard contract submissions to the agency.

Section 84.203 (former §1.1302) explains the relationship of federal law to the state requirements. The section describes how any conflicts or inconsistencies shall be resolved.

Section 84.204 (former §1.1303) provides definitions in order to ensure consistent treatment and application of defined terms.

Section 84.205 (former §1.1304) outlines the disclosure and contract provisions required by the Texas Finance Code.

Section 84.206 (former §1.1305) outlines the disclosures required by Finance Commission rule.

Section 84.207 (former §1.1306) details the required format, typeface, and font for model plain language motor vehicle retail installment contracts. The rule attempts to establish minimum allowable type sizes and typefaces. The rule also permits flexibility for labeling contracts through the use of titles and headings. The creditor has considerable flexibility in the formatting and arrangement of the information contained in the model clauses. The minimum requirements are necessary to ensure that the contract will be easy for consumers to read and understand.

Section 84.208 (former §1.1307) identifies types of provisions that are typically included in a Chapter 348 motor vehicle retail installment sales contract. Creditors may determine which provisions are most applicable for their transactions. Creditors may omit provisions that are not applicable to a particular transaction. If a creditor desires to assess certain charges or exercise certain rights under the provisions, the creditor must contract for that fee or right. For example, if a creditor desires to assess a late charge, the creditor must provide for a late charge provision. Also, if a creditor desires to purchase collateral protection insurance because the buyer failed to keep required insurance, the creditor must include a contractual provision permitting the creditor to purchase the required insurance.

Section 84.209 (former §1.1308) contains the model clauses. These clauses are the administrative interpretation of a plain language version of typical contract provisions. Some model clauses are required by state and federal statute and regulations depending on the circumstances of a particular transaction.

The contract information contained in the alternate notice provided in §84.209(19) has been revised by deleting the agency's local telephone number and adding the agency's web address. While the notice maintains the listing of the agency's toll-free Consumer Helpline, it will now also provide the agency's website as an alternative, convenient method of contact for consumers. In addition, the corresponding model contract contained in §84.210(b) has also been revised to reflect this change (see §84.210 below).

Section 84.210 (former §1.1309) outlines permissible changes that can be made to a contract and still comply with the model provisions. This section provides licensees with flexibility in using the model clauses. Licensees may use additional documents in connection with the model documents contained in this rule. If a licensee incorporates additional documents, these additions may need to be submitted as non-standard forms if they do not employ the model clauses. Certain documents like the odometer statement, buyer's order, title application documents, notices to co-signer, buyer's guides, and similar documents do not need to be submitted as non-standard forms. Additional documents such as arbitration agreements, conditional delivery agreements, and guarantor agreements will need to be submitted for a readability review in accordance with new 7 TAC §84.202.

The Consumer Credit Commissioner notice contained in the model contract found in §84.210(b) has been revised by deleting the agency's local telephone number and adding the agency's web address (see explanation under §84.209 above).

These rules provide model clauses and model contracts; however, licensees are not required to adopt the model language contained in the rules. Regarding §§84.201 - 84.210, for those licensees utilizing the model clauses or contract, the prior model language is acceptable and the agency will permit licensees to use the prior model language (without a non-standard contract submission) until October 1, 2007, to deplete supplies of existing forms during a transition period after the effective date of the rules.

These rules affect Texas Finance Code, Chapter 348.

§84.201.Purpose.

(a) The purpose of this subchapter is to provide model provisions and a model plain language contract in English for Texas Finance Code, Chapter 348 motor vehicle installment sales contract provisions. The establishment of model provisions for these transactions will encourage the use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. Use of the "plain language" model contract by a seller is not mandatory. The seller, however, may not use a contract other than a model contract unless the seller has submitted the contract to the commissioner in compliance with §84.202 of this tile (relating to Non-Standard Contract Filing Procedures). The commissioner shall issue an order disapproving the contract if the commissioner determines the contract does not comply with this section or rules adopted under this section. A seller may not claim the commissioner's failure to disapprove a contract constitutes approval.

(b) These provisions are intended to constitute a complete plain language motor vehicle installment sales contract; however, a seller is not limited to the contract provisions contained in these rules.

§84.202.Non-Standard Contract Filing Procedures.

(a) Non-standard contracts. A non-standard contract is a contract that does not use the model contract provisions. Non-standard contracts submitted in compliance with the provisions of Texas Finance Code, §341.502(c) will be reviewed to determine that the contract is written in plain language. Non-standard contracts submitted for review may gain certain protections under the provisions of Texas Finance Code, §341.502.

(b) Certification of readability. Contract filings subject to this chapter must be accompanied by a certification signed by an officer of the creditor or the entity submitting the form on behalf of the creditor. The certification must state that the contract is written in plain language (i.e., that the contract can be easily understood by the average consumer). The certification must also state that the contract is printed in an easily readable font and type size.

(c) Filing requirements. Contract filings must be identified as to the transaction type. Contract filings must be submitted on paper that is suitable for permanent record storage and imaging. Handwritten forms or handwritten corrections will not be accepted. In addition to the paper submission, the licensee must also submit the contract filings in an electronic version. The electronic version must be submitted in a Corel WordPerfect (.wpd), MS Word (.doc), or a text (.txt) format.

(d) Contact person. One person shall be designated as the contact person for each filing submitted. Each submission should provide the name, address, phone number, and fax number, if available, of the contact person for that filing. If the contracts are submitted by anyone other than the company itself, the contracts must be accompanied by a dated letter which contains a description of the anticipated users of the contracts and designates the legal counsel or other designated contact person for that filing.

§84.203.Relationship with Federal Law.

(a) The disclosure requirements of 12 C.F.R. Part 226 (Regulation Z) adopted under the Truth in Lending Act (15 U.S.C. §1601 et seq.) and specifically 12 C.F.R. §226.18(f), regarding variable rate disclosures, apply according to their terms to some retail installment transactions, as more fully provided in the Truth in Lending Act and federal Regulation Z.

(b) In the event of any inconsistency or conflict between the disclosure or notice requirements in these provisions and any current or future federal law, regulation, or interpretation, the requirements of the federal law, regulation, or interpretation will control to the extent of the inconsistency.

(c) The term "time price differential" may be substituted for the term "finance charge" as used in the model disclosures provided by this regulation, except in those instances where use of that term would be prohibited by controlling federal law, regulation, or interpretation.

(d) The term "amount financed" may be substituted for "principal balance" whenever the amount financed, computed in accordance with federal Regulation Z, is the same as the principal balance computed in accordance with the Texas Finance Code.

(e) The term "annual percentage rate" may be substituted for "annual rate" or "contract rate" whenever the annual percentage rate, computed in accordance with federal Regulation Z, is the same as the annual rate computed in accordance with the Texas Finance Code.

§84.204.Definitions.

The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise:

(1) Accrual method--A method to compute a finance charge and apply the finance charge to the unpaid principal balance. Both the true daily earnings method and the scheduled installment earnings method are accrual methods.

(2) Add-on method--A method for calculating a precomputed time price differential charge in which the retail buyer agrees to pay the total of payments. The total of payments includes both the principal balance of the contract and the time price differential charge. The add-on time price differential charge is calculated at the inception of the contract on the principal balance for the full term, as if the principal balance of the contract did not decline over the term of the contract.

(3) Contract rate--The annual time price differential rate that may be stated in a retail installment contract, and that accrues or is assessed against the principal balance that is subject to a finance charge for the term of the contract. The contract rate cannot exceed the daily rate converted to an annualized rate.

(4) Creditor--The seller or any subsequent holder or assignee of the retail installment contract.

(5) Daily rate--The rate authorized under Texas Finance Code, §348.105, or the simple rate equivalent of the rate applicable to the contract under Texas Finance Code, §348.104, computed on a daily basis using a 365-day calendar year.

(6) Irregular payment contract--A contract:

(A) that is payable in installments that are not consecutive, monthly, and substantially equal in amount; or

(B) the first scheduled installment of which is due later than one month and 15 days after the date of the contract.

(7) Regular payment contract--Any contract that is not an irregular payment contract.

(8) Scheduled installment earnings method--The scheduled installment earnings method is a method to compute a finance charge by applying a daily rate to the unpaid principal balance as if each payment will be made on its scheduled installment date. A payment received before or after the due date does not affect the amount of the scheduled reduction in the unpaid principal balance. Under this method, a finance charge refund is calculated by deducting the earned finance charges from the total finance charges. If prepayment in full or demand for payment in full occurs between payment due dates, a daily rate equal to 1/365th of the annual rate is multiplied by the unpaid principal balance. The result is then multiplied by the actual number of days from the date of the previous scheduled installment through the date of prepayment or demand for payment in full to determine earned finance charges for the abbreviated period. In addition to the earned finance charges calculated in this paragraph, the creditor may also earn a $150 acquisition fee for a heavy commercial vehicle, or a $25 fee for other vehicles, so long as the total of the earned finance charges and the acquisition fee do not exceed the finance charge disclosed in the contract. The creditor is not required to refund unearned finance charges if the refund is less than $1.00. The scheduled installment earnings method may be used with either an irregular payment contract or a regular payment contract. The computation of finance charges must comply with the U.S. rule as defined in Appendix J of 12 C.F.R. Part 226 (Regulation Z).

(9) Seller--The seller of the motor vehicle.

(10) Sum of the periodic balances method (Rule of 78s).

(A) Under this method, the finance charge refund is calculated as follows:

(i) Subtract an acquisition fee not greater than $150 for a heavy commercial vehicle, or $25 for other vehicles, from the total finance charge.

(ii) Multiply the amount computed in clause (i) of this subparagraph by the refund percentage computed below. The result is the finance charge refund.

(iii) Compute the refund percentage by:

(I) Computing the sum of the unpaid monthly balances under the contract's schedule of payments beginning:

(-a-) On the first day, after the date of the prepayment or demand for payment in full; that is, the date of a month that corresponds to the date of the month that the first installment is due under the contract; or

(-b-) If the prepayment or demand for payment in full is made before the first installment date under the contract, one month after the date of the second scheduled payment of the contract occurring after the prepayment or demand;

(II) Dividing the result in subclause (I) of this clause by the sum of all of the monthly balances under the contract's schedule of payments.

(B) As an alternative for heavy commercial vehicles, as defined in the Texas Finance Code, the sum of the periodic balances method may be computed as follows

(i) Multiply the total finance charge by a refund percentage determined as follows:

(I) Compute the sum of the unpaid monthly balances under the contract's schedule of payments beginning:

(II) Divide the result in subclause (I) of this clause by the sum of all of the monthly balances under the contract's schedule of payments.

(ii) From the result derived in clause (i) of this subparagraph, deduct an acquisition fee not to exceed $150.

(D) The sum of the periodic balances method may not be used with an irregular payment contract.

(11) True daily earnings method--The true daily earnings method is a method to compute the finance charge by applying a daily rate to the unpaid principal balance. The daily rate is 1/365th of the equivalent contract rate. The earned finance charge is computed by multiplying the daily rate of the finance charge by the number of days the actual unpaid principal balance is outstanding. Payments are credited as of the time received; therefore, payments received prior to the scheduled installment date result in a greater reduction of the unpaid principal balance than the scheduled reduction, and payments received after the scheduled installment date result in less than the scheduled reduction of the unpaid principal balance. The computation of finance charges must comply with the U.S. rule as defined in Appendix J of 12 C.F.R. Part 226 (Regulation Z).

(12) Vehicle--A motor vehicle as defined by Texas Finance Code, §348.001(4).

§84.205.Disclosures and Contract Provisions Required by the Texas Finance Code.

The contract shall have the following disclosures and provisions, as applicable:

(1) The consumer warning required by Texas Finance Code, §348.102(d).

(2) The cash price as required by Texas Finance Code, §348.102(a)(5). The cash price may be disclosed as a separate item in the Itemization of Amount Financed or elsewhere in the contract. The cash price is the price at which the seller offers in the ordinary course of business to sell for cash the goods or services that are subject to the transaction.

(3) The amount of any downpayment, specifying the amounts paid in money and in goods traded in, as required by Texas Finance Code, §348.102(a)(6). An amount paid by the seller under Texas Finance Code, §348.404 to retire an amount owed (including amounts owed under a vehicle lease) against a motor vehicle used as a trade-in ("payoff") may be disclosed in several ways. The approaches outlined in the Regulation Z Staff Commentary, as from time to time updated, are permissible.

(4) Itemized charges not included in the cash price, as required by Texas Finance Code, §348.102(a)(7). Itemized charges may include, but are not limited to, the following charges as applicable:

(A) State inspection fee;

(B) Documentary fee;

(D) Sales tax;

(E) Other taxes not included in the cash price (the seller may disclose one aggregate amount for all taxes or may separately itemize one or more of the taxes);

(F) Deputy service fee;

(G) Title fee;

(H) License fee;

(I) Vehicle property insurance;

(J) Credit life and credit disability insurance;

(K) GAP insurance, as authorized by Texas Finance Code, §348.208(b)(4);

(L) Theft protection plan;

(M) Service contract; or

(N) Warranty contract.

(5) The insurance statement required by Texas Finance Code, §348.204.

(6) Notice of exclusion of bodily injury and property damage insurance, if excluded, as required by Texas Finance Code, §348.205.

(7) Any documentary fee charged must be separately disclosed, either in the itemization or elsewhere, along with the description required by Texas Finance Code, §348.006 in reasonable proximity to the disclosure of the documentary fee. Any foreign language translation of this disclosure that is required under Texas Finance Code, §348.006 may be given in a separate document.

(8) A disclosure that the buyer may refinance the final scheduled payment upon the terms previously agreed or for any other period of time and payment schedule to which the buyer and holder may agree for a contract described in Texas Finance Code, §348.123(b)(5).

§84.206.Other Disclosures Required by Commission Rule.

(a) The consumer credit commissioner notice required by §1.901 of this title (relating to Consumer Notifications) must be disclosed.

(b) In a contract using the true daily earnings method, a brief description of the method of earning finance charge must be given. In a contract using the scheduled installment earnings method or the sum of the periodic balances method of refunding precomputed finance charges, the name of the method used must be given, and at the creditor's option, a description of that method may be given. If in the same contract form, the creditor uses the scheduled installment earnings method in certain circumstances and the sum of the periodic balances method in other circumstances, the creditor shall provide a brief description of the circumstances under which each method will be used, along with the name of the method.

§84.207.Format.

(a) Plain language contracts must be printed in an easily readable font and type size pursuant to Texas Finance Code, §341.502(a). If other state or federal law requires a different type size for a specific disclosure or contractual provision, the type size specified by the other law should be used.

(b) The text of the document must be set in an easily readable typeface. Typefaces considered to be readable include Times, Scala, Caslon, Century Schoolbook, Helvetica, Arial, and Garamond.

(c) Titles, headings, subheadings, numbering, captions, and illustrative or explanatory tables or sidebars may be used to distinguish between different levels of information or to provide emphasis.

(d) Typeface size is referred to in points. Because different typefaces in the same point size are not of equal size, typeface is not strictly defined but is expressed as a minimum size in the Times typeface for visual comparative purposes. Use of a larger typeface is encouraged. The typeface for the federal disclosure box or other disclosures required under federal law must be legible, but no minimum typeface is required. Generally, the typeface for the remainder of the contract must be at least as large as 8 point in the Times typeface. A point is generally viewed as 1/72nd of an inch.

(e) The model clauses may be arranged in any order. Additionally, the seller has considerable flexibility in the formatting and arrangement of the information contained in the model clauses.

§84.208.Contract Provisions.

A Texas Finance Code, Chapter 348 motor vehicle installment sales contract may include the following contract provisions to the extent not prohibited by law or regulation. If the seller desires to assess certain charges or exercise certain rights under one of the following provisions, except provisions relating to default, repossessions, acceleration, and assignment of the contract, the seller must include the provision in the contract. A seller may delete inapplicable provisions. A seller who does not desire to apply a provision is not required to include it in the contract. For example, the seller may omit the balloon payment provisions if there is no balloon payment. A seller may also exclude non-relevant portions of a model clause. For example, a seller who does not routinely finance certain insurance coverages may omit those non-applicable portions of the model clause. A Texas Finance Code, Chapter 348 motor vehicle installment sales contract may contain the following provisions:

(1) Identification of the parties, including the name and address of each party and specifying the pronouns that designate the buyer and the seller;

(2) An assignment of contract provision;

(3) A buyer's affirmation and promise to pay provision;

(4) An inspection acknowledgment provision;

(5) An identification of the motor vehicle;

(6) A description of the trade-in vehicle;

(7) A Truth in Lending Act (TILA) disclosure box;

(8) An itemization of amount financed box;

(9) A documentary fee notice provision;

(10) A deferred downpayments provision;

(11) A required physical damage insurance provision;

(12) Optional insurance coverages provision;

(13) Optional credit life and accident and health insurance provision;

(14) A liability insurance provision;

(15) A provision prohibiting oral modification of the contract;

(16) A provision stating the finance charge earnings method;

(17) A consumer warning provision;

(18) A buyer's acknowledgment of receipt of the retail installment contract as permitted under Texas Finance Code, §348.112;

(19) Consumer credit commissioner notice;

(20) A provision stating the finance charge refund method;

(21) A provision describing the application of payments;

(22) A provision describing the effect of early and late payments;

(23) A provision providing for interest on any matured amount at any rate permitted by law;

(24) Balloon payment provisions;

(25) An agreement to keep the motor vehicle insured;

(26) An agreement authorizing the creditor to purchase required insurance if the buyer fails to keep the motor vehicle insured;

(27) Physical damage insurance proceeds provision;

(28) Returned insurance premiums and service contract charges provision;

(29) An application of credits provision;

(30) A transfer of rights provision;

(31) An agreement granting a security interest in collateral;

(32) Agreements regarding the use and transfer of the motor vehicle, including prohibiting unauthorized transfer and transfer of equity fee limitations;

(33) Agreements regarding the care of the motor vehicle, which may include: keeping the motor vehicle in good working order and repair; keeping the vehicle free from liens and encumbrances; not exposing the motor vehicle to seizure, confiscation, or other involuntary transfer; and repaying the creditor for any amounts paid to satisfy liens or encumbrances;

(34) Default rights and repossession provisions, including consequences of default, collection costs, late charges, buyer's right to redeem, disposition of the motor vehicle, cancellation of optional contracts, and acceleration;

(35) A waiver of any right to receive notice of the intent to accelerate or notice of acceleration;

(36) A provision describing a refund of unearned finance charge upon acceleration;

(37) An integration provision and severability clause;

(38) Provision expressing no waiver and limitations on creditor's rights and usury savings clause;

(39) A provision stating Texas law and federal law will apply to the contract;

(40) Disclaimer of express or implied warranties;

(41) Preservation of consumers' claims and defenses provision;

(42) Used car buyer's guide provision;

(43) A guarantee provision;

(44) An arbitration provision; and

(45) A negotiation and assignment provision.

§84.209.Model Clauses.

The following model clauses provide the plain language equivalent of provisions found in contracts subject to Texas Finance Code, Chapter 348.

(1) Identification of parties. This information identifies the parties to the contract.

(A) The model identification clause lists the name and address of the creditor, the date of the contract, and the name and address of the buyer. At the creditor's option, a creditor may include an account number or contract number. The model clause reads:

Figure: 7 TAC §84.209(1)(A)

(B) The Buyer is referred to as "I" or "me." The Seller is referred to as "you" or "your."

(2) Assignment of contract. The model clause regarding assignment of contract reads: "This contract may be transferred by the Seller."

(3) Buyer's affirmation and promise to pay. The model clause regarding buyer's affirmation and promise to pay reads: "The credit price is shown below as the "Total Sales Price." The "Cash Price" is also shown below. By signing this contract, I choose to purchase the motor vehicle on credit according to the terms of this contract. I agree to pay you the Amount Financed, Finance Charge, and any other charges in this contract. I agree to make payments according to the Payment Schedule in this contract. If more than one person signs as a buyer, I agree to keep all the promises in this agreement even if the others do not."

(4) Inspection acknowledgment. The model clause regarding inspection acknowledgment reads: "I have thoroughly inspected, accepted, and approved the motor vehicle in all respects."

(5) Identification of motor vehicle. The motor vehicle identification information provision should contain the following information about the motor vehicle: the seller's stock number; the manufacturer's year model; the manufacturer's make; the manufacturer's model type or number; the vehicle identification number; the license plate number (if applicable); a new/used designation; and the primary purpose designation. The seller's stock number and the license number are both optional; the omission will not make a contract non-standard. The motor vehicle identification information provision may include additional information about the vehicle including, odometer reading, color, the designation as a heavy commercial vehicle, and key code. If the creditor includes this additional information about the motor vehicle, the change will not make the provision a non-standard provision. The model clause regarding identification of the motor vehicle reads:

Figure: 7 TAC §84.209(5)

(6) Trade-in vehicle description. The model clause regarding trade-in vehicle description reads:

Figure: 7 TAC §84.209(6)

(7) Truth in Lending Act disclosure. The model clause regarding Truth in Lending Act disclosure reads:

Figure: 7 TAC §84.209(7) (.pdf)

(8) Itemization of amount financed. The creditor drafting the contract is given considerable flexibility regarding the itemization of amount financed disclosure so long as the itemization of amount financed disclosure complies with the Truth in Lending Act. As an example, a creditor may disclose the manufacturer's rebate either as: a component of the downpayment; or a deduction from the cash price of the motor vehicle. The model contract provision for the itemization of the amount financed discloses the manufacturer's rebate as a component of the downpayment. If the creditor elected to disclose the manufacturer's rebate as a deduction from the cash price of the motor vehicle, the cash price component of the itemization of amount financed would be amended to reflect the dollar amount of the manufacturer's rebate being deducted from the cash price of the motor vehicle.

(A) The model clause regarding itemization of amount financed-sales tax advance reads:

Figure: 7 TAC §84.209(8)(A) (.pdf)

(B) The model clause regarding itemization of amount financed-sales tax deferred reads:

Figure: 7 TAC §84.209(8)(B) (.pdf)

(9) Documentary fee.

(A) The following notice satisfies the requirements of Texas Finance Code, §348.006 if printed in a size equal to at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous and within reasonable proximity to the place at which the fee is disclosed. The parenthetical phrase may be inserted at the dealer's option or the disclosure may be made without the parenthetical phrase if the dealer does not charge an amount in excess of $50 for either ordinary motor vehicles or heavy commercial vehicles or if the contract form is not used for heavy commercial vehicles. The model clause is contained in the Itemization of Amount Financed. The documentary fee clause reads: "A documentary fee is not an official fee. A documentary fee is not required by law, but may be charged to buyers for handling documents and performing services relating to the closing of a sale. A documentary fee may not exceed $50 (for a motor vehicle contract or a reasonable amount agreed to by the parties for a heavy commercial vehicle contract). This notice is required by law."

(B) The following notice is a sufficient Spanish translation of the documentary fee disclosure required by Texas Finance Code, §348.006. The parenthetical phrase may be inserted at the dealer's option or the disclosure may be made without the parenthetical phrase if the dealer does not charge an amount in excess of $50 for either ordinary motor vehicles or heavy commercial vehicles or if the contract form is not used for heavy commercial vehicles. The Spanish translation may read: "Un honorario de documentación no es un honorario official. Un honorario de documentación no es requerido por la ley, pero puede ser cargada al comparador como gastos de manojo de documentos y para realizar servicios relacionados con el cierre de una venta. Un honorario de documentación no puede exceder $50 (un contrato de vehículo automotor o una cantidad razonable acordada por las partes para un contrato de vehículo comercial pesado). Esta notificación es requerida por la ley." Or "Un cargo documental no es un cargo oficial. La ley no exige que se imponga un cargo documental. Pero éste podría cobrarse a los compradores por el manejo de la documentación y la prestación de servicios en relación con el cierre de una venta. Un cargo documental no puede exceder de $50 para (un contrato de vehículo automotor o una cantidad razonable acordada por las partes para un contrato de vehículo comercial pesado). Esta notificación se exige por ley."

(10) Deferred downpayments. The creditor has considerable flexibility in disclosing the deferred downpayments. The model provision discloses the deferred downpayments by placing the information, the due date and dollar amount of the deferred downpayments, in several boxes. If a creditor uses this model provision, the creditor would enter the due date and dollar amount of each deferred downpayment in the appropriate boxes. As an alternative to this model provision, a creditor may disclose the deferred downpayments in the Payment Schedule of the Amount Financed in the federal disclosure box. If a creditor elects this option, the due date and the dollar amount of the deferred downpayment must be shown. If the total amount of the deferred downpayment is not satisfied by the date of the second regularly scheduled installment, the deferred downpayment must be included in the Payment Schedule. As another alternative, the creditor may disclose the deferred downpayment amount in the Payment Schedule. The model clause regarding deferred downpayments reads:

Figure: 7 TAC §84.209(10)

(11) Required physical damage insurance. The creditor may chose to omit the statement of the retail buyer's right to obtain substitute coverage from another source. The model clause regarding required physical damage insurance reads:

Figure: 7 TAC §84.209(11) (.pdf)

(12) Optional insurance coverages. The model clause regarding optional insurance coverages reads:

Figure: 7 TAC §84.209(12) (.pdf)

(13) Optional credit life and accident and health insurance. The model clause regarding optional credit life and accident and health insurance reads:

Figure: 7 TAC §84.209(13) (.pdf)

(14) Liability insurance. If liability insurance coverage is not included in the contract, any of the following notices are sufficient to satisfy the requirements of Texas Finance Code, §348.205 if printed in a size equal to at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous:

(A) "THIS CONTRACT DOES NOT INCLUDE INSURANCE COVERAGE FOR PERSONAL LIABILITY AND PROPERTY DAMAGE CAUSED TO OTHERS."

(B) "UNLESS A CHARGE FOR LIABILITY INSURANCE IS INCLUDED IN THE ITEMIZATION OF AMOUNT FINANCED, LIABILITY INSURANCE COVERAGE FOR BODILY INJURY AND PROPERTY DAMAGE CAUSED TO OTHERS IS NOT INCLUDED IN THIS CONTRACT."

(C) "UNLESS A CHARGE FOR LIABILITY INSURANCE IS INCLUDED IN THE ITEMIZATION OF AMOUNT FINANCED, ANY INSURANCE REFERRED TO IN THIS CONTRACT DOES NOT INCLUDE COVERAGE FOR PERSONAL LIABILITY AND PROPERTY DAMAGE CAUSED TO OTHERS."

(15) Prohibition against oral modifications. The contract may include a provision barring oral modifications of the contract. A unilateral change to a contract may nevertheless occur as prescribed by the procedures in Texas Finance Code, Chapter 349, Subchapter C. The model clause regarding prohibition against oral modifications reads:

Figure: 7 TAC §84.209(15)

(16) Finance charge earnings methods:

(A) Regular transaction using sum of the periodic balances method.

(i) Sales tax advance. At the creditor's option a creditor may choose one of the following model clauses regarding sales tax advance:

(I) "You figure the Finance Charge using the add-on method as defined by the Texas Finance Commission Rule. Add-on Finance Charge is calculated on the full amount of the unpaid principal balance and added as a lump sum to the unpaid principal balance for the full term of the contract." Or

(II) "The Finance Charge will be calculated by using the add-on method. Add-on Finance Charge is calculated on the full amount of the unpaid principal balance and added as a lump sum to the unpaid principal balance for the full term of the contract. The add-on Finance Charge is calculated at a rate of $____ per $100.00."

(ii) Deferred sales tax. The model clause regarding deferred sales tax reads: "The Finance Charge will be calculated by using the add-on method. Add-on Finance Charge is calculated on the full amount of the unpaid principal balance subject to a finance charge and added as a lump sum to the unpaid principal balance subject to a Finance Charge for the full term of the contract. The add-on Finance Charge is calculated at a rate of $____ per $100.00."

(B) True daily earnings method.

(i) Sales tax advance. At the creditor's option a creditor may choose one of the following model clauses regarding sales tax advance:

(I) "You figure the Finance Charge using the true daily earnings method as defined by the Texas Finance Code. Under the true daily earnings method, the Finance Charge will be figured by applying the daily rate to the unpaid portion of the Amount Financed for the number of days the unpaid portion of the Amount Financed is outstanding. The daily rate is 1/365th of the Annual Percentage Rate. The unpaid portion of the Amount Financed does not include late charges or returned check charges." Or

(II) If a retail seller requires a retail buyer to purchase credit life or credit accident and health insurance and the sales tax is not deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You will figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance. The daily rate is 1/365th of the contract rate. The unpaid principal balance does not include the late charges or returned check charges."

(ii) Deferred sales tax: If a retail seller requires a retail buyer to purchase credit life or credit accident and health insurance and the sales tax is deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You will figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance subject to a Finance Charge. The daily rate is 1/365th of the contract rate. The unpaid principal balance subject to a finance charge does not include the late charges, sales tax, or returned check charges."

(i) Sales tax advance. At the creditor's option a creditor may choose one of the following model clauses regarding sales tax advance:

(I) "You figure the Finance Charge using the scheduled installment earnings method as defined by the Texas Finance Code. Under the scheduled installment earnings method, the Finance Charge is figured by applying the daily rate to the unpaid portion of the Amount Financed as if each payment will be made on its scheduled payment date. The daily rate is 1/365th of the Annual Percentage Rate. The unpaid portion of the Amount Financed does not include late charges or returned check charges." Or

(II) If a retail seller requires a retail buyer to purchase credit life or credit accident and health insurance and the sales tax is not deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You will figure the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance. You based the Finance Charge, Total of Payments, and Total Sale Price as if all payments were made as scheduled. The unpaid principal balance does not include the late charges or returned check charges."

(ii) Deferred sales tax. If a retail seller requires a retail buyer to purchase credit life or credit accident and health insurance and the sales tax is deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You figured the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance subject to a Finance Charge. You based the Finance Charge, Total of Payments, and Total Sale Price as if all payments were made as scheduled. The unpaid principal balance subject to a Finance Charge does not include the late charges, sales tax, or returned check charges."

(17) Consumer warning. The following notices satisfy the requirements of Texas Finance Code §348.102(d) if printed in at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous.

(A) For contracts using the sum of the periodic balances method (Rule of 78s) or the scheduled installment earnings method, the notice may read:

(i) "NOTICE TO THE BUYER--I WILL NOT SIGN THIS CONTRACT BEFORE I READ IT OR IF IT CONTAINS ANY BLANK SPACES. I AM ENTITLED TO A COPY OF THE CONTRACT I SIGN. UNDER THE LAW, I HAVE THE RIGHT TO PAY OFF IN ADVANCE ALL THAT I OWE AND UNDER CERTAIN CONDITIONS MAY OBTAIN A PARTIAL REFUND OF THE FINANCE CHARGE. I WILL KEEP THIS CONTRACT TO PROTECT MY LEGAL RIGHTS." Or

(ii) "NOTICE TO THE BUYER--THE BUYER SHOULD NOT SIGN THIS CONTRACT BEFORE READING IT OR IF IT CONTAINS ANY BLANK SPACES. THE BUYER IS ENTITLED TO A COPY OF THE SIGNED CONTRACT. UNDER THE LAW, THE BUYER HAS THE RIGHT TO PAY OFF IN ADVANCE ALL THAT THE BUYER OWES AND UNDER CERTAIN CONDITIONS MAY OBTAIN A PARTIAL REFUND OF THE FINANCE CHARGE. THE BUYER SHOULD KEEP THIS CONTRACT TO PROTECT ITS LEGAL RIGHTS."

(B) For contracts using the true daily earnings method, the notice may read: "NOTICE TO THE BUYER--I WILL NOT SIGN THIS CONTRACT BEFORE I READ IT OR IF IT CONTAINS ANY BLANK SPACES. I AM ENTITLED TO A COPY OF THE CONTRACT I SIGN. UNDER THE LAW, I HAVE THE RIGHT TO PAY OFF IN ADVANCE ALL THAT I OWE AND UNDER CERTAIN CONDITIONS MAY SAVE A PORTION OF THE FINANCE CHARGE. I WILL KEEP THIS CONTRACT TO PROTECT MY LEGAL RIGHTS."

(18) Buyer's acknowledgment of contract receipt.

(A) The following acknowledgments conform to the requirements of Texas Finance Code, §348.112 if they appear directly above the place for the buyer's signature in at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous. A creditor may choose the most appropriate option:

(i) If the buyer's signature is dated. If this clause is chosen, the copy must be mailed within a reasonable period of time. A reasonable period of time would ordinarily be three days, excluding Sundays and holidays. The model acknowledgment may read: "I AGREE TO THE TERMS OF THIS CONTRACT. WHEN I SIGN THE CONTRACT, I WILL RECEIVE THE COMPLETED CONTRACT. IF NOT, I UNDERSTAND THAT A COPY WILL BE MAILED TO ME WITHIN A REASONABLE TIME."

(ii) If the buyer's signature is not dated. The model acknowledgment may read: "I AGREE TO THE TERMS OF THIS CONTRACT. I CONFIRM THAT BEFORE I SIGNED THIS CONTRACT, YOU GAVE IT TO ME, AND I WAS FREE TO TAKE IT AND REVIEW IT. I RECEIVED THE COMPLETED CONTRACT ON ___________ (MO.) (DAY) (YR.)."

(iii) If the buyer's signature is not dated. If this clause is chosen, the copy must be mailed within a reasonable period of time. The model acknowledgment may read: "I SIGNED THIS CONTRACT ON _________ AND A COPY WILL BE MAILED TO ME WITHIN A REASONABLE TIME."

(iv) If the buyer's signature is not dated but the contract contains the date of the transaction. The model acknowledgment may read: "I AGREE TO THE TERMS OF THIS CONTRACT AND ACKNOWLEDGE RECEIPT OF A COMPLETED COPY OF IT. I CONFIRM THAT BEFORE I SIGNED THIS CONTRACT, YOU GAVE IT TO ME, AND I WAS FREE TO TAKE IT AND REVIEW IT."

(B) Acceptance of contract receipt. The model clause regarding acceptance of contract receipt reads:

Figure: 7 TAC §84.209(18)(B)

(19) Consumer Credit Commissioner notice. The following notice satisfies the requirements of Texas Finance Code, §14.104 and §1.901 of this title (relating to Consumer Notifications). The telephone number of the retail seller, creditor, or holder may be printed in conjunction with the name and address of the retail seller, creditor, or holder elsewhere on the contract or agreement provided the notice required by Texas Finance Code, §14.104 is amended to direct the reader's attention to the area of the contract where the telephone number may be found. The consumer credit commissioner notice reads:"To contact (insert authorized business name of retail seller, creditor or holder as appropriate) about this account, call (insert telephone number of retail seller, creditor, or holder as appropriate). This contract is subject in whole or in part to Texas law which is enforced by the Consumer Credit Commissioner, 2601 N. Lamar Blvd., Austin, Texas 78705-4207; (800) 538-1579; www.occc.state.tx.us, and can be contacted relative to any inquiries or complaints."

(20) Finance charge refund method. If a contract uses the finance charge refunding method of the sum of the periodic balances or the scheduled installment earnings method, the finance charge refund provision reads: "If I prepay in full, I may be entitled to a refund of part of the Finance Charge." On contracts using the true daily earnings method, this finance charge refund provision should not be disclosed because it is not applicable.

(A) Contracts using the sum of the periodic balances method.

(i) Name of method. The model clause to identify the method of refunding finance charge reads: "You will figure the Finance Charge refund by using the sum of the periodic balances method as defined by the Texas Finance Commission rule."

(ii) Optional description of method. The creditor may include the following additional description of the method. The model clause reads: "You will figure the Finance Charge refund using the sum of the periodic balances method as defined by the Texas Finance Commission rule. The Finance Charge Refund will be computed upon the entire Finance Charge minus the Acquisition Cost. I will not get a refund if it is less than $1.00."

(iii) Optional description of method for use in contracts for heavy commercial vehicles. At the creditor's option, a contract for a heavy commercial vehicle, as defined in the Texas Finance Code, may include the following description of the method. The model clause reads: "You will figure the Finance Charge refund using the sum of the periodic balances method as defined by the Texas Finance Commission rule. The Finance Charge refund will be computed based upon the entire Finance Charge calculated using the sum of the periodic balances method. Then you will subtract the Acquisition Cost from that amount. I will not get a refund if it is less than $1.00."

(B) Contracts using the scheduled installment earnings method.

(i) Name of method. The model clause to identify the method of refunding finance charge reads: "You will figure the Finance Charge refund by the scheduled installment earnings method as defined by the Texas Finance Commission rule."

(ii) Optional description of method. The creditor may include the following additional description of the method: "You will figure my refund by deducting earned finance charges from the Finance Charge. You will figure earned finance charges by applying a daily rate to the unpaid principal balance as if I paid all my payments on the date due. If I prepay between payment due dates, you will figure earned finance charges for the partial payment period. You do this by counting the number of days from the due date of the prior payment through the date I prepay. You then multiply that number of days times the daily rate. The daily rate is 1/365th of the Annual Percentage Rate. You will also add the acquisition cost of $25 (or $150 for a heavy commercial vehicle) to the earned finance charge. I will not get a refund if it is less than $1.00."

(C) Flexible contract forms designed to accommodate alternative methods. Creditors may use a flexible contract form with alternative earnings methods, so long as the method used on a particular contract is permissible for that contract. The following clause illustrates one way that this flexibility may be accomplished: "You will figure the Finance Charge refund using the sum of the periodic balances method as defined by the Texas Finance Commission rule if: this contract is a Regular Payment Contract as defined by the Texas Finance Commission rule, and this contract does not have a term greater than 61 months. If this contract is not a Regular Payment Contract or if it has a term greater than 61 months, you will figure the Finance Charge refund using the scheduled installment earnings method as defined by the Texas Finance Commission rule. I will not get a refund if it is less than $1.00."

(21) Application of payments. In this provision, the term "finance charge" should not be construed to have the same meaning as Finance Charge as defined by the Truth in Lending Act. A default or late charge is considered to be a finance charge under Texas law; therefore, a default or late charge can be charged and collected as part of the earned finance charge. At the creditor's option the creditor may modify the application of payments language by adding "and late charges" following the phrase "earned but unpaid finance charge." The model clause reads:

Figure: 7 TAC §84.209(21)

(22) Effect of early and late payments. For contracts using the true daily earnings method, the model clause reads: "You based the Finance Charge, Total of Payments, and Total Sale Price as if all payments were made as scheduled. If I do not timely make all my payments in at least the correct amount, I will have to pay more Finance Charge and my last payment will be more than my final scheduled payment. If I make scheduled payments early, my Finance Charge will be reduced (less). If I make my scheduled payments late, my Finance Charge will increase."

(23) Interest on matured amount. The model provision for interest on any matured amount at any rate permitted by law reads: "If I don't pay all I owe when the final payment becomes due, or I do not pay all I owe if you demand payment in full under this contract, I will pay an interest charge on the amount that is still unpaid. That interest charge will be the higher rate of 18% per year or the maximum rate allowed by law, if that rate is higher. The interest charge for this amount will begin the day after the final payment becomes due." In this provision, the maximum rate allowed by law refers to the rate found in Texas Finance Code, Chapter 303.

(24) Balloon payments. If the contract has a balloon payment, the creditor must include a provision in the contract that allows the buyer to refinance the balloon payment over time. The provision must comply with Texas Finance Code, §348.123. The model provision for defining the balloon payment reads: "A balloon payment is a scheduled payment more than twice the amount of the average of my scheduled payments, other than the downpayment, that are due before the balloon payment."

(A) Paying the balloon payment. If a retail installment contract contains a balloon payment that is the final payment, the contract must also provide the right for the retail buyer to pay the balloon payment. The model provision for paying the amount of the final scheduled balloon payment reads: "I can pay all I owe when the balloon payment is due and keep my motor vehicle."

(B) Balloon payment alternatives. If the retail installment contract contains the right for a retail buyer to refinance a balloon installment, the contract provision to refinance the installment must comply with either clause (i) or (ii) of this subparagraph. A contract under clause (ii) of this subparagraph must also contain the right of the retail buyer to sell the motor vehicle back to the holder or the retail seller.

(i) The model clause to describe a buyer's right to refinance a balloon installment under Texas Finance Code, §348.123(a), when applicable reads: "If I buy the motor vehicle primarily for personal, family, or household use, I can enter into a new written agreement to refinance the balloon payment when due without a refinancing fee. If I refinance the balloon payment, my periodic payments will not be larger or more often than the payments in this contract. The annual percentage rate in the new agreement will not be more than the Annual Percentage Rate in this contract. This provision does not apply if my Payment Schedule has been adjusted to my seasonal or irregular income."

(ii) If the contract contains a balloon payment and the seller intends Texas Finance Code, §348.123(b)(5) to apply to the contract:

(I) Special right to refinance balloon payment under Texas Finance Code, §348.123(b)(5)(B)(iii). The model clause reads: "I can enter into a new agreement to refinance my last installment if I am not in default. I can refinance at an annual percentage rate up to 5 points greater than the Annual Percentage Rate shown in this contract. The rate will not be more than applicable law allows. The new agreement will allow me to refinance the last installment for at least 24 months with equal monthly payments. You and I can also agree to refinance the last installment over another time period or on a different payment schedule."

(II) Repurchase option. If the contract includes a balloon payment, the creditor must draft a provision addressing the repurchase option.

(25) Agreement to keep motor vehicle insured. The model clause regarding agreement to keep the motor vehicle insured reads: "I agree to have physical damage insurance covering loss or damage to the motor vehicle for the term of this contract. The insurance must cover your interest in the vehicle." The creditor may include the following optional provision: "The insurance must include collision coverage and either comprehensive or fire, theft, and combined additional coverage."

(26) Creditor's right to purchase required insurance if buyer fails to keep motor vehicle insured. The model clause regarding agreement to allow the creditor to purchase required insurance if the buyer fails to keep the motor vehicle insured reads: "If I fail to give you proof that I have insurance, you may buy physical damage insurance. You may buy insurance that covers my interest and your interest in the motor vehicle, or you may buy insurance that covers your interest only. I will pay the premium for the insurance and a finance charge at the contract rate. If you obtain collateral protection insurance, you will mail notice to my last known address shown in your file."

(27) Physical damage insurance proceeds. The model clause regarding physical damage insurance proceeds reads: "I must use physical damage insurance proceeds to repair the motor vehicle, unless you agree otherwise in writing. However, if the motor vehicle is a total loss, I must use the insurance proceeds to pay what I owe you. I agree that you can use any proceeds from insurance to repair the motor vehicle, or you may reduce what I owe under this contract. If you apply insurance proceeds to the amount I owe, they will be applied to my payments in the reverse order of when they are due. If my insurance on the motor vehicle or credit insurance doesn't pay all I owe, I must pay what is still owed. Once all amounts owed under this contract are paid, any remaining proceeds will be paid to me."

(28) Returned insurance premiums and service contract charges. The contract may authorize a creditor to apply charges returned to the creditor for canceled insurance, service contract, and extended warranty charges to the buyer's obligation under the agreement as permitted by law, regardless of whether or not the buyer is in default under the contract.

(A) The model clause for contracts using the true daily earnings method reads: "If you get a refund on insurance or service contracts, or other contracts included in the cash price, you will subtract it from what I owe. Once all amounts owed under this contract are paid, any remaining refunds will be paid to me."

(B) For contracts using the scheduled installment earnings or sum of the periodic balances methods, the creditor may substitute the following clause: "If you get a refund of insurance or service contract charges, you will apply it and the unearned finance charges on it in the reverse order of the payments to as many of my payments as it will cover. Once all amounts owed under this contract are paid, any remaining refunds will be paid to me."

(29) Application of credits. The model clause regarding application of credits reads: "Any credit that reduces my debt will apply to my payments in the reverse order of when they are due, unless you decide to apply it to another part of my debt. The amount of the credit and all finance charge or interest on the credit will be applied to my payments in the reverse order of my payments."

(30) Transfer of rights. The seller does not have a duty to disclose the terms on which a contract or a balance under a contract is acquired, including any discount or difference between the rates, charges, or balance under the contract and the rates, charges, or balance acquired as provided by Texas Finance Code, §348.301. The model clause regarding transfer of rights reads: "You may transfer this contract to another person. That person will then have all your rights, privileges, and remedies."

(31) Grant of security interest in collateral. The model clause regarding a description of a security interest granted in a typical motor vehicle installment sale reads:

Figure: 7 TAC §84.209(31)

(32) Agreements regarding use and transfer of motor vehicle. The contract may contain a provision prohibiting a buyer from transferring any interest in the motor vehicle without the creditor's written permission, requiring the buyer to notify the seller of change of address, or prohibiting the removal of the motor vehicle from Texas. The transfer fee limitation establishes the maximum fee that a creditor could contract for, charge, or collect for transferring the buyer's equity in the motor vehicle to another party. If desired, a creditor may amend the model provision to reflect a lower transfer fee amount. The model clause concerning agreements regarding the use and transfer of the motor vehicle reads: "I will not sell or transfer the motor vehicle without your written permission. If I do sell or transfer the motor vehicle, this will not release me from my obligations under this contract, and you may charge me a transfer of equity fee of $25 ($50 for a heavy commercial vehicle). I will promptly tell you in writing if I change my address or the address where I keep the motor vehicle. I will not remove the motor vehicle (Optional: motor vehicle or other collateral) from Texas for more than 30 days unless I first get your written permission."

(33) Care of motor vehicle. The contract may obligate the buyer to keep the motor vehicle free of liens and encumbrances, require the buyer to keep the motor vehicle in good working order and repair, or prohibit the buyer from allowing the motor vehicle to be exposed to seizure, confiscation, or other involuntary transfer. The model clause regarding care of the motor vehicle reads: "I agree to keep the motor vehicle free from all liens and claims except those that secure this contract. I will timely pay all taxes, fines, or charges pertaining to the motor vehicle. I will keep the motor vehicle in good repair. I will not allow the motor vehicle to be seized or placed in jeopardy, or use it illegally. I must pay all I owe even if the motor vehicle is lost, damaged or destroyed. If a third party takes a lien or claim against or possession of the motor vehicle, you may pay the third party any cost required to free the motor vehicle from all liens or claims. You may immediately demand that I pay you the amount paid to the third party for the motor vehicle. If I do not pay this amount, you may repossess the motor vehicle and add that amount to the amount I owe. If you do not repossess the motor vehicle, you may still demand that I pay you, but you cannot compute a finance charge on this amount."

(34) Default rights and repossession provisions. This paragraph details agreements allowing acceleration of the buyer's obligation upon the buyer's default or upon the creditor's determination of insecurity as permitted by Texas Business and Commerce Code, §1.309. The following provisions are samples of model clauses regarding some of the default rights and remedies of a creditor in a typical motor vehicle installment sale transaction:

(A) Acceleration and default. The model clause regarding acceleration and default reads:

Figure: 7 TAC §84.209(34)(A)

(B) Late charge. The model clause regarding late charge reads: "I will pay you a late charge as agreed to in this contract when it accrues."

(C) Repossession. At the creditor's option, a creditor may choose one of the following model provisions pertaining to repossession. The model clauses regarding repossession read:

(i) "If I default, you may repossess the motor vehicle from me if you do so peacefully. If any personal items are in the motor vehicle, you can store them for me and give me written notice at my last address shown on your records within 15 days of discovering that you have my personal items. If I do not ask for these items back within 31 days from the day you mail or deliver the notice to me, you may dispose of them as applicable law allows. Any accessory, equipment, or replacement part stays with the motor vehicle." In this provision, the term "peacefully" is intended to have the same meaning as "without breaching the peace," as determined by the Texas courts, and as found under clause (ii) of this subparagraph. Or

(ii) "If I default, you may repossess the motor vehicle from me if you do so without breaching the peace. If any personal items are in the motor vehicle, you can store them for me and give me written notice at my last address shown on your records within 15 days of discovering that you have my personal items. If I do not ask for these items back within 31 days from the day you mail or deliver the notice to me, you may dispose of them as applicable law allows. Any accessory, equipment, or replacement part stays with the motor vehicle."

(D) Buyer's right to redeem. The model clause regarding buyer's right to redeem reads: "If you take my motor vehicle, you will tell me how much I have to pay to get it back. If I do not pay you to get the motor vehicle back, you can sell it or take other action allowed by law. My right to redeem ends when the motor vehicle is sold or you have entered into a contract for sale or accepted the collateral as full or partial satisfaction of a contract."

(E) Disposition of motor vehicle. The model clause regarding disposition of the motor vehicle reads: "If I don't pay you to get the motor vehicle back, you can sell it or take other action allowed by law. You will send me notice at least 10 days before you sell it. You can use the money you get from selling it to pay allowed expenses and to reduce the amount I owe. Allowed expenses are expenses you pay as a direct result of taking the motor vehicle, holding it, preparing it for sale, and selling it. If any money is left, you will pay it to me unless you must pay it to someone else. If the money from the sale is not enough to pay all I owe, I must pay the rest of what I owe you plus interest. If you take or sell the motor vehicle, I will give you the certificate of title and any other document required by state law to record transfer of title."

(F) Collection costs. The model clause regarding collection costs reads: "If you hire an attorney who is not your employee to enforce this contract, I will pay reasonable attorney's fees and court costs as the applicable law allows."

(G) Cancellation of optional insurance or service contracts. The model clause regarding cancellation of optional insurance or service contracts reads: "This contract may contain charges for insurance or service contracts or for services included in the cash price. If I default, I agree that you can claim benefits under these contracts to the extent allowable, and terminate them to obtain refunds of unearned charges to reduce what I owe or repair the motor vehicle."

(35) Acceleration, waiver of notice of intent to accelerate, and notice of acceleration. A model clause regarding the holder's right to accelerate maturity of the contract and to waive the buyer's or co-buyer's common law right to notice of intent to accelerate, notice of acceleration, or both reads: "If I default, or you believe in good faith that I am not going to keep any of my promises, you can demand that I immediately pay all that I owe. You don't have to give me notice that you are demanding or intend to demand immediate payment of all that I owe."

(36) Refund upon acceleration. For contracts using the sum of the periodic balances or scheduled installment earnings methods, the model clause regarding the buyer's right to a finance charge refund upon acceleration of the contract reads: "If you demand that I pay you all that I owe, you will give me a credit of part of the Finance Charge as if I had prepaid in full."

(37) Integration and severability.

(A) The contract may include an integration clause indicating that the parties to the contract intend it to be the final written expression of their agreement. The model clause regarding integration reads: "This contract contains the entire agreement between you and me relating to the sale and financing of the motor vehicle."

(B) The contract may also include a severability clause providing that the invalidity of any portion of the contract does not render invalid other parts of the contract that would otherwise be valid. The model clause regarding severability reads: "If any part of this contract is not valid, all other parts stay valid."

(38) No waiver and limitations on creditor's rights and usury savings.

(A) A model clause to prevent a creditor's delay in enforcing rights under the contract from affecting a waiver of those rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(B) A provision establishing limitations on the creditor's rights reads: "You will exercise all of your rights in a lawful way."

(C) The model clause regarding usury savings reads: "I don't have to pay finance charge or other amounts that are more than the law allows. This provision prevails over all other parts of this contract and over all your other acts."

(39) Applicable law. A model clause to establish the law that will apply to the contract reads: "Federal law and Texas law apply to this contract."

(40) Warranty disclaimer. The disclaimer of express and implied warranties should be set out from the surrounding text so that the disclosure is conspicuous. A disclaimer of express and implied warranties, such as the following, is permitted by Texas Business and Commerce Code, Article 2, Subchapter C, and reads: "Unless the seller makes a written warranty, or enters into a service contract within 90 days from the date of this contract, the seller makes no warranties, express or implied, on the motor vehicle, and there will be no implied warranties of merchantability or of fitness for a particular purpose. This provision does not affect any warranties covering the motor vehicle that the motor vehicle manufacturer may provide."

(41) Preservation of consumer's claims and defenses notice. This notice only applies if the motor vehicle financed in the contract was purchased for personal, family, or household use. The preservation of consumer's claims and defenses notice disclosure should be set out from the surrounding text so that the disclosure is in all capitals, boldfaced and in at least 10-point type. The preservation of consumer's claims and defenses notice disclosure, as required by the Federal Trade Commission's preservation of consumer's claims and defenses notice, 16 C.F.R. §433.1 et seq ., reads: "NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. This provision applies to this contract only if the motor vehicle financed in the contract was purchased for personal, family, or household use."

(42) Used car buyer's guide. The used car buyer's guide disclosure should be set out from the surrounding text so that the disclosure is conspicuous. The disclosure should be prefaced by the words "In this box only, the word "you" refers to the Buyer." The used car buyer's guide disclosure, as required by the Federal Trade Commission's Used Car Regulation, 16 C.F.R. §455.1 et seq ., reads:

(A) "Used Car Buyer's Guide. The information you see on the window form for this vehicle is part of this contract. Information on the window form overrides any contrary provisions in the contract of sale."

(B) Spanish Translation: "Guía para compradors de vehículos usados. La información que ve en el formulario de la ventanilla para este vehículo forma parte del presente contrato. La información del formulario de la ventanilla deja sin efecto toda disposición en contrario contenida en el contrato de venta."

(43) Negotiability and assignment. The disclosure of the negotiability of the contract should be placed on the front side of the contract and may read:

(A) "The Annual Percentage Rate may be negotiated with the Seller. The Seller may assign this contract and retain its right to receive a part of the Finance Charge";

(B) "The rates of this contract are negotiable. The seller may assign or otherwise sell this contract and receive a discount or other payment for the difference between the rate, charges, or balance"; or

(C) "A customer may obtain their own financing. The finance charge may be negotiable. The dealership may assign the retail installment contract. There is no duty to disclose the terms for the sale of this contract (e.g., price paid to retail seller to purchase retail installment contract)."

§84.210.Permissible Changes.

(a) Creditors may make the following types of changes to the model clauses and the model contracts and may still be eligible for the defenses provided by Texas Finance Code, §349.101;

(1) Deleting inapplicable disclosures;

(2) Using a line for the consumer to initial, rather than a checkbox;

(3) Adding a signature line to the insurance disclosures to reflect joint policies;

(4) Substituting another term for "buyer," "seller," or "creditor" that has the same meaning, or use of pronouns such as "you," "we," and "us" or "it";

(5) Changing the person of the pronouns to refer to the seller as "I" or "me" and the buyer as "you" or "your";

(6) Substituting the word "vehicle" for the term "motor vehicle";

(7) Presenting the model clauses in any order, and combining or further segregating the model clauses;

(8) Inserting descriptive headings or number provisions;

(9) Changing the case of a word if otherwise permitted by the Texas Finance Code;

(10) Omitting references to different provisions for heavy commercial vehicles where the creditor elects to treat buyers of heavy commercial vehicles under the rules applicable to other vehicles;

(11) Moving provisions from one side of the form to the other and directing the buyer to see the other side, or placing all of the provisions on the same side of the form; or

(12) Changing any provision to comply with federal law.

(b) A sample model motor vehicle retail installment contract is presented in the following example.

Figure: 7 TAC §84.210(b) (.pdf)

(c) A contract may include other provisions that are not prohibited by law, but the other provisions must be submitted to the Office of Consumer Credit Commissioner for readability review before the creditor includes them.

(d) Nothing in this regulation prohibits a contract from including provisions that provide more favorable results for the buyer than those that would result from the use of a model clause.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604243

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Effective date: August 31, 2006

Proposal publication date: May 12, 2006

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

Subchapter C. SALES FINANCE OPERATIONS

7 TAC §84.301, §84.302

The Finance Commission of Texas (the commission) adopts new 7 TAC, Chapter 84, concerning Motor Vehicle Installment Sales. The new rules contained in 7 TAC §84.301 and §84.302 outline sales finance operations with regard to motor vehicle dealers licensed by the Office of Consumer Credit Commissioner.

The commission received no written comments on the proposal.

Section 84.301 (former §1.1501) defines a prepaid maintenance agreement and service contract.

Section 84.302 (former §1.1502) outlines the methods of disclosure on a retail installment sales contract for prepaid maintenance agreements sold in connection with motor vehicles. Prepaid maintenance agreements that are required or otherwise included with the sale of a motor vehicle must be disclosed as a component of the cash price. Those agreements sold on a voluntary basis may be disclosed under two methods specified in the rule.

These rules affect Texas Finance Code, Chapter 348.

§84.301.Definitions.

(a) Prepaid Maintenance Agreement--A maintenance agreement as defined in Texas Occupations Code, §1304.004.

(b) Service Contract--Has the meaning assigned in Texas Occupations Code, §1304.003,. Pursuant to Texas Occupations Code, §1304.004, a prepaid maintenance agreement is a type of service contract.

§84.302.Prepaid Maintenance Agreements.

(a) If the prepaid maintenance agreement is required in connection with the sale of a motor vehicle, regardless of whether the sale is a cash sale or a credit sale, the charge for the prepaid maintenance agreement should be disclosed or otherwise included as a component of the cash price.

(b) If the prepaid maintenance agreement is offered as a voluntary purchase in connection with the credit sale of a motor vehicle, the prepaid maintenance agreement may be disclosed:

(1) as a component of the cash price; or

(2) as an itemized charge on the retail installment sales contract.

(c) At the time of the sale, the services covered by the prepaid maintenance agreement should be reasonably expected to be delivered during the term of the agreement.

(d) The agency may evaluate the assessed charge for a prepaid maintenance agreement. If the agency determines that the charge is excessive considering relevant factors, then the agency may consider the excessive amount as finance charge. One of the relevant factors the agency will consider is whether the assessed charge and sales representations between cash and credit transactions differ.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604209

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

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

Chapter 90. CHAPTER 342, PLAIN LANGUAGE CONTRACT PROVISIONS

Subchapter A. GENERAL PROVISIONS

7 TAC §§90.101 - 90.105

The Finance Commission of Texas (the commission) adopts new 7 TAC, Chapter 90, concerning plain language contract provisions for Texas Finance Code, Chapter 342 transactions. The new rules contained in 7 TAC §§90.101 - 90.105 outline general provisions.

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 being repealed, as found in 7 TAC, Subchapter Q, §§1.1201 - 1.1207, 1.1211, 1.1212, 1.1214 - 1.1217, 1.1221, 1.1222, 1.1224 - 1.1227, 1.1231, 1.1232, 1.1234 - 1.1237, 1.1241, 1.1242, 1.1244 - 1.1247, and 1.1251 - 1.1256. The commission's adopted repeal of Subchapter Q is published elsewhere in this issue of the Texas Register . In addition, the commission is also proposing the repeal and relocation of the language contained in 7 TAC §1.841 and §1.845, as the commission believes these two rules relate to Chapter 342 plain language contract provisions and are more appropriately included within new Chapter 90. The commission adopts new Chapter 90, with changes to the proposal published in the May 12, 2006, issue of the Texas Register (31 TexReg 3795).

The commission received no written comments on the proposal.

In general, the purpose of §§90.101 - 90.706 is to implement the provisions of Texas Finance Code, §341.502, which require contracts for consumer loans under Chapter 342, whether in English or in Spanish, to be written in plain language. Use of the model contracts is optional. However, for §§90.101 - 90.604, should a lender choose not to use the model contracts, contracts must be submitted to the agency in accordance with the provisions of 7 TAC §90.104.

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 adopted new rules as a result of the agency's rule review of Subchapter Q, 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 being repealed to the new rule being adopted are technical and nonsubstantive in nature. Please note that minor revisions in wording have been made to some rules and figures from their previously enacted version, but often such changes do not substantively affect the meaning of the rules, model clauses, or contracts and thus, further explanation is unnecessary.

Section 90.101 (former §1.1203) provides definitions in order to ensure consistent treatment and application of defined terms.

Section 90.102 (former §1.1212) explains the relationship of federal law to the state requirements. The section describes how any conflicts or inconsistencies shall be resolved. Please note that current §§1.1202, 1.1212, 1.1222, 1.1232, and 1.1242 have all been consolidated into new §90.102.

Section 90.103 (former §1.1204) details the required format, typeface, and font for model plain language Chapter 342 contracts. The requirements are necessary to ensure that the contracts will be easy for consumers to read and understand. Please note that current §§1.1204, 1.1214, 1.1224, 1.1234, and 1.1244 have all been consolidated into new §90.103.

Section 90.104 (former §1.841) provides the procedures for lenders to submit non-standard contract submissions to the agency.

Section 90.105 (former §1.845) outlines the complaints and inquiries notice that lenders must provide to consumers.

The contact information contained in the alternate notice provided in §90.105(b)(5)(B) has been revised by deleting the agency's local telephone number and adding the agency's web address. While the notice maintains the listing of the agency's toll-free Consumer Helpline, it will now also provide the agency's website as an alternative, convenient method of contact for consumers. In addition, throughout all of the new rules contained in Chapter 90, the complaints and inquiries notices have been revised (if necessary) for consistency purposes.

Because these rules provide model clauses and model contracts, licensees are not required to adopt the model language contained in the rules. However, regarding §§90.101 - 90.604, for those licensees utilizing the model contracts, the prior model language is acceptable and the agency will permit licensees to use the prior model language (without a non-standard contract submission) until September 15, 2007, to deplete supplies of existing forms during a transition period after the effective date of the rules.

These new sections are adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §341.502 grants the Finance Commission the authority to adopt rules to govern the form of Chapter 342 contracts and to adopt model plain language contracts.

These rules affect Texas Finance Code, Chapter 342, Subchapters E, F, and G.

§90.101.Definitions.

The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:

(1) Acquisition Charge--A finance charge assessed for making the loan as authorized under Texas Finance Code, §342.252.

(2) Borrower--The person or persons who sign the loan agreement.

(3) Collateral--An interest in personal property which serves to secure the payment or performance of an obligation. See "Security."

(4) Deferment--An additional period of time beyond a due date for the borrower to make a payment or payments; also known as "Extension."

(5) Installment Account Handling Charge--A finance charge assessed on the loan as authorized under Texas Finance Code, §342.252.

(6) Prepayment--Any whole or partial payment of an amount equal to one or more full installments made by the borrower prior to the date the payment is due.

(7) Security--An interest in personal property which serves to secure the payment or performance of an obligation. See "Collateral."

§90.102.Relationship with Federal Law.

In the event of an inconsistency or conflict between the disclosure or notice requirements in these provisions and any current or future federal law, regulation, or interpretation, the requirements of the federal law, regulation, or interpretation will control to the extent of the inconsistency. The remainder of the contract will remain in full force and effect. Use of the Federal Reserve Board's promulgated model forms complies with the Truth in Lending requirements of this chapter.

§90.103.Format.

(b) The text of the document must be set in an easily readable typeface. Typefaces considered to be readable include: Times, Scala, Caslon, Century Schoolbook, Helvetica, Arial, and Garamond.

(c) Titles, headings, subheadings, numbering, captions, and illustrative or explanatory tables or sidebars may be used to distinguish between different levels of information or to provide emphasis.

§90.104.Non-Standard Contract Filing Procedures.

§90.105.Complaints and Inquiries Notice.

(a) Definitions. "Privacy notice" means any notice that a lender gives regarding a consumer's right to privacy as required by a specific state or federal law.

(b) Required notice.

(1) The following notice must be given to let consumers know how to file complaints: "The (your name) is (licensed and examined or registered) under the laws of the State of Texas and by state law is subject to regulatory oversight by the Office of Consumer Credit Commissioner. Any consumer wishing to file a complaint against the (your name) should contact the Office of Consumer Credit Commissioner through one of the means indicated below: In Person or U.S. Mail: 2601 North Lamar Boulevard, Austin, Texas 78705-4207. Telephone No.: (800) 538-1579. Fax No.: (512) 936-7610. E-mail: consumer.complaints@occc.state.tx.us. Website: www.occc.state.tx.us."

(2) The required notice must be given in the language in which a transaction is conducted.

(3) The required notice must be included with each privacy notice.

(4) Regardless of whether any state or federal law requires the lender to give privacy notices, the lender must take appropriate steps to let consumers know how to file complaints by giving the required notice in compliance with paragraph (1) of this subsection.

(5) In addition to the notice required to be included on each privacy notice, a notice is also required on each contract of a licensed lender pursuant to Texas Finance Code, §14.104.

(A) The text of the notice required by paragraph (1) of this subsection is acceptable to meet this requirement; or

(B) A lender may use the following notice: "This lender is licensed and examined by the State of Texas - Office of Consumer Credit Commissioner. Call the Consumer Credit Hotline or write for credit information or assistance with credit problems. Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, (800) 538-1579. www.occc.state.tx.us"

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604213

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

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

Subchapter B. SECURED CONSUMER INSTALLMENT LOANS (SUBCHAPTER E)

7 TAC §§90.201 - 90.204

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 being repealed, as found in 7 TAC, Subchapter Q, §§1.1201 - 1.1207, 1.1211, 1.1212, 1.1214 - 1.1217, 1.1221, 1.1222, 1.1224 - 1.1227, 1.1231, 1.1232, 1.1234 - 1.1237, 1.1241, 1.1242, 1.1244 - 1.1247, and 1.1251 - 1.1256. The commission's adopted repeal of Subchapter Q is published elsewhere in this issue of the Texas Register . In addition, the commission is also proposing the repeal and relocation of the language contained in 7 TAC §1.841 and §1.845, as the commission believes these two rules relate to Chapter 342 plain language contract provisions and are more appropriately included within new Chapter 90. The commission adopts new Chapter 90, with changes to the proposal published in the May 12, 2006, issue of the Texas Register (31 TexReg 3797).

The commission received no written comments on the proposal.

New 7 TAC §§90.201 - 90.204 include plain language contract provisions, disclosures, model clauses, permissible changes, and model contracts for Chapter 342, Subchapter E transactions.

Section 90.201 (former §1.1211) outlines the purpose of new Subchapter B, which is to provide model plain language for secured consumer installment loans (Chapter 342, Subchapter E).

Section 90.202 (former §1.1215) identifies the types of provisions that may be included in a Subchapter E contract.

Section 90.203 (former §1.1216) contains the model clauses. These clauses are the agency's interpretation of a plain language version of typical Subchapter E contract provisions.

Section 90.203(b)(21) concerning final agreement and modifications in writing has been revised in order to clarify the model language with respect to the prohibition of modification by oral agreement. The corresponding figures contained in §90.204(a)(7) and §90.204(a)(8) have also been revised to reflect this change (see §90.204 below).

Section 90.204 (former §1.1217) outlines permissible changes that can be made to a contract and still comply with the model provisions. This section provides licensees with flexibility in using a model contract and includes figures containing entire plain language model contracts for Subchapter E transactions.

The model contracts contained in §90.204(a)(7) and §90.204(a)(8) have been revised to reflect a clarification concerning the prohibition of modification by oral agreement (see §90.203 above).

These new sections are adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §341.502 grants the Finance Commission the authority to adopt rules to govern the form of Chapter 342 contracts and to adopt model plain language contracts.

These rules affect Texas Finance Code, Chapter 342, Subchapters E, F, and G.

§90.201.Purpose.

(a) The purpose of the rules contained in this subchapter is to provide a model plain language contract in English for Texas Finance Code, Chapter 342, Subchapter E transactions. The establishment of model provisions for these transactions will encourage use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. The use of the "plain language" model contract by a licensee is not mandatory. The licensee, however, may not use a contract other than a model contract unless the licensee has submitted the contract to the commissioner in compliance with §90.104 of this title (relating to Non-Standard Contract Filing Procedures). The commissioner shall issue an order disapproving the contract if the commissioner determines the contract does not comply with this section or rules adopted under this section. A licensee may not claim the commissioner's failure to disapprove a contract constitutes an approval.

(b) The provisions in this subchapter are intended to constitute a complete plain language Chapter 342, Subchapter E contract; however, a licensee is not limited to the contract provisions addressed by these rules.

§90.202.Contract Provisions.

A Chapter 342, Subchapter E contract may include, but is not limited to, the following contract provisions to the extent not prohibited by law or regulation. If the licensee desires to exercise its rights under one of the following provisions, it must include the provision in the contract. A licensee who does not desire to apply a provision is not required to include it in the contract. For example, if a licensee does not take a security interest in the borrower's personal property, the provisions addressing security interests are not required. A licensee may also exclude non-relevant portions of a model clause. For example, a licensee who does not routinely finance certain insurance coverages may omit those non-applicable portions of the model clause. A Chapter 342, Subchapter E contract may contain the following provisions:

(1) Identification of the parties, including the name and address of each party;

(3) An itemization of amount financed box;

(4) A definitions section specifying the pronouns that designate the borrower and the lender;

(5) A promise to pay;

(6) A late charge provision;

(7) A provision for after maturity interest;

(8) A provision specifying that prepayment is permitted;

(9) A provision specifying the finance charge earnings and refund method;

(10) A provision authorizing deferments;

(11) A provision contracting for a fee for a dishonored check;

(12) A provision specifying the conditions causing default;

(13) A provision relating to property insurance;

(14) A provision relating to credit insurance;

(15) A provision regarding the mailing of notices to the borrower;

(16) Statement of truthful information;

(17) A waiver of notice of intent to accelerate and waiver of notice of acceleration;

(18) A provision expressing no waiver of the licensee's rights;

(19) A collection expenses clause;

(20) A clause providing for joint liability;

(21) A usury savings clause;

(22) A savings clause stating that if any part of the contract is declared invalid, the rest of the contract remains valid; and

(23) Complaints and inquiries notice.

§90.203.Model Clauses.

(a) Generally. These model clauses are the plain language rendition of contract clauses that have typically been stated in technical legal terms. Nothing in this regulation prohibits a contract from including provisions that provide more favorable results for the borrower than those that would result from the use of a model clause.

(b) For a Chapter 342, Subchapter E secured consumer installment loan contract:

(1) Pronoun designation of parties. The model clauses refer to the Borrower as "I" or "me." The Lender is referred to as "you" or "your."

(2) Itemization of amount financed box. Two model clauses for the itemization of amount financed are presented in this paragraph. One is for use when the licensee finances an administrative fee. The other is for use when the administrative fee is paid in cash by the borrower. A licensee may delete portions applicable to any insurance premiums that are not financed and may also delete other inapplicable portions. The model clause options regarding the itemization of the amount financed read:

(A) For use when the administrative fee is financed:

Figure: 7 TAC §90.203(b)(2)(A)

(B) For use when the administrative fee is paid in cash:

Figure: 7 TAC §90.203(b)(2)(B)

(3) Promise to pay. The model clause for the borrower's promise to pay reads:

(A) For contracts using the scheduled installment earnings method: "I promise to pay the Total of Payments to the order of you, the Lender. I will make the payments at your address above. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(B) For contracts using the true daily earnings method: "I promise to pay the cash advance plus the accrued interest to the order of you, the Lender. I will make the payments at your address above. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(4) Late charge. At the lender's option, the late charge provision may be made applicable to loans with more than one installment. Alternatively, a lender may omit the late charge provision for loans with a single repayment. The late charge model clause reads: "If I don't pay all of a payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment."

(5) After maturity interest. The after maturity interest model clause reads: "If I don't pay all I owe when the final payment becomes due, I will pay interest on the amount that is still unpaid. That interest will be the higher rate of 18% per year or the maximum rate allowed by law. That interest will begin the day after the final payment becomes due."

(6) Prepayment clause. The model prepayment clause options read:

(A) For contracts using the scheduled installment earnings method: "I can make a whole payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(B) For contracts using the true daily earnings method: "I can make any payment early. Unless you agree otherwise in writing, I may not skip payments. If I make a payment early, my next payment will still be due as scheduled."

(7) Finance charge earnings and refund method. The model finance charge earnings and refund method clause options read:

(A) For contracts using the scheduled installment earnings method, Texas Finance Code, §342.201(a):

Figure: 7 TAC §90.203(b)(7)(A)

(B) For contracts using the scheduled installment earnings method, Texas Finance Code, §342.201(d): "The annual rate of interest is ___%. This interest rate may not be the same as the Annual Percentage Rate. You figure the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid cash advance. The unpaid cash advance does not include the administrative fee, late charges, and returned check charges. If I prepay my loan in full before the final payment is due, I may save a portion of the Finance Charge. I will not get a refund if the refund would be less than $1.00. You base the Finance Charge and Total of Payments as if I will make each payment on the day it is due. My final payment may be larger or smaller than my regular payment."

Figure: 7 TAC §90.203(b)(7)(C)

(D) For contracts using the true daily earnings method, Texas Finance Code, §342.201(d): "The annual rate of interest is _____%. This interest rate may not be the same as the Annual Percentage Rate. You figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the cash advance. You base the Finance Charge and Total of Payments as if I will make each payment on the day it is due. You will apply payments on the date they are received. This may result in a different Finance Charge or Total of Payments. My final payment may be larger or smaller than my regular payment."

(E) For contracts using the true daily earnings method, Texas Finance Code, §342.201(e):

Figure: 7 TAC §90.203(b)(7)(E)

(8) Deferment clause. The deferment model clause reads:

(A) "If I ask for more time to make any payment and you agree, I will pay more interest to extend the payment. The extra interest will be figured under the Finance Commission rules."

(B) Optional language for unilateral deferment(s): "You may extend one or more of my payments without my permission. You have to wait six months to do it again."

(9) Fee for dishonored check clause. The model clause specifies the maximum allowable dishonored check fee. An authorized lender may always choose a lesser amount. The fee for dishonored check model clause reads: "I agree to pay you a fee of up to $30 for a returned check. You can add the fee to the amount I owe or collect it separately."

(10) Default clause. The model default clause reads: "I will be in default if: I do not timely make a payment; I break any promise I made in this agreement; I allow a judgment to be entered against me or the collateral; I sell, lease, or dispose of the collateral; I use the collateral for an illegal purpose; or you believe in good faith that I am not going to keep any of my promises. If there is more than one Borrower, each Borrower agrees to keep all of the promises in the loan documents."

(11) Property insurance disclosure box. The model provision for the disclosure of property insurance reads:

Figure: 7 TAC §90.203(b)(11)

(12) Credit insurance disclosure box. The model provision for the disclosure of credit insurance reads:

Figure: 7 TAC §90.203(b)(12)

(13) Mailing of notices to borrower. The model agreement regarding the mailing of notices to the borrower reads: "You can mail any notice to me at my last address in your records. Your duty to give me notice will be satisfied when you mail it."

(14) Statement of truthful information. The following clause is sufficient as the borrower's agreement that the information provided to the licensee is true: "I promise that all information I gave you is true."

(15) Waiver of notice of intent to accelerate and waiver of notice of acceleration clause. The waiver of notice of intent to accelerate and waiver of notice of acceleration clause reads: "If I am in default, you may require me to repay the entire unpaid principal balance, and any accrued interest at once. You don't have to give me notice that you are demanding or intend to demand immediate payment of all that I owe."

(16) No waiver of lender's rights. The model agreement regarding the lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(17) Collection expenses clause. The model provision relating to the collection of expenses if default occurs reads: "If this debt is referred to an attorney for collection, I will pay any attorney fees set by the court plus court costs."

(18) Joint liability clause. The model joint liability clause reads: "I understand that you may seek payment from only me without first looking to any other Borrower."

(19) Usury savings clause. The model usury savings clause reads: "I don't have to pay interest or other amounts that are more than the law allows."

(20) Savings clause. The model savings clause reads: "If any part of this contract is declared invalid, the rest of the contract remains valid."

(21) Final agreement and modifications in writing. For loan agreements exceeding $50,000.00, this notice must be boldfaced, capitalized, underlined, or otherwise set out from the surrounding written material to be conspicuous. The model agreement requiring any change to be in writing reads: "This written loan agreement is the final agreement between you and me and may not be changed by prior, current, or future oral agreements between you and me. There are no oral agreements between you and me relating to this loan agreement. Any change to this agreement must be in writing. Both you and I have to sign written agreements."

(22) Security agreement clause. The model clause for the security agreement reads: "If I am giving collateral for this loan, I will see the separate security agreement for more information and agreements."

(23) Application of law. The model agreement regarding the law to be applied to the contract reads: "Federal law and Texas law apply to this contract."

(24) Complaints and inquiries notice. "This lender is licensed and examined by the State of Texas - Office of Consumer Credit Commissioner. Call the Consumer Credit Hotline or write for credit information or assistance with credit problems: Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, www.occc.state.tx.us, (800) 538-1579."

(25) Clause describing collateral. In the TILA disclosure box, the model clause describing the collateral reads: "You will have a security interest in the following described collateral ________________."

(26) Clause relating to prepayment. In the TILA disclosure box, the model clause options for prepayment read:

(A) For contracts using the scheduled installment earnings method: "Prepayment: If I pay off early, I may be entitled to a refund of part of the Finance Charge and I will not have to pay a penalty."

(B) For contracts using the true daily earnings method: "Prepayment: If I pay off early, I will not have to pay a penalty."

(27) Security agreement. If the loan is secured, a separate security agreement should be used.

(A) The model clause stating the secured nature of the agreement reads: "To secure this loan, I give you a security interest in the collateral. The collateral includes the property listed below, improvements and attachments to the property, insurance refunds, and proceeds."

(B) Prohibition on transfer and collateral free of encumbrance. The model agreement keeping the collateral free from encumbrance and against transferring it reads: "I own the collateral. I won't sell or transfer it without your written permission. I won't allow anyone else to have an interest in the collateral except you."

(C) Location and restrictions on movement or transfer of collateral. The model agreement regarding the location of the collateral reads: "I will keep the collateral at my address shown above. I will promptly tell you in writing if I change my address. I won't permanently remove the collateral from Texas unless you give me written permission."

(D) Upkeep and use of collateral. The model agreement regarding the upkeep and use of the collateral reads: "I will timely pay all taxes and license fees on the collateral. I will keep it in good repair. I won't use the collateral illegally."

(E) Modifications in writing. The model agreement regarding changes made to the security agreement reads: "Any change to this security agreement has to be in writing. Both you and I have to sign it."

(F) Any default is a default of the security agreement. The model agreement in the security agreement regarding defaults reads: "Any default under my agreements with you will be a default of this security agreement."

(G) Default clause. The model clause setting out the security agreement in case of default reads: "If there is a default, you can take the collateral. You will only do this lawfully and without a breach of the peace. If you take my collateral, you will tell me how much I have to pay to get it back. If I don't pay you to get the collateral back, you can sell it or take other action allowed by law. You will send me notice at least 10 days before you sell it. My right to get the collateral back ends when you sell it. You can use the money you get from selling it to pay amounts the law allows and to reduce the amount I owe. If any money is left, you will pay it to me. If the money from the sale is not enough to pay all I owe, I must pay the rest of what I owe you plus interest."

§90.204.Permissible Changes.

(a) A licensed lender may consider making the following types of changes to the secured consumer installment loans plain language model clauses:

(1) Adding information related to information set forth in the model clauses that is not otherwise prohibited by law;

(2) Substituting another term for "Lender" or "Borrower" that has the same meaning, or using pronouns such as "you," "we," and "us";

(3) Presenting the model clauses in any order, and combining or further segregating the model clauses;

(4) Inserting descriptive headings or number provisions;

(5) Changing the case of a word if otherwise permitted by the Texas Finance Code; or

(6) Making other changes which do not affect the substance of the disclosures.

(7) A sample model contract using the scheduled installment earnings method is presented in the following example.

Figure: 7 TAC §90.204(a)(7) (.pdf)

(8) A sample model contract using the true daily earnings method is presented in the following example.

Figure: 7 TAC §90.204(a)(8) (.pdf)

(9) A sample model security agreement is presented in the following example.

Figure: 7 TAC §90.204(a)(9) (.pdf)

(b) An authorized licensee has considerable flexibility to arrange the format of the model form if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604212

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Effective date: August 31, 2006

Proposal publication date: May 12, 2006

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

Subchapter C. SIGNATURE LOANS (SUBCHAPTER F)

7 TAC §§90.301 - 90.304

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 being repealed, as found in 7 TAC, Subchapter Q, §§1.1201 - 1.1207, 1.1211, 1.1212, 1.1214 - 1.1217, 1.1221, 1.1222, 1.1224 - 1.1227, 1.1231, 1.1232, 1.1234 - 1.1237, 1.1241, 1.1242, 1.1244 - 1.1247, and 1.1251 - 1.1256. The commission's adopted repeal of Subchapter Q is published elsewhere in this issue of the Texas Register . In addition, the commission is also proposing the repeal and relocation of the language contained in 7 TAC §1.841 and §1.845, as the commission believes these two rules relate to Chapter 342 plain language contract provisions and are more appropriately included within new Chapter 90. The commission adopts new Chapter 90, with changes to the proposal published in the May 12, 2006, issue of the Texas Register (31 TexReg 3801).

The commission received no written comments on the proposal.

New 7 TAC §§90.301 - 90.304 include plain language contract provisions, disclosures, model clauses, permissible changes, and model contracts for Chapter 342, Subchapter F transactions.

Section 90.301 (former §1.1201) outlines the purpose of new Subchapter C, which is to provide model plain language for signature loans (Chapter 342, Subchapter F).

Section 90.302 (former §1.1205) identifies the types of provisions that may be included in a Subchapter F contract.

Section 90.303 (former §1.1206) contains the model clauses. These clauses are the agency's interpretation of a plain language version of typical Subchapter F contract provisions.

In order to implement changes resulting from House Bill 955 as enacted by the 79th Texas Legislature, §90.303(3) has been revised concerning the late charge provision. Lenders may now use the following language (Option 2): "If I don't pay all of the payment within 10 days after it is due, you can charge me a late charge. If the amount financed is less than $100, the late charge will be 5% of the amount of the installment. If the amount financed is $100 or more, the late charge will be the greater of $10 or 5% of the amount of the installment." The corresponding figure contained in §90.304(a)(7) has also been revised to reflect this statutory change (see §90.304 below).

Section 90.304 (former §1.1207) outlines permissible changes that can be made to a contract and still comply with the model provisions. This section provides lenders with flexibility in using a model contract and includes figures containing entire plain language model contracts for Subchapter F transactions.

The model contract contained in §90.304(a)(7) has been revised to reflect a statutory change resulting from the enactment of House Bill 955 by the 79th Texas Legislature (see explanation under §90.303 above). In addition, other wording changes have been made throughout this model contract for Chapter 342, Subchapter F transactions, in order to make the language more consistent (where legally permissible) with the model contracts for Chapter 342, Subchapter E transactions, as found in §90.204.

The agency received one verbal comment concerning the model contract found in §90.304(a)(7). The commenter had discovered that the language of Option 2 (see quote under §90.303 above) had inadvertently been left out of the body of the contract (although it had been included in the Truth in Lending Act (TILA) disclosure box). Thus, the agency has corrected this oversight by adding the Option 2 language to the body of the Subchapter F model contract, as contained in §90.304(a)(7).

These new sections are adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §341.502 grants the Finance Commission the authority to adopt rules to govern the form of Chapter 342 contracts and to adopt model plain language contracts.

These rules affect Texas Finance Code, Chapter 342, Subchapters E, F, and G.

§90.301.Purpose.

(a) The purpose of the rules contained in this subchapter is to provide a model plain language contract in English for Texas Finance Code, Chapter 342, Subchapter F transactions. The establishment of model provisions for these transactions will encourage use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. The use of the "plain language" model contract by a creditor is not mandatory. The creditor, however, may not use a contract other than a model contract unless the creditor has submitted the contract to the commissioner in compliance with §90.104 of this title (relating to Non-Standard Contract Filing Procedures). The commissioner shall issue an order disapproving the contract if the commissioner determines the contract does not comply with this section or rules adopted under this section. A creditor may not claim the commissioner's failure to disapprove a contract constitutes an approval.

(b) The provisions in this subchapter are intended to constitute a complete plain language Chapter 342, Subchapter F contract; however, a creditor is not limited to the contract provisions addressed by these rules.

§90.302.Contract Provisions.

A Chapter 342, Subchapter F contract may include, but is not limited to, the following contract provisions to the extent not prohibited by law or regulation. If the lender desires to exercise its rights under one of the following provisions, it must include the provision in the contract. A lender who does not desire to apply a provision is not required to include it in the contract. For example, if a lender does not take a security interest in the borrower's personal property, the provisions addressing security interests are not required. A Chapter 342, Subchapter F contract may contain the following provisions:

(1) Identification of the parties, including the name and address of each party;

(3) A definitions section specifying the pronouns that designate the borrower and the lender;

(4) A promise to pay;

(5) A late charge provision;

(6) A provision for after maturity interest;

(7) A provision specifying that prepayment is permitted;

(8) A provision specifying the finance charge earnings and refund method;

(9) A provision authorizing deferments;

(10) A provision specifying the conditions causing default;

(11) A waiver of notice of intent to accelerate and waiver of notice of acceleration;

(12) A provision contracting for a fee for a dishonored check;

(13) A signature block;

(14) A security agreement including provisions addressing:

(A) a statement that the collateral is free from encumbrances;

(B) the location and restrictions on movement or transfer of the collateral; and

(15) A provision regarding the mailing of notices to the borrower;

(16) Statement of truthful information;

(17) A provision expressing no waiver of the lender's rights;

(18) A clause stating that all modifications to the contract must be in writing;

(19) A provision stating Texas law and federal law will apply to the contract;

(20) A clause providing for joint liability;

(21) A usury savings clause;

(22) Complaints and inquiries notice;

(23) An arbitration agreement; and

(24) A savings clause stating that if any part of the contract is invalid, all other parts remain valid.

§90.303.Model Clauses.

(b) For a Chapter 342, Subchapter F signature loan contract:

(1) Pronoun designation of parties. The model clauses refer to the Borrower as "I" or "me." The Lender is referred to as "you" or "your."

(2) Promise to pay. The model clause for the borrower's promise to pay reads: "I promise to pay the Total of Payments to the order of you, the Lender. I will make the payments at your address above. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(3) Late charge. At the lender's option, the late charge clause may be made applicable only to loans with more than one installment. As other options, a lender may include one of the model late charge clause options, as set out in the subparagraphs below, in both single and multiple installment loans, so long as the lender does not collect a default charge on a single payment loan or the lender omits the late charge clause for loans with a single repayment. The lender may use one of the following late charge model provisions:

(A) Option 1: "If I don't pay all of the payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment." Or

(B) Option 2: "If I don't pay all of the payment within 10 days after it is due, you can charge me a late charge. If the amount financed is less than $100, the late charge will be 5% of the amount of the installment. If the amount financed is $100 or more, the late charge will be the greater of $10 or 5% of the amount of the installment."

(4) After maturity interest. The after maturity interest model clause reads: "If I don't pay all I owe by the date the final payment becomes due, I will pay interest on the amount that is still unpaid. That interest will be at a rate of 18% per year and will begin the day after the final payment becomes due."

(5) Prepayment clause. The model prepayment clause reads: "I can make a whole payment early."

(6) Finance charge earnings and refund method.

(A) The model finance charge earnings and refund method clause reads: "The acquisition charge on this loan will not be refunded if I pay off early. If I pay all I owe before the beginning of the last monthly period, I will save part of the installment account handling charge. You will figure the amount I save by the sum of the periodic balances method. This method is explained in the Finance Commission rules. You don't have to refund or credit any amount less than $1.00."

(B) At the lender's option, the lender may include the following model finance charge and refund method language if the lender makes loans of $30 or less: "The acquisition charge on this loan will not be refunded if I pay off early. If this loan is for more than $30 and I pay all I owe before the beginning of the last monthly period, I will save part of the installment account handling charge. You will figure the amount I save by the sum of the periodic balances method. This method is explained in the Finance Commission rules. You don't have to refund or credit any amount less than $1.00."

(7) Deferment clause. The deferment model clause reads: "If I ask for more time to make any payment and you agree, I will pay more interest to extend the payment. The extra interest will be figured under the Finance Commission rules."

(8) Default clause. The model default clause reads: "If I break any of my promises in this document, you can demand that I immediately pay all that I owe. You can also do this if you in good faith believe that I am not going to be willing or able to keep all of my promises."

(9) Waiver of notice of intent to accelerate and waiver of notice of acceleration clause. The model waiver of notice of intent to accelerate and waiver of notice of acceleration clause reads: "I agree that you don't have to give me notice that you are demanding or intend to demand immediate payment of all that I owe."

(10) Fee for dishonored check clause. The model clause specifies the maximum allowable dishonored check fee. The lender may always choose a lesser amount. The fee for dishonored check model clause reads: "I agree to pay you a fee of up to $30 for a returned check. You can add the fee to the amount I owe or collect it separately."

(11) Signature block. At the lender's option, a witness signature block may be added.

(12) Clause describing collateral.

(A) In the TILA disclosure box, the model clause describing the collateral reads: "You will have a security interest in the following described collateral ________________."

(B) At the creditor's option, if the promissory note is unsecured, the lender may use the following clause: "This note is unsecured."

(13) Security agreement clause. The model clause setting out the security agreement in case of default reads: "If I am giving collateral for this loan, I will see the separate security agreement for more information and agreements."

(14) Mailing of notice to borrower. The model agreement regarding the mailing of notices to the borrower reads: "You can mail any notice to me at my last address in your records. Your duty to give me notice will be satisfied when you mail it."

(15) Statement of truthful information. The following clause is sufficient as the borrower's agreement that the information provided to the lender is true: "I promise that all information I gave you is true."

(16) No waiver of lender's rights. The model agreement regarding the lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(17) Modifications in writing. The model agreement requiring any change to be in writing reads: "Any change to this agreement has to be in writing. Both you and I have to sign it."

(18) Application of law. The model clause regarding the law to be applied to the contract reads: "Federal law and Texas law apply to this contract."

(19) Joint liability. The model joint liability agreement reads: "I will keep all of my promises in this document. If there is more than one Borrower, each Borrower agrees to keep all of the promises in the loan document."

(20) Usury savings clause. The model usury savings clause reads: "I don't have to pay interest or other amounts that are more than the law allows."

(21) Complaints and inquiries notice. "This lender is licensed and examined by the State of Texas - Office of Consumer Credit Commissioner. Call the Consumer Credit Hotline or write for credit information or assistance with credit problems: Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207; www.occc.state.tx.us; (800) 538-1579."

(22) Security agreement. The model clause setting out the security agreement reads: "We are entering into this security agreement at the same time that we are entering into a loan. In exchange for the loan referenced above, I agree to the follow terms and conditions: To secure this loan, I give you a security interest in the collateral. The collateral includes the property listed below, anything that becomes attached to it, and all proceeds of the collateral. This security interest also secures all other debt I owe you now. I understand that all collateral that I have given to secure loans may also be used to secure this and any other loans you may make to me. I own the collateral. I won't sell or transfer it without your written permission. I won't allow anyone else to have an interest in the collateral except you. I will keep the collateral at my address shown above. I will promptly tell you in writing if I change my address. I won't permanently remove the collateral from Texas unless you give me written permission. I will timely pay all taxes and license fees on the collateral. I will keep it in good repair. I won't use the collateral illegally. Any change to this security agreement has to be in writing. Both you and I have to sign it. Any default under my agreements with you will be a default of this security agreement. Federal law and Texas law apply to this security agreement. If I don't keep any of my promises, you can take the collateral. You will only take the collateral lawfully and without a breach of the peace. If you take my collateral, you will tell me how much I have to pay to get it back. If I don't pay you to get the collateral back, you can sell it or take other action allowed by law. You will send me notice at least 10 days before you sell it. My right to get the collateral back ends when you sell it. You can use the money you get from selling it to pay amounts the law allows, and to reduce the amount I owe. If any money is left, you will pay it to me. If the money from the sale is not enough to pay all I owe, I must pay the rest of what I owe you plus interest."

§90.304.Permissible Changes.

(a) An authorized lender may consider making the following types of changes to the signature loans plain language model clauses:

(1) Adding information related to information set forth in the model clauses that is not otherwise prohibited by law;

(2) Substituting another term for "Lender" or "Borrower" that has the same meaning, or using pronouns such as "you," "we," and "us";

(3) Presenting model clauses in any order, and combining or further segregating the model clauses;

(4) Inserting descriptive headings or number provisions;

(5) Changing the case of a word if otherwise permitted by the Texas Finance Code; or

(6) Making other changes which do not affect the substance of the disclosures.

(7) A sample model contract is presented in the following example.

Figure: 7 TAC §90.304(a)(7) (.pdf)

(8) A sample model security agreement is presented in the following example.

Figure: 7 TAC §90.304(a)(8) (.pdf)

(b) An authorized lender has considerable flexibility to arrange the format of the model form if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604211

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Effective date: August 31, 2006

Proposal publication date: May 12, 2006

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

Subchapter D. SECOND LIEN HOME EQUITY LOANS (SUBCHAPTER G)

7 TAC §§90.401 - 90.404

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 being repealed, as found in 7 TAC, Subchapter Q, §§1.1201 - 1.1207, 1.121, 1.1212, 1.1214 - 1.1217, 1.1221, 1.1222, 1.1224 - 1.1227, 1.1231, 1.1232, 1.1234 - 1.1237, 1.1241, 1.1242, 1.1244 - 1.1247, and 1.1251 - 1.1256. The commission's adopted repeal of Subchapter Q is published elsewhere in this issue of the Texas Register . In addition, the commission is also proposing the repeal and relocation of the language contained in 7 TAC §1.841 and §1.845, as the commission believes these two rules relate to Chapter 342 plain language contract provisions and are more appropriately included within new Chapter 90. The commission adopts new Chapter 90, with changes to the proposal published in the May 12, 2006, issue of the Texas Register (31 TexReg 3805).

The commission received no written comments on the proposal.

New 7 TAC §§90.401 - 90.404 include plain language contract provisions, disclosures, model clauses, permissible changes, and model contracts for Chapter 342, Subchapter G second lien home equity loans.

Section 90.401 (former §1.1221) outlines the purpose of new Subchapter D, which is to provide model plain language for second lien home equity loans (Chapter 342, Subchapter G).

Section 90.402 (former §1.1225) identifies the types of provisions that may be included in a Subchapter G second lien home equity loan contract.

Section 90.403 (former §1.1226) contains the model clauses. These clauses are the agency's interpretation of a plain language version of typical contract provisions for second lien home equity transactions.

The figures contained in §90.403(b)(8)(A) - (C) concerning the finance charge and refund method have been revised in order to correct an error with respect to refunding prepaid interest. Since points as well as loan origination fees are paid as prepaid interest and are refundable if the loan is paid in full early, the word "points" in the second paragraph, third sentence, has been removed and replaced with "prepaid interest." The corresponding model contract contained in §90.404(a)(7) has also been revised to reflect this change (see §90.404 below).

Section 90.403(b)(12) concerning credit insurance has been revised in order to clarify the optional language with respect to past due premiums. Although four times is the industry standard regarding the relationship between total past due premiums and the first month's premium in this equation, the lender does have the opportunity to use a different number or time frame if more appropriate. Thus, the use of "four times" in the optional language quoted has been removed and replaced with "(insert number)." The corresponding figures contained in §90.403(b)(12) and §90.404(a)(7) have also been revised to reflect this change (see §90.404 below).

Section 90.403(b)(17) concerning joint or non-recourse liability has been revised by deleting the second "against" occurring in the second sentence. This changed wording better tracks the language of Texas Constitution, Section 50(a)(6)(C). The corresponding figures contained in §90.403(c)(28) and §90.404(a)(7) have also been revised to reflect this change (see §90.404 below).

Section 90.403(b)(20) has been revised concerning the prior agreements provision to correct an oversight and for consistency purposes. As required by Texas Business and Commerce Code, §26.02, the following language has been added to the rule: "For loan agreements exceeding $50,000, this notice must be boldfaced, capitalized, underlined, or otherwise set out from the surrounding written material to be conspicuous." This model clause concerning prior agreements has been boldfaced in the corresponding model contracts contained in §90.404(a)(7) and §90.404(a)(8) (see §90.404 below).

Section 90.404 (former §1.1227) outlines permissible changes that can be made to a contract and still comply with the model provisions. This section provides licensees with flexibility in using a model contract and includes figures containing entire plain language model contracts for Subchapter G second lien home equity loan contracts. Licensees may use additional documents, including affidavits, in connection with the model documents contained in this rule. The additional documents may provide the parties with additional certainty on particular issues, including whether the home equity loan was made on the conditions expressed in Texas Constitution, Article XVI, §50(a)(6)(Q). Licensees may change the model documents so that they are in compliance with Mortgage Electronic Registration Systems, Inc. ("MERS").

The model contract contained in §90.404(a)(7) has been revised concerning credit insurance to reflect a clarification for the optional language with respect to past due premiums (see explanation under §90.403 above). This model contract has also been revised concerning the finance charge and refund method in order to correct an error with respect to refunding prepaid interest (see explanation under §90.403 above. In addition, the model clause concerning prior agreements has been boldfaced in order to correct an oversight and been revised for consistency purposes (see explanation under §90.403 above). Concerning the model contracts in both §90.404(a)(7) and §90.404(a)(8), another revision has been made concerning the joint or non-recourse liability provisions in order to more closely track the Texas Constitution (see explanation under §90.403 above).

These new sections are adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §341.502 grants the Finance Commission the authority to adopt rules to govern the form of Chapter 342 contracts and to adopt model plain language contracts.

These rules affect Texas Finance Code, Chapter 342, Subchapters E, F, and G.

§90.401.Purpose.

(a) The purpose of the rules contained in this subchapter is to provide a model plain language contract in English for Texas Finance Code, Chapter 342, Subchapter G (secondary mortgage loans with an effective rate of greater than 10%) home equity loan transactions. The establishment of model provisions for these transactions will encourage use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. Use of the "plain language" model contract by a licensee is not mandatory. The licensee, however, may not use a contract other than a model contract unless the licensee has submitted the contract to the commissioner in compliance with §90.104 of this title (relating to Non-Standard Contract Filing Procedures). The commissioner shall issue an order disapproving the contract if the commissioner determines the contract does not comply with this section or rules adopted under this section. A licensee may not claim the commissioner's failure to disapprove a contract constitutes an approval.

(b) The provisions in this subchapter are intended to constitute a complete plain language Chapter 342, Subchapter G home equity loan contract; however, a licensee is not limited to the contract provisions addressed by these rules.

§90.402.Contract Provisions.

(a) A Chapter 342, Subchapter G home equity loan contract may include, but is not limited to, the following contract provisions to the extent not prohibited by law or regulation. If the licensee desires to exercise its rights under one of the following provisions, it must include that provision in the contract. A licensee who does not desire to apply a provision is not required to include it in the contract. For example, a licensee who does not assess a fee for dishonored checks may omit the fee for dishonored check clause. A licensee may also exclude non-relevant portions of a model clause. For example, a licensee who does not routinely finance certain insurance coverages may omit those non-applicable portions of the model clause. A Chapter 342, Subchapter G second lien home equity loan contract may contain the following provisions:

(1) Identification of the parties, including the name and address of each party and specifying the pronouns that designate the borrower and the lender;

(3) An itemization of amount financed box;

(4) A promise to pay;

(5) A late charge provision;

(6) A provision for after maturity interest;

(7) A prepayment clause;

(8) A provision specifying the finance charge earnings and refund method;

(9) A provision contracting for a fee for a dishonored check;

(10) A provision specifying the conditions causing default;

(11) A provision regarding property insurance;

(12) A credit insurance disclosure box;

(13) A provision regarding the mailing of notices to the borrower;

(14) A provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration;

(15) A provision expressing no waiver of the licensee's rights;

(16) A collection expenses clause;

(17) A provision providing for joint liability;

(18) A usury savings clause;

(19) A savings clause stating that if any part of the loan agreement is declared invalid, the rest remains valid;

(20) An integration clause stating that the contract supersedes all prior agreements and that the contract may not be changed by oral agreement;

(21) A provision stating that the homestead described in the loan agreement is subject to the lien of the security document;

(22) A provision specifying that federal law and Texas law apply to the contract;

(23) Complaints and inquiries notice;

(24) A provision describing the collateral; and

(25) Signature blocks.

(b) The security document for a Chapter 342, Subchapter G second lien home equity loan contract may contain the following provisions:

(1) A definitions section;

(2) A provision regarding the secured nature of the agreement;

(3) A provision regarding the transfer of rights in the property;

(4) Borrower and Lender's promise;

(5) A provision regarding late charges and prepayment of principal and interest;

(6) A provision regarding the funds for escrow items;

(7) A provision regarding charges and liens;

(8) A provision regarding property insurance;

(9) A provision stating that the borrower occupies the property as his homestead;

(10) A provision regarding preservation, maintenance, protection, and inspection of the property;

(11) A provision specifying the conditions causing actual fraud;

(12) A provision regarding protection of the lender's interest in the property and rights under the security document;

(13) A provision regarding the assignment of miscellaneous proceeds and forfeiture;

(14) A provision specifying that the borrower is not released from liability if the lender modifies the payment schedule;

(15) A provision regarding joint and several liability and specifying that the person who signs the contract grants his ownership in the homestead and binds his successors and assigns;

(16) A provision regarding the extension of credit charges;

(17) A provision regarding the delivery of notices;

(18) A provision regarding the law governing the contract, stating that if any part of the contract is declared invalid, the rest of the contract remains valid;

(19) A provision regarding rules of clause construction;

(20) A provision specifying that the lender will give the borrower a copy of all signed documents at the time the loan agreement is made;

(21) A provision regarding a transfer of interest in the property;

(22) A provision regarding the borrower's right to reinstate after acceleration;

(23) A provision regarding the sale of the loan, change of loan servicer, notice of grievance, and the lender's right to comply;

(24) A provision regarding hazardous substances;

(25) A provision regarding acceleration and remedies;

(26) A provision regarding the power of sale;

(27) A provision regarding the release of the lien securing the loan agreement;

(28) A provision specifying that the loan agreement is given without personal liability against each owner of the homestead and the spouse of each owner;

(29) A provision specifying that the borrower has not been required to repay another debt with the proceeds of the loan;

(30) A provision specifying that the borrower has not assigned wages as security for the loan agreement;

(31) A provision specifying that the lender and the borrower have agreed in writing to the fair market value of the homestead;

(32) A provision regarding trustees and trustee liability;

(33) A provision regarding the lender's waiving additional collateral;

(34) A default provision;

(35) Signature blocks;

(36) A non-purchase disclosure; and

(37) A provision regarding notice of confidentiality rights.

§90.403.Model Clauses.

(b) For a Chapter 342, Subchapter G second lien home equity loan contract:

(1) Identification. The model identification clause lists the account or contract number, the name and address of the creditor or lender, the date of the note, and the name and address of the borrower. The model clause identifying the pronouns used for the borrower and the lender reads: "A word like "I" or "me" means each person who signs as a Borrower. A word like "you" or "your" means the Lender or "Note Holder." The Lender is _________. The Lender may sell or transfer this Note. The Lender or anyone who is entitled to receive payments under this Note is called the "Note Holder." You will tell me in writing who is to receive my payments."

(2) Truth in Lending Act (TILA) disclosure box. The model Truth in Lending Act (TILA) disclosure box reads:

Figure: 7 TAC §90.403(b)(2)

(3) Itemization of amount financed box. The itemization of amount financed box is not required if the licensee provides the borrower with a good faith estimate or a settlement statement as permitted by the Truth in Lending Act. An itemization of amount financed box which complies with Regulation Z is considered to be in compliance with this paragraph and will not require a non-standard submission.

(4) Promise to pay. One permissible change to the model language for the scheduled installment earnings method would be to allow partial prepayments of the principal during the term of the loan. This variation on the Texas scheduled installment earnings method would allow periodic reductions of the principal balance by partial prepayments. This variation would allow reductions of the principal balance that were not originally scheduled. The model clause for the borrower's promise to pay reads: "This loan is an Extension of Credit defined by Section 50(a)(6), Article XVI of the Texas Constitution."

(A) For contracts using the scheduled installment earnings method: "I promise to pay the Total of Payments to the order of you. (The "principal" or "cash advance" is $________. This amount plus interest must be paid by _________ (maturity date).) I will make payments to you at the address above or as you direct. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(B) For contracts using the true daily earnings method: "I promise to pay the cash advance plus the accrued interest to the order of you. (The "principal" or "cash advance" is $________. This amount plus interest must be paid by _________ (maturity date).) I will make payments to you at the address above or as you direct. I will make the payments on the dates and in the amounts shown in the Payment Schedule."

(5) Late charge. Licensees using contracts using the true daily earnings method are not permitted to assess a late charge. The model late charge provision for contracts using the scheduled installments earnings method reads: "If I don't pay all of a payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment."

(6) After maturity interest. The model provision for after maturity interest reads: "If I don't pay all I owe when the final payment becomes due, I will pay interest on the amount that is still unpaid. That interest will be the higher of the rate of 18% per year or the maximum rate allowed by law. That interest will begin the day after the final payment becomes due."

(7) Prepayment clause. The model prepayment clause options read:

(8) Finance charge earnings and refund method. The model provision options specifying the finance charge earnings and refund method read:

(A) For contracts using the scheduled installment earnings method - Section 342.301 rate loans, the model language reads:

Figure: 7 TAC §90.403(b)(8)(A)

(B) For contracts using the scheduled installment earnings method with prepayments option - Section 342.301 rate loans, the model language reads:

Figure: 7 TAC §90.403(b)(8)(B)

Figure: 7 TAC §90.403(b)(8)(C)

(9) Fee for dishonored check clause. The model clause specifies the maximum allowable dishonored check fee. A licensed lender may always choose a lesser amount. The fee for dishonored check model clause reads: "I agree to pay you a fee of up to $30 for a returned check. You may add the fee to the amount I owe or collect it separately."

(10) Default clause. The model provision specifying the conditions causing default reads:

Figure: 7 TAC §90.403(b)(10)

(11) Property insurance. The model provision regarding property insurance reads:

Figure: 7 TAC §90.403(b)(11)

(12) Credit insurance. If single premium credit insurance is allowable, a permissible change to the disclosure can be to offer a single charge for the entire term of the loan. The term for the single premium charge should be shown for the original term of the loan, unless otherwise specified. The licensee has the option of including language that reads: "The insurance will cancel on the date when the total past due premiums equal or exceed (insert number) times the first month's premium. "The industry standard regarding the relationship between total past due premiums and the first month's premium in this equation appears to be four (4) times. However, if a different time frame is more appropriate, that time frame may be used. The model credit insurance disclosure box reads:

Figure: 7 TAC §90.403(b)(12)

(13) Mailing of notices to borrower. The model provision regarding the mailing of notices to the borrower reads: "You or I may mail or deliver any notice to the address above. You or I may change the notice address by giving written notice. Your duty to give me notice will be satisfied when you mail it by first class mail."

(14) Due on sale clause, notice of intent to accelerate, and notice of acceleration. The model provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration reads: "If all or any interest in the homestead is sold or transferred without your prior written consent, you may require immediate payment in full of all that I owe under this Loan Agreement. You will not exercise this option if prohibited by law. If you exercise this option, you will give me notice of acceleration (i.e., payment of all I owe at once). This notice will give me a period of not less than 21 days from the date of the notice within which I must pay all that I owe under this Loan Agreement. If I fail to pay all that I owe before the end of this period, you may use any remedy allowed by the Loan Agreement."

(15) No waiver of lender's rights. The model provision expressing no waiver of the lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(16) Collection expenses clause. The model collection expenses clause reads: "If you require me to pay all that I owe at once, you will have the right to be paid back by me for all of your costs and expenses in enforcing this Loan Agreement to the extent not prohibited by law, including Section 50(a)(6), Article XVI of the Texas Constitution. These expenses include, for example, reasonable attorneys' fees. I understand that these fees are not for maintaining or servicing this Loan Agreement."

(17) Joint liability. The model provision providing for joint liability reads: "I understand that you may seek payment from only me without first looking to any other Borrower. You can enforce your rights under this Loan Agreement solely against the homestead. This Loan Agreement is made without personal liability against each owner of the homestead and the spouse of each owner unless the owner or spouse obtained this loan by actual fraud. If this loan is obtained by actual fraud, I will be personally liable for the debt, including a judgment for any deficiency that results from your sale of the homestead for an amount less than is owed under this Loan Agreement."

(18) Usury savings clause. The model usury savings clause reads: "I do not have to pay interest or other amounts that are more than the law allows."

(19) Savings clause. The model savings clause stating that if any part of the contract is invalid, the rest remains valid reads: "If any part of this Loan Agreement is declared invalid, the rest of the Loan Agreement remains valid. If any part of this Loan Agreement conflicts with any law, that law will control. The part of the Loan Agreement that conflicts with the law will be modified to comply with the law. The rest of the Loan Agreement remains valid."

(20) Contract supersedes prior agreements. For loan agreements exceeding $50,000.00, this notice must be boldfaced, capitalized, underlined, or otherwise set out from the surrounding written material to be conspicuous. The model integration clause providing that the contract supersedes prior agreements reads: "This written Loan Agreement is the final agreement between you and me and may not be changed by prior, current, or future oral agreements between you and me. There are no oral agreements between you and me relating to this Loan Agreement. Any change to this Loan Agreement must be in writing. Both you and I have to sign written agreements."

(21) Security document. The model provision stating that the homestead described in the loan agreement is subject to the lien of the security document reads: "The homestead described above by the property address is subject to the lien of the Security Document. I will see the separate Security Document for more information about my rights and responsibilities."

(22) Application of law. The model clause specifying that federal law and Texas law apply to the contract reads: "Federal law and Texas law apply to this Loan Agreement. The Texas Constitution will be applied to resolve any conflict between the Texas Constitution and any other law."

(23) Complaints and inquiries notice. The model complaints and inquiries notice reads: "This lender is licensed and examined by the State of Texas - Office of Consumer Credit Commissioner. Call the Consumer Credit Hotline or write for credit information or assistance with credit problems. Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207, www.occc.state.tx.us, (800) 538-1579."

(24) Clause describing collateral. The model provision describing the collateral reads: "The homestead described above by the property address is subject to the lien of the Security Document."

(25) Signature blocks. The licensee may also provide additional signature lines for witness signatures. The model provision regarding signature blocks reads:

Figure: 7 TAC §90.403(b)(25)

(1) The model definitions section reads:

(A) ""Loan Agreement" means the Note, Security Document, deed of trust, any other related document, or any combination of those documents, under which you have extended credit to me.

(B) "Security Document" means this document, which is dated ________, together with all Riders to this document.

(C) "I" or "me" means _________________________________________, the grantor under this Security Document and the person who signed the Note ("Borrower").

(D) "You" means __________________________________________, the Lender and any holder entitled to receive payments under the Note. Your address is _________________________________________. You are the beneficiary under this Security Document.

(E) "Trustee" is ______________________________. Trustee's address is ___________________________________.

(F) "Note" means the promissory Note signed by me and dated ______________. The Note states that the amount I owe you is _________________ dollars (U.S. $_______) plus interest. I have promised to pay this debt in regular Periodic Payments and to pay the debt in full not later than ______________________________ (maturity date).

(G) "My Homestead" means the property that is described below under the heading "Transfer of Rights in the Property."

(H) "Extension of Credit" means the debt evidenced by the Note, as defined by Section 50(a)(6), Article XVI of the Texas Constitution and all the documents executed in connection with the debt.

(I) "Riders" means all Riders to this Security Document that I execute.

Figure: 7 TAC §90.403(c)(1)(I)

(J) "Applicable Law" means all controlling applicable federal, Texas and local constitutions, statutes, regulations, administrative rules, local ordinances, judicial and administrative orders (that have the effect of law) as well as all applicable final, non-appealable judicial opinions.

(K) "Community Association Dues, Fees, and Assessments" means all dues, fees, assessments and other charges that are imposed on me or My Homestead by a condominium association, homeowners association, or similar organization.

(L) "Electronic Funds Transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, computer, or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. The term includes point-of-sale transfers, automated teller machine transactions, transfers initiated by telephone, wire transfers, and automated clearinghouse transfers.

(M) "Escrow Items" means those items that are described in Section ___ of this Security Document.

(N) "Miscellaneous Proceeds" means any compensation, settlement, award of damages, or proceeds paid by any third party (other than proceeds paid under my insurance) for: damage or destruction of My Homestead; condemnation or other taking of all or any part of My Homestead; conveyance instead of condemnation; or misrepresentations or omissions related to the value or condition of My Homestead.

(O) "Periodic Payment" means the regularly scheduled amount due for principal and interest under the Note plus any amounts under this Security Document.

(P) "RESPA" means the Real Estate Settlement Procedures Act (12 U.S.C. §2601 et seq .) and Regulation X (24 C.F.R. Part 3500), as they might be amended from time to time, or any additional or successor legislation or regulation that governs the same subject matter. As used in this Security Document, "RESPA" refers to all requirements and restrictions that are imposed in regard to a "federally related mortgage loan" even if the Loan Agreement does not qualify as a "federally related mortgage loan" under RESPA.

(Q) "Successor in Interest of me" means any party that has taken title to My Homestead, whether or not that party has assumed my obligations under the Loan Agreement.

(R) "Ground Rents" means amounts I owe if I rented the real property under the buildings covered by this Security Document. Such an arrangement usually takes the form of a long-term "ground lease"."

(2) Secured agreement. The model provision regarding the secured nature of the agreement reads: "To secure this loan, I give you a security interest in My Homestead including existing and future improvements, easements, fixtures, attachments, replacements and additions to the property, insurance refunds, and proceeds. This security interest is intended to be limited to the homestead property and not other collateral, as required under the Texas Constitution."

(3) Transfer of rights in the property. The model provision regarding a transfer of rights in the property reads:

Figure: 7 TAC §90.403(c)(3)

(4) Borrower and Lender's promise. The model provision regarding the borrower and lender's promise to comply with the terms of the security document reads: "YOU AND I PROMISE:".

(5) Late charges and prepayment. The model provision regarding late charges and prepayment of principal and interest reads:

Figure: 7 TAC §90.403(c)(5)

(6) Funds for escrow items. The model provision regarding the funds for escrow items reads:

Figure: 7 TAC §90.403(c)(6)

(7) Charges and liens. The model provision regarding charges and liens reads:

Figure: 7 TAC §90.403(c)(7)

(8) Property insurance. The model provision regarding property insurance reads:

Figure: 7 TAC §90.403(c)(8)

(9) Homestead. The model provision stating that the borrower occupies the property as his homestead reads: "I now occupy and use the property secured by this Security Document as my Texas homestead."

(10) Preservation, maintenance, protection, and inspection of the property. The model provision regarding preservation, maintenance, protection, and inspection of the property reads: "I will not destroy, damage or impair My Homestead, allow it to deteriorate, or commit waste. Whether or not I live in My Homestead, I will maintain it in order to prevent it from deteriorating or decreasing in value due to its condition. I will promptly repair the damage to My Homestead to avoid further deterioration or damage unless you and I agree in writing that it is economically unreasonable. I will be responsible for repairing or restoring My Homestead only if you release the insurance or condemnation proceeds for the damage to or the taking of My Homestead. You may release proceeds for the repairs and restoration in a single payment or in a series of payments as the work is completed. I still am obligated to complete repairs or restoration of My Homestead even if there are not enough proceeds to complete the work. You or your agent may inspect My Homestead. You may inspect the interior of My Homestead with reasonable cause. You will give me notice stating reasonable cause when or before the interior inspection occurs."

(11) Conditions causing actual fraud. The model provision specifying the conditions causing actual fraud reads:

Figure: 7 TAC §90.403(c)(11)

(12) Protection of lender's interest in the property and rights under the security document. The model provision regarding the protection of the lender's interest in the property and rights under the security document reads:

Figure: 7 TAC §90.403(c)(12)

(13) Assignment of miscellaneous proceeds and forfeiture. The model provision regarding the assignment of miscellaneous proceeds and forfeiture reads:

Figure: 7 TAC §90.403(c)(13)

(14) Forbearance not a waiver. The model provision specifying that the borrower is not released from liability if the lender modifies the payment schedule reads: "My successors and I will not be released from liability if you extend the time for payment or modify the payment schedule. If I pay late, you will not have to sue me or my successor to require timely future payments. You may refuse to extend time for payment or modify this Loan Agreement even if I request it. If you do not enforce your rights every time, you may enforce them later."

(15) Joint and several liability, security document execution, successors obligated. The model provision regarding joint and several liability and specifying that the person who signs the contract grants his ownership in the homestead and binds his successors and assigns reads:

Figure: 7 TAC §90.403(c)(15)

(16) Extension of credit charges. The model provision regarding the extension of credit charges reads:

Figure: 7 TAC §90.403(c)(16)

(17) Delivery of notices. The model provision regarding the delivery of notices reads: "Under the Loan Agreement, you and I will give notices to each other in writing. Any notice under the Loan Agreement will be considered given to me when it is mailed by first class mail or when actually delivered to me at my address if given by another means. You will give notice to My Homestead address unless I provide you a different address. I will notify you promptly of any change of address. I will comply with any reasonable procedure for giving a change of address that you provide. There will only be one address for notice under the Loan Agreement. Notice to me will be considered notice to all persons who are obligated under the Loan Agreement unless Applicable Law requires a separate notice. I may give you notice by delivering or mailing it by first class mail to the address provided by you, unless you require a different procedure. You, however, will not receive notice under the Loan Agreement until you actually receive it. Legal requirements governing notices subject to the Loan Agreement will prevail over conditions in the Loan Agreement."

(18) Governing law and severability. The model provision regarding the law governing the contract, stating that if any part of the contract is declared invalid, the rest of the contract remains valid reads: "The Loan Agreement will be governed by Texas law and federal law. If any provision in the Loan Agreement conflicts with any legal requirement, all non-conflicting provisions will remain effective."

(19) Rules of construction. The model provision regarding rules of clause construction reads:

Figure: 7 TAC §90.403(c)(19)

(20) Loan agreement copies. The model provision specifying that the lender will give the borrower a copy of all signed documents at the time the loan agreement is made reads: "At the time the Loan Agreement is made, you will give me copies of all documents I sign."

(21) Transfer of interest in property. The model provision regarding a transfer of interest in the property reads: ""Interest in My Homestead" means any legal or beneficial interest. This term includes those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement (the intent of which is the transfer of title by me at a future date to a purchaser). If any part of My Homestead is sold or transferred without your prior written permission, you may require immediate payment of all I owe. You will not exercise this option if disallowed by Applicable Law. If you accelerate, you will give me notice. The notice of acceleration will allow me at least 21 days from the date the notice is given to pay all I owe. If I fail to timely pay all I owe, you may pursue any remedy allowed by the Loan Agreement without further notice or demand."

(22) Borrower's right to reinstate after acceleration. The model provision regarding the borrower's right to reinstate after acceleration reads:

Figure: 7 TAC §90.403(c)(22)

(23) Sale of note, change of loan servicer, notice of grievance, and lender's right to comply. The model provision regarding the sale of the loan, change of loan servicer, notice of grievance, and the lender's right to comply reads:

Figure: 7 TAC §90.403(c)(23)

(24) Hazardous substances. The model provision regarding hazardous substances reads:

Figure: 7 TAC §90.403(c)(24)

(25) Acceleration and remedies. The model provision regarding acceleration and remedies reads:

Figure: 7 TAC §90.403(c)(25)

(26) Power of sale. The model provision regarding the power of sale reads:

Figure: 7 TAC §90.403(c)(26)

(27) Release. The model provision regarding the release of the lien securing the loan agreement reads: "You will cancel and return the Note to me and give me, in recordable form, a release of lien securing the Loan Agreement or a copy of any endorsement of the Note and assignment of the lien to a lender that is refinancing the Loan Agreement. I will pay only the cost of recording the release of lien. My acceptance of the release or endorsement and assignment will end all of your duties under Section 50(a)(6), Article XVI of the Texas Constitution."

(28) Non-recourse liability. The model provision specifying that the loan agreement is given without personal liability against each owner of the homestead and the spouse of each owner reads:

Figure: 7 TAC §90.403(c)(28)

(29) Proceeds. The model provision specifying that the borrower has not been required to repay another debt with the proceeds of the loan reads: "I am not required to apply the proceeds of the Loan Agreement to repay another debt except a debt secured by My Homestead or a debt to another lender."

(30) No assignment of wages. The model provision specifying that the borrower has not assigned wages as security for the loan agreement reads: "I have not assigned wages as security for the Loan Agreement."

(31) Acknowledgment of fair market value. The model provision specifying that the lender and the borrower have agreed in writing to the fair market value of the homestead reads: "You and I agreed in writing to the fair market value of My Homestead on the date of the Loan Agreement."

(32) Trustees and trustee liability. The model provision regarding trustees and trustee liability reads:

Figure: 7 TAC §90.403(c)(32)

(33) Waiver of additional collateral. The model provision regarding the lender's waiving additional collateral reads:

Figure: 7 TAC §90.403(c)(33)

(34) Default. The model default provision reads: "Any default of my agreements with you will be a default of this Security Document."

(35) Signature blocks. The model provision regarding signature blocks reads:

Figure: 7 TAC §90.403(c)(35)

(36) Non-purchase disclosure. The model provision indicating that the security document does not finance a purchase transaction should appear at the beginning of the document, below the heading and prior to the definitions section. The model non-purchase disclosure provision reads: "This Security Document is not intended to finance Borrower's acquisition of the Property."

(37) Notice of confidentiality rights disclosure. On or after January 1, 2004, the security document must incorporate a "Notice of Confidentiality Rights" disclosure. The disclosure or notice must:

(A) appear on the first page of the security document;

(B) be in at least 12-point boldfaced type or 12-point uppercase lettering; and

(C) be substantially similar to the required notice or disclosure under Texas Property Code, §11.008(b). The model notice of confidentiality rights reads: "NOTICE OF CONFIDENTIALITY RIGHTS: I MAY REMOVE OR STRIKE MY SOCIAL SECURITY NUMBER OR MY DRIVER'S LICENSE NUMBER FROM THIS DOCUMENT BEFORE IT IS FILED IN THE PUBLIC RECORDS."

§90.404.Permissible Changes.

(a) A licensed lender may consider making the following types of changes to the second lien home equity loans plain language model clauses:

(1) Adding information related to information set forth in the model clauses that is not otherwise prohibited by law;

(2) Substituting another term for "Lender" or "Borrower" that has the same meaning, or using pronouns such as "you," "we," and "us";

(3) Presenting the model clauses in any order, and combining or further segregating the model clauses;

(4) Inserting descriptive headings or number provisions;

(5) Changing the case of a word if otherwise permitted by the Texas Finance Code; or

(6) Making other changes which do not affect the substance of the disclosures.

(7) A sample model note is presented in the following example.

Figure: 7 TAC §90.404(a)(7) (.pdf)

(8) A sample model security document is presented in the following example.

Figure: 7 TAC §90.404(a)(8) (.pdf)

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604210

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Effective date: August 31, 2006

Proposal publication date: May 12, 2006

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

Subchapter E. SECOND LIEN PURCHASE MONEY LOANS (SUBCHAPTER G)

7 TAC §§90.501 - 90.504

The Finance Commission of Texas (the commission) adopts new 7 TAC, Chapter 90, §§90.501 - 90.504 concerning plain language contract provisions for Texas Finance Code, Chapter 342 transactions. The new rules contained in 7 TAC §§90.501 - 90.504 outline model plain language provisions for second lien purchase money loans (Subchapter G).

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 being repealed, as found in 7 TAC, Subchapter Q, §§1.1201 - 1.1207, 1.1211 - 1.1212, 1.1214 - 1.1217, 1.1221 - 1.1222, 1.1224 - 1.1227, 1.1231 - 1.1232, 1.1234 - 1.1237, 1.1241 - 1.1242, 1.1244 - 1.1247, and 1.1251 - 1.1256. The commission's adopted repeal of Subchapter Q is published elsewhere in this issue of the Texas Register . In addition, the commission is also proposing the repeal and relocation of the language contained in 7 TAC §1.841 and §1.845, as the commission believes these two rules relate to Chapter 342 plain language contract provisions and are more appropriately included within new Chapter 90. The commission adopts §§90.501 - 90.504 , with changes to the proposal published in the May 12, 2006, issue of the Texas Register (31 TexReg 3812).

The commission received no written comments on the proposal.

In general, the purpose of §§90.501 - 90.504 is to implement the provisions of Texas Finance Code, §341.502, which require contracts for consumer loans under Chapter 342, whether in English or in Spanish, to be written in plain language. Use of the model contracts is optional. However, for §§90.501 - 90.504, should a lender choose not to use the model contracts, contracts must be submitted to the agency in accordance with the provisions of 7 TAC §90.104.

New 7 TAC §§90.501 - 90.504 include plain language contract provisions, disclosures, model clauses, permissible changes, and model contracts for Chapter 342, Subchapter G second lien purchase money loans.

Section 90.501 (former §1.1231) outlines the purpose of new Subchapter E, which is to provide model plain language for second lien purchase money loans (Chapter 342, Subchapter G).

Section 90.502 (former §1.1235) identifies the types of provisions that may be included in a Subchapter G second lien purchase money loan contract.

Section 90.503 (former §1.1236) contains the model clauses. These clauses are the agency's interpretation of a plain language version of typical contract provisions for second lien purchase money transactions.

Section 90.503(b)(12) concerning credit insurance has been revised in order to clarify the optional language with respect to past due premiums. Although four times is the industry standard regarding the relationship between total past due premiums and the first month's premium in this equation, the lender does have the opportunity to use a different number or time frame if more appropriate. Thus, "four times" has been removed from the optional language quoted and replaced with "(insert number)." The corresponding figures contained in §90.503(b)(12) and §90.504(a)(7) have also been revised to reflect this change (see §90.504 below).

Section 90.503(b)(20) has been revised concerning the prior agreements provision to correct an oversight. As required by Texas Business and Commerce Code, §26.02, the following language has been added to the rule: "For loan agreements exceeding $50,000, this notice must be boldfaced, capitalized, underlined, or otherwise set out from the surrounding written material to be conspicuous." This model clause concerning prior agreements has been bolded in the corresponding model contract contained in §90.504(a)(7) (see §90.504 below). Section 90.503(c)(31) concerning partial invalidity has been revised in order clarify the model language with respect to the refunding of excess interest. The corresponding figure contained in §90.504(a)(8) has also been revised to reflect this change (see §90.504 below).

Section 90.504 (former §1.1237) outlines permissible changes that can be made to a contract and still comply with the model provisions. This section provides licensees with flexibility in using a model contract and includes figures containing entire plain language model contracts for Subchapter G purchase money home equity loan contracts. Licensees may use additional documents, including affidavits, in connection with the model documents contained in this rule. The additional documents may provide the parties with additional certainty on particular issues. Licensees may change the model documents so that they are in compliance with Mortgage Electronic Registration Systems, Inc. ("MERS").

The model contract contained in §90.504(a)(7) has been revised concerning credit insurance to reflect a clarification for the optional language with respect to past due premiums (see explanation under §90.503 above). This model contract has also been revised by bolding the model clause concerning prior agreements in order to correct an oversight (see explanation under §90.503 above).

The model contract contained in §90.504(a)(8) has been revised concerning partial invalidity to reflect a clarification for the refunding of excess interest (see §90.503 above).

Because these rules provide model clauses and model contracts, licensees are not required to adopt the model language contained in the rules. However, regarding §§90.501 - 90.504, for those licensees utilizing the model contracts, the prior model language is acceptable and the agency will permit licensees to use the prior model language (without a non-standard contract submission) until September 15, 2007, to deplete supplies of existing forms during a transition period after the effective date of the rules.

These new sections are adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §341.502 grants the Finance Commission the authority to adopt rules to govern the form of Chapter 342 contracts and to adopt model plain language contracts.

These rules affect Texas Finance Code, Chapter 342, Subchapters E, F, and G.

§90.501.Purpose.

(a) The purpose of the rules contained in this subchapter is to provide a model plain language contract in English for Texas Finance Code, Chapter 342, Subchapter G purchase money loan transactions. The establishment of model provisions for these transactions will encourage use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. Use of the "plain language" model contract by a licensee is not mandatory. The licensee, however, may not use a contract other than a model contract unless the licensee has submitted the contract to the commissioner in compliance with §90.104 of this title (relating to Non-Standard Contract Filing Procedures). The commissioner shall issue an order disapproving the contract if the commissioner determines the contract does not comply with this section or rules adopted under this section. A licensee may not claim the commissioner's failure to disapprove a contract constitutes an approval.

(b) The provisions in this subchapter are intended to constitute a complete plain language Chapter 342, Subchapter G purchase money loan contract; however, a licensee is not limited to the contract provisions addressed by these rules.

§90.502.Contract Provisions.

(a) A Chapter 342, Subchapter G purchase money loan transaction may include, but is not limited to, the following contract provisions to the extent not prohibited by law or regulation. If the licensee desires to exercise its rights under one of the following provisions, it must include that provision in the contract. A licensee who does not desire to apply a provision is not required to include it in the contract. For example, a licensee who does not assess a fee for dishonored checks may omit the fee for dishonored check clause. A licensee may also exclude non-relevant portions of a model clause. For example, a licensee who does not routinely finance certain insurance coverages may omit those non-applicable portions of the model clause. A Chapter 342, Subchapter G second lien purchase money loan transaction may contain the following provisions:

(1) Identification of the parties, including the name and address of each party and specifying the pronouns that designate the borrower and the lender, and the property address;

(3) An itemization of amount financed box;

(4) A promise to pay;

(5) A late charge provision;

(6) A provision for after maturity interest;

(7) A prepayment clause;

(8) A provision specifying the finance charge earnings and refund method;

(9) A provision contracting for a fee for a dishonored check;

(10) A provision specifying the conditions causing default;

(11) A provision regarding property insurance;

(12) A credit insurance disclosure box;

(13) A provision regarding the mailing of notices to the borrower;

(14) A provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration;

(15) A provision expressing no waiver of the licensee's rights;

(16) A collection expenses clause;

(17) A provision providing for joint liability;

(18) A usury savings clause;

(19) A savings clause stating that if any part of the loan agreement is declared invalid, the rest remains valid;

(20) An integration clause stating that the contract supersedes all prior agreements and that the contract may not be changed by oral agreement;

(21) A provision stating that the property described in the loan agreement is subject to the lien of the security document;

(22) A provision specifying that federal law and Texas law apply to the contract;

(23) Complaints and inquiries notice;

(24) A provision describing the collateral; and

(25) Signature blocks.

(b) The security document for a Chapter 342, Subchapter G second lien purchase money loan contract may contain the following provisions:

(1) A definitions section;

(2) A provision regarding the secured nature of the agreement;

(3) A provision regarding the transfer of rights in the property;

(4) Borrower and Lender's promise;

(5) A provision regarding late charges and prepayment of principal and interest;

(6) A provision regarding the funds for escrow items;

(7) A provision regarding charges and liens;

(8) A provision regarding property insurance;

(9) A provision regarding preservation, maintenance, protection, and inspection of the property;

(10) A provision regarding protection of the lender's interest in the property and rights under the security document;

(11) A provision regarding the assignment of miscellaneous proceeds and forfeiture;

(12) A provision specifying that the borrower is not released from liability if the lender modifies the payment schedule;

(13) A provision regarding joint and several liability and specifying that the person who signs the contract grants his ownership in the homestead and binds his successors and assigns;

(14) A provision regarding the extension of credit charges;

(15) A provision regarding the delivery of notices;

(16) A provision regarding the law governing the contract, stating that if any part of the contract is declared invalid, the rest of the contract remains valid;

(17) A provision regarding rules of clause construction;

(18) A provision specifying that the lender will give the borrower a copy of all signed documents at the time the loan agreement is made;

(19) A provision regarding a transfer of interest in the property;

(20) A provision regarding the borrower's right to reinstate after acceleration;

(21) A provision regarding the sale of the loan, change of loan servicer, notice of grievance, and the lender's right to comply;

(22) A provision regarding hazardous substances;

(23) A provision regarding acceleration and remedies;

(24) A provision regarding the assignment of rents, appointment of receiver, and the lender in possession;

(25) A provision regarding the power of sale;

(26) A provision regarding the release of the lien securing the loan agreement;

(27) A provision regarding the lender's rights and the borrower's responsibilities;

(28) A provision regarding trustees and trustee liability;

(29) A default provision;

(30) A provision regarding subrogation;

(31) A provision regarding what happens if the sum secured and other charges violate applicable law;

(32) A request for notice of default and foreclosure under superior mortgages or security documents provision;

(33) Signature blocks;

(34) An acknowledgment; and

(35) A provision regarding notice of confidentiality rights.

§90.503.Model Clauses.

(b) For a Chapter 342, Subchapter G second lien purchase money loan contract:

(1) Identification. The model identification clause lists the account or contract number, the name and address of the creditor or lender, the date of the note, the name and address of the borrower, and the property address. The model clause identifying the pronouns used for the borrower and the lender reads: A word like "I" or "me" means each person who signs as a Borrower. A word like "you" or "your" means the Lender or "Note Holder". The Lender is _________. The Lender may sell or transfer this Note. The Lender or anyone who is entitled to receive payments under this Note is called the "Note Holder." You will tell me in writing who is to receive my payments."

(2) Truth in Lending Act (TILA) disclosure box. The model Truth in Lending Act (TILA) disclosure box reads:

Figure: 7 TAC §90.503(b)(2) (.pdf)

(4) Promise to pay. One permissible change to the model language for the scheduled installment earnings method would be to allow partial prepayments of the principal during the term of the loan. This variation on the scheduled installment earnings method would allow periodic reductions of the principal balance by partial prepayments. This variation would allow reductions of the principal balance that were not originally scheduled. The model clause options for the borrower's promise to pay read:

(5) Late charge. Licensees using contracts using the true daily earnings method are not permitted to assess a late charge. The model late charge provision for contracts using the scheduled installment earnings method reads: "If I don't pay all of a payment within 10 days after it is due, you can charge me a late charge. The late charge will be 5% of the scheduled payment."

(6) After maturity interest. The model clause specifies the maximum interest rate allowed by law for after maturity interest. A creditor may always choose a lower rate. The model provision for after maturity interest reads: "If I don't pay all I owe when the final payment becomes due, I will pay interest on the amount that is still unpaid. That interest will be the higher of the rate of 18% per year or the maximum rate allowed by law. That interest will begin the day after the final payment becomes due."

(7) Prepayment clause. The model prepayment clause options read:

(8) Finance charge earnings and refund method. The model provision options specifying the finance charge earnings and refund method read:

(A) For contracts using the scheduled installment earnings method - Section 342.301 rate loans, the model language reads:

Figure: 7 TAC §90.503(b)(8)(A)

(B) For contracts using the scheduled installment earnings method with prepayments option - Section 342.301 rate loans, the model language reads:

Figure: 7 TAC §90.503(b)(8)(B)

Figure: 7 TAC §90.503(b)(8)(C)

(9) Fee for dishonored check clause. The model clause specifies the maximum allowable dishonored check fee. A creditor may always choose a lesser amount. The model fee for dishonored check provision reads: "I agree to pay you a fee of up to $30 for a returned check. You may add the fee to the amount I owe or collect it separately."

(10) Default clause. The model provision specifying the conditions causing default reads:

Figure: 7 TAC §90.503(b)(10)

(11) Property insurance. The model provision regarding property insurance reads:

Figure: 7 TAC §90.503(b)(11) (.pdf)

(12) Credit insurance. If single premium credit insurance is offered, a permissible change to the disclosure can be to offer a single charge for the entire term of the loan. The term for the single premium charge should be shown for the original term of the loan, unless otherwise specified. The licensee has the option of including language that reads: "The insurance will cancel on the date when the total past due premiums equal or exceed (insert number) times the first month's premium." The industry standard regarding the relationship between total past due premiums and the first month's premium in this equation appears to be four (4) times. However, if a different time frame is more appropriate, that time frame may be used. The model credit insurance disclosure box reads:

Figure: 7 TAC §90.503(b)(12) (.pdf)

(13) Mailing of notices to borrower. The duty to give notice is satisfied when it is mailed by first class mail. The model provision regarding the mailing of notices to the borrower reads: "You or I may mail or deliver any notice to the address above. You or I may change the notice address by giving written notice. Your duty to give me notice will be satisfied when you mail it."

(14) Due on sale clause, notice of intent to accelerate, and notice of acceleration. The model provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration reads: "If all or any interest in the Property is sold or transferred without your prior written consent, you may require immediate payment in full of all that I owe under this Loan Agreement. You will not exercise this option if prohibited by law. If you exercise this option, you will give me notice that you are demanding immediate payment of all that I owe. This notice will give me a period of not less than 21 days from the date of the notice within which I must pay all that I owe under this Loan Agreement. If I fail to pay all that I owe before the end of this period, you may use any remedy allowed by the Loan Agreement."

(15) No waiver of lender's rights. The model provision expressing no waiver of the lender's rights reads: "If you don't enforce your rights every time, you can still enforce them later."

(16) Collection expenses clause. The model collection expenses clause reads: "If you require me to pay all that I owe at once, you will have the right to be paid back by me for all of your costs and expenses in enforcing this Loan Agreement to the extent not prohibited by Applicable Law. These expenses include, for example, reasonable attorneys' fees."

(17) Joint liability. The model provision providing for joint liability reads: "I understand that you may seek payment from only me without first looking to any other Borrower."

(18) Usury savings clause. The model usury savings clause reads: "I do not have to pay interest or other amounts that are more than Applicable Law allows."

(21) Security document. The model provision stating that the property described in the loan agreement is subject to the lien of the security document reads: "In addition to the protections given to the Note Holder under this Note, a Security Document, dated ______________, protects the Note Holder from possible losses that might result if I do not keep the promises that I make in this Note. The Security Document describes how and under what conditions I may be required to make immediate payment in full of any amounts that I owe under this Note."

(22) Application of law. The model clause specifying that federal law and Texas law apply to the contract reads: "Federal law and Texas law apply to this Loan Agreement."

(23) Complaints and inquiries notice. The model complaints and inquiries notice reads: "The (name of Lender or Note Holder) is licensed and examined under the laws of the State of Texas and by state law is subject to regulatory oversight by the Office of Consumer Credit Commissioner. Any consumer wishing to file a complaint against the (name of Lender or Note Holder) should contact the Office of Consumer Credit Commissioner through one of the means indicated below: In Person or U.S. Mail: 2601 North Lamar Boulevard, Austin, Texas 78705-4207; Telephone No.: (800) 538-1579; Fax No.: (512) 936-7610; E-mail: consumer.complaints@occc.state.tx.us; Website: www.occc.state.tx.us."

(24) Clause describing collateral. The model provision describing the collateral reads: "The collateral described above by the property address is subject to the lien of the Security Document."

(25) Signature blocks. The licensee may also provide additional signature lines for witness signatures. The model provision regarding signature blocks reads.

Figure: 7 TAC §90.503(b)(25)

(1) The model definitions section reads:

(A) "Loan Agreement" means the Note, Security Document, deed of trust, any other related document, or any combination of those documents, under which you have made a loan to me.

(B) "Security Document" means this document, which is dated ________, together with all Riders to this document.

(C) "I" or "me" means _________________________________________, the grantor under this Security Document and the person who signed the Note ("Borrower").

(E) "Trustee" is ______________________________. Trustee's address is _________________________________.

(F) "Note" means the Purchase Money Note signed by me and dated ______________. The Note states that the amount I owe you is _________________ dollars (U.S. $______) plus interest. I have promised to pay this debt in regular Periodic Payments and to pay the debt in full not later than ____________________________________ (maturity date).

(G) "Property" means the real estate that is described below under the heading "Transfer of Rights in the Property."

(H) "Riders" means all Riders to this Security Document that I execute.

Figure: 7 TAC §90.503(c)(1)(H)

(I) "Applicable Law" means all controlling applicable federal, Texas and state constitutions, statutes, regulations, administrative rules, local ordinances, judicial and administrative orders (that have the effect of law) as well as all applicable final, non-appealable judicial opinions.

(J) "Community Association Dues, Fees, and Assessments" means all dues, fees, assessments and other charges that are imposed on me or the Property by a condominium association, homeowners association, or similar organization.

(K) "Electronic Funds Transfer" means any transfer of funds, other than a transaction originated by check, draft, or similar paper instrument, which is initiated through an electronic terminal, telephonic instrument, computer, or magnetic tape so as to order, instruct, or authorize a financial institution to debit or credit an account. The term includes point-of-sale transfers, automated teller machine transactions, transfers initiated by telephone, wire transfers, and automated clearinghouse transfers.

(L) "Escrow Items" means those items that are described in Section ___ of this Security Document.

(M) "Miscellaneous Proceeds" means any compensation, settlement, award of damages, or proceeds paid by any third party (other than proceeds paid under my insurance) for: damage or destruction of the Property; condemnation or other taking of all or any part of the Property; conveyance instead of condemnation; or misrepresentations or omissions related to the value or condition of the Property.

(N) "Periodic Payment" means the regularly scheduled amount due for principal and interest under the Note plus any amounts under this Security Document.

(O) "RESPA" means the Real Estate Settlement Procedures Act (12 U.S.C. §2601 et seq .) and Regulation X (24 C.F.R. Part 3500), as they might be amended from time to time, or any additional or successor legislation or regulation that governs the same subject matter. As used in this Security Document, "RESPA" refers to all requirements and restrictions that are imposed in regard to a "federally related mortgage loan" even if the Loan Agreement does not qualify as a "federally related mortgage loan" under RESPA.

(P) "Successor in Interest of me" means any party that has taken title to the Property, whether or not that party has assumed my obligations under the Loan Agreement.

(Q) "Ground Rents" means amounts I owe if I rented the real property under the buildings covered by this Security Document. Such an arrangement usually takes the form of a long-term "ground lease".

(2) Secured agreement. The model provision regarding the secured nature of the agreement reads: "To secure this Loan Agreement, I give you a security interest in the Property including existing and future improvements, easements, fixtures, attachments, replacements and additions to the Property, insurance refunds, and proceeds."

(3) Transfer of rights in the property. The model provision regarding a transfer of rights in the property reads:

Figure: 7 TAC §90.503(c)(3)

(4) Borrower and Lender's promise. The model provision regarding the borrower and lender's promise to comply with the terms of the security document reads: "YOU AND I PROMISE:".

(5) Late charges and prepayment. The model provision regarding late charges and prepayment of principal and interest reads:

Figure: 7 TAC §90.503(c)(5)

(6) Funds for escrow items. The model provision regarding the funds for escrow items reads:

Figure: 7 TAC §90.503(c)(6)

(7) Charges and liens. The model provision regarding charges and liens reads:

Figure: 7 TAC §90.503(c)(7)

(8) Property insurance. The model provision regarding property insurance reads:

Figure: 7 TAC §90.503(c)(8)

(9) Preservation, maintenance, protection, and inspection of the property. The model provision regarding preservation, maintenance, protection, and inspection of the property reads: "I will not destroy, damage or impair the Property, allow it to deteriorate, or commit waste. Whether or not I live in the Property, I will maintain it in order to prevent it from deteriorating or decreasing in value due to its condition. I will promptly repair the damage to the Property to avoid further deterioration or damage unless you and I agree in writing that it is economically unreasonable. I will be responsible for repairing or restoring the Property only if you release the insurance or condemnation proceeds for the damage to or the taking of the Property. You may release proceeds for the repairs and restoration in a single payment or in a series of payments as the work is completed. I still am obligated to complete repairs or restoration of the Property even if there are not enough proceeds to complete the work. If this Security Document secures a unit in a condominium or planned unit development, I will perform all of my obligations under the declaration or covenants creating or governing the condominium or planned unit development, and any other relevant document. You or your agent may inspect the Property. You may inspect the interior of the Property with reasonable cause. You will give me notice stating reasonable cause when or before the interior inspection occurs."

(10) Protection of lender's interest in the property and rights under the security document. The model provision regarding protection of the lender's interest in the property and rights under the security document reads:

Figure: 7 TAC §90.503(c)(10)

(11) Assignment of miscellaneous proceeds and forfeiture. The model provision regarding the assignment of miscellaneous proceeds and forfeiture reads:

Figure: 7 TAC §90.503(c)(11)

(12) Forbearance not a waiver. The model provision specifying that the borrower is not released from liability if the lender modifies the payment schedule reads: "My successors and I will not be released from liability if you extend the time for payment or modify the payment schedule. If I pay late, you will not have to sue me or my successor to require timely future payments. You may refuse to extend time for payment or modify this Loan Agreement even if I request it. If you do not enforce your rights every time, you may enforce them later."

(13) Joint and several liability, security document execution, successors obligated. The model provision regarding joint and several liability and specifying that the person who signs the contract grants his ownership in the property and binds his successors and assigns reads:

Figure: 7 TAC §90.503(c)(13)

(14) Extension of credit charges. The model provision for the extension of credit charges reads:

Figure: 7 TAC §90.503(c)(14)

(15) Delivery of notices. The model provision regarding the delivery of notices reads: "Under the Loan Agreement, you and I will give notices to each other in writing. Any notice under the Loan Agreement will be considered given to me when it is mailed by first class mail or when actually delivered to me at my address if given by another means. You will give notice to the Property address unless I provide you a different address. I will notify you promptly of any change of address. I will comply with any reasonable procedure for giving a change of address that you provide. There will only be one address for notice under the Loan Agreement. Notice to me will be considered notice to all persons who are obligated under the Loan Agreement unless Applicable Law requires a separate notice. I may give you notice by delivering or mailing it by first class mail to the address provided by you, unless you require a different procedure. You, however, will not receive notice under the Loan Agreement until you actually receive it. Legal requirements governing notices subject to the Loan Agreement will prevail over conditions in the Loan Agreement."

(16) Governing law and severability. The model provision regarding the law governing the contract, stating that if any part of the contract is declared invalid, the rest of the contract remains valid reads: "The Loan Agreement will be governed by Texas law and federal law. If any provision in the Loan Agreement conflicts with any legal requirement, all non-conflicting provisions will remain effective."

(17) Rules of construction. The model provision regarding rules of clause construction reads:

Figure: 7 TAC §90.503(c)(17)

(18) Loan agreement copies. The model provision specifying that the lender will give the borrower a copy of all signed documents at the time the loan agreement is made reads: "At the time the Loan Agreement is made, you will give me copies of all documents I sign."

(19) Transfer of interest in property. The model provision regarding a transfer of interest in the property reads: "Interest in the Property" means any legal or beneficial interest. This term includes those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract or escrow agreement (the intent of which is the transfer of title by me at a future date to a purchaser). If any part of the Property is sold or transferred without your prior written permission, you may require immediate payment of all I owe. You will not exercise this option if disallowed by Applicable Law. If you accelerate, you will give me notice. The notice of acceleration will allow me at least 21 days from the date the notice is given to pay all I owe. If I fail to timely pay all I owe, you may pursue any remedy allowed by the Loan Agreement without further notice or demand."

(20) Borrower's right to reinstate after acceleration. The model provision regarding the borrower's right to reinstate after acceleration reads:

Figure: 7 TAC §90.503(c)(20)

(21) Sale of note, change of loan servicer, notice of grievance, and lender's right to comply. The model provision regarding the sale of the loan, change of loan servicer, notice of grievance, and the lender's right to comply reads: "A full or partial interest in the Loan Agreement can be sold one or more times without prior notice to me. The sale may result in a change of the company servicing or handling the Loan Agreement. The company servicing or handling the Loan Agreement will collect my monthly payment and will comply with other servicing conditions required by the Loan Agreement or Applicable Law. In some cases, the company servicing or handling the Loan Agreement may change even if the Loan Agreement is not sold. If the company servicing or handling the Loan Agreement is changed, I will be given written notice of the change. The notice will state the name and address of the new company, the address to which my payments should be made, and any other information required by RESPA. Any notice of acceleration and opportunity to cure under the Loan Agreement will satisfy the notice and opportunity to address the alleged violation provisions of this Section. No agreement between you and me or any third party will limit your ability to comply with your duties under the Loan Agreement and the Applicable Law. You and I are limiting all agreements so that all current or future interest or fees in connection with this Loan Agreement will not be greater than the highest amount allowed by Applicable Law. You and I intend to conform the Loan Agreement to the provisions of Applicable Law. If any part of the Loan Agreement is in conflict with the Applicable Law, then that part will be corrected or removed. This correction will be automatic and will not require any amendment or new document. Your right to correct any violation will survive my paying off the Loan Agreement. My right to correct will override any conflicting provision of the Loan Agreement. Your right to comply as provided in this Section will survive the payoff of the Loan Agreement. The provisions of this Section will supersede any inconsistent provision of the Loan Agreement."

(22) Hazardous substances. The model provision regarding hazardous substances reads:

Figure: 7 TAC §90.503(c)(22)

(23) Acceleration and remedies. The model provision regarding acceleration and remedies reads:

Figure: 7 TAC §90.503(c)(23)

(24) Assignment of rents, appointment of receiver, and lender in possession. The model provision regarding assignment of rents, appointment of receiver, and the lender in possession reads: "As additional security, I assign to you the rents of the Property, provided that I have the right, prior to acceleration or abandonment of the Property, to collect and retain the rents as they become due. Upon acceleration or abandonment, you, by agent or by court-appointed receiver, will be entitled to enter, take possession, manage the Property, and collect due and past due rents. All rents you or the court-appointed receiver collect will be applied first to payment of the costs of management of the Property and collection of rents, including receiver's fees, premiums on receiver's bonds, and reasonable attorneys' fees, and then to the sums secured by this Security Document. You and the receiver will be liable to account only for rents received."

(25) Power of sale. The lender has the option to choose wording to indicate that a Trustee's deed will convey good title to the Property that cannot be defeated. The model provision regarding the power of sale reads:

Figure: 7 TAC §90.503(c)(25)

(26) Release. If the lender cannot return the note to the borrower, the lender may provide the borrower with a discharge and release of all obligations under the loan. The discharge must meet the requirements of Texas Finance Code, §342.454. The model provision regarding the release of the lien securing the loan agreement reads: "Upon payment of all that I owe under this Loan Agreement, you will cancel and return the Note to me and give me, in recordable form, a release of lien securing the Loan Agreement or a copy of any endorsement of the Note and assignment of the lien to a lender that is refinancing the Loan Agreement. If you cannot, you will provide me with a discharge and release of all obligations under the loan. I will pay only the cost of recording the release of lien."

(27) Lender's rights and borrower's responsibilities. The model provision specifying that each person who signs the document is responsible for each promise and duty in the security document reads:

Figure: 7 TAC §90.503(c)(27)

(28) Trustees and trustee liability. The model provision regarding trustees and trustee liability reads:

Figure: 7 TAC §90.503(c)(28)

(29) Default. The model default provision reads: "Any default of my agreements with you will be a default of this Security Document."

(30) Subrogation. The model provision regarding subrogation reads: "If I ask, you will use proceeds from the Loan Agreement to pay off all valid outstanding liens against the Property. You will then own all rights, superior titles, liens, and interests owned or claimed by any owner or holder of an outstanding lien or debt. You own these things whether the lien or debt is transferred to you or whether it is released by the holder upon payment."

(31) Partial invalidity. The model provision regarding what happens if the sums secured and other charges violate applicable law reads: "If any portion of the sums secured by this Security Document cannot be lawfully secured, payments minus those sums will be applied first to the portions not secured. If any charge provided for in this Loan Agreement, separately or together with other charges that are considered part of this Loan Agreement, violates Applicable Law, the charge is reduced to the extent necessary to eliminate the violation. Lender will refund the amount of interest or other charges paid to Lender in excess of the amount permitted by Applicable Law. At Lender's option, the amount in excess will either be refunded directly to me or will be applied to reduce the principal of the debt."

(32) Request for notice of default and foreclosure under superior mortgages or security documents. The model provision regarding the lender and borrower's request for notice of default and foreclosure under superior mortgages or security documents reads:

Figure: 7 TAC §90.503(c)(32)

(33) Signature blocks. The model provision regarding signature blocks reads:

Figure: 7 TAC §90.503(c)(33)

(34) Acknowledgment. The model provision regarding the acknowledgment reads:

Figure: 7 TAC §90.503(c)(34)

(35) Notice of confidentiality rights disclosure. On or after January 1, 2004, the security document must incorporate a "Notice of Confidentiality Rights" disclosure. The disclosure or notice must:

(A) appear on the first page of the security document;

(B) be in at least 12-point boldfaced type or 12-point uppercase lettering; and

§90.504.Permissible Changes.

(a) A licensee may consider making the following types of changes to the second lien purchase money loans plain language model clauses:

(1) Adding information related to information set forth in the model clauses that is not otherwise prohibited by law;

(2) Substituting another term for "Lender" or "Borrower" that has the same meaning, or using pronouns such as "you," "we," and "us";

(3) Presenting the model clauses in any order, and combining or further segregating the model clauses;

(4) Inserting descriptive headings or number provisions;

(5) Changing the case of a word if otherwise permitted by the Texas Finance Code; or

(6) Making other changes which do not affect the substance of the disclosures.

(7) A sample model note is presented in the following example.

Figure: 7 TAC §90.504(a)(7) (.pdf)

(8) A sample model security document is presented in the following example.

Figure: 7 TAC §90.504(a)(8) (.pdf)

(b) A licensee has considerable flexibility to arrange the format of the model form if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

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

TRD-200604214

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Effective date: August 31, 2006

Proposal publication date: May 12, 2006

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

Subchapter F. SECOND LIEN HOME IMPROVEMENT CONTRACTS (SUBCHAPTER G)

7 TAC §§90.601 - 90.604

The Finance Commission of Texas (the commission) adopts new 7 TAC Chapter 90, concerning plain language contract provisions for Texas Finance Code, Chapter 342 transactions. The new rules contained in 7 TAC §§90.601 - 90.604 outline model plain language provisions for second lien home improvement loans (Subchapter G).

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 being repealed, as found in 7 TAC, Subchapter Q, §§1.1201 - 1.1207, 1.1211 - 1.1212, 1.1214 - 1.1217, 1.1221 - 1.1222, 1.1224 - 1.1227, 1.1231 - 1.1232, 1.1234 - 1.1237, 1.1241 - 1.1242, 1.1244 - 1.1247, and 1.1251 - 1.1256. The commission's adopted repeal of Subchapter Q is published elsewhere in this issue of the Texas Register . In addition, the commission is also proposing the repeal and relocation of the language contained in 7 TAC §1.841 and §1.845, as the commission believes these two rules relate to Chapter 342 plain language contract provisions and are more appropriately included within new Chapter 90. The commission adopts new Chapter 90, with changes to the proposal published in the May 12, 2006, issue of the Texas Register (31 TexReg 3795).

The commission received no written comments on the proposal.

In general, the purpose of §§90.601 - 90.604 is to implement the provisions of Texas Finance Code, §341.502, which require contracts for consumer loans under Chapter 342, whether in English or in Spanish, to be written in plain language. Use of the model contracts is optional. However, for §§90.601 - 90.604, should a lender choose not to use the model contracts, contracts must be submitted to the agency in accordance with the provisions of 7 TAC §90.104.

New 7 TAC §§90.601 - 90.604 include plain language contract provisions, disclosures, model clauses, permissible changes, and model contracts for Chapter 342, Subchapter G second lien home improvement contracts.

Section 90.601 (former §1.1241) outlines the purpose of new Subchapter F, which is to provide model plain language for second lien home improvement contracts (Chapter 342, Subchapter G).

Section 90.602 (former §1.1245) identifies the types of provisions that may be included in a Subchapter G second lien home improvement loan contract.

Section 90.603 (former §1.1246) contains the model clauses. These clauses are the agency's interpretation of a plain language version of typical contract provisions for second lien home improvement transactions.

Subsections (c)(15) and (e)(15) of §90.603 concerning credit insurance have been revised in order to clarify the optional language with respect to past due premiums. Although four times is the industry standard regarding the relationship between total past due premiums and the first month's premium in this equation, the lender does have the opportunity to use a different number or time frame if more appropriate. Thus, the use of "four times" in the optional language quoted has been removed and replaced with "(insert number)." The corresponding figures contained in §90.603(c)(15), §90.603(e)(15), §90.604(a)(13), and §90.604(a)(15) have also been revised to reflect this change (see §90.604 below).

Subsections (c)(24) and (e)(24) of §90.603 have been revised concerning the prior agreements provision to correct an oversight and for consistency purposes. As required by Texas Business and Commerce Code, §26.02, the following language has been added to the rule: "For loan agreements exceeding $50,000, this notice must be boldfaced, capitalized, underlined, or otherwise set out from the surrounding written material to be conspicuous." The corresponding model contracts contained in §90.604(a)(13) and §90.604(a)(15) already had this language in bold but have been slightly revised for consistency purposes.

Section 90.603(f)(27) concerning partial invalidity has been revised in order clarify the model language with respect to the refunding of excess interest. The corresponding figure contained in §90.604(a)(16) has also been revised to reflect this change (see §90.604 below).

Section 90.604 (former §1.1247) outlines permissible changes that can be made to a contract and still comply with the model provisions. This section provides licensees with flexibility in using a model contract and includes figures containing entire plain language model contracts for Subchapter G second lien home improvement loan contracts. Licensees may use additional documents, including affidavits, in connection with the model documents contained in this rule. The additional documents may provide the parties with additional certainty on particular issues. Licensees may change the model documents so that they are in compliance with Mortgage Electronic Registration Systems, Inc. ("MERS").

The model contracts contained in §90.604(a)(13) and §90.604(a)(15) have been revised concerning credit insurance to reflect a clarification for the optional language with respect to past due premiums (see explanation under §90.603 above). In addition, these model contracts have also been revised concerning the prior agreements provision for consistency purposes.

The model contract contained in §90.604(a)(16) has been revised concerning partial invalidity to reflect a clarification for the refunding of excess interest (see §90.603 above).

Because these rules provide model clauses and model contracts, licensees are not required to adopt the model language contained in the rules. However, regarding §§90.601-90.604, for those licensees utilizing the model contracts, the prior model language is acceptable and the agency will permit licensees to use the prior model language (without a non-standard contract submission) until September 15, 2007, to deplete supplies of existing forms during a transition period after the effective date of the rules.

These new sections are adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §341.502 grants the Finance Commission the authority to adopt rules to govern the form of Chapter 342 contracts and to adopt model plain language contracts.

These rules affect Texas Finance Code, Chapter 342, Subchapters E, F, and G.

§90.601.Purpose.

(a) The purpose of the rules contained in this subchapter is to provide a model plain language contract in English for Texas Finance Code, Chapter 342, Subchapter G home improvement transactions. The establishment of model provisions for these transactions will encourage use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. Use of the "plain language" model contract by a licensee is not mandatory. The licensee, however, may not use a contract other than a model contract unless the licensee has submitted the contract to the commissioner in compliance with §90.104 of this title (relating to Non-Standard Contract Filing Procedures). The commissioner shall issue an order disapproving the contract if the commissioner determines the contract does not comply with this section or rules adopted under this section. A licensee may not claim the commissioner's failure to disapprove a contract constitutes approval.

(b) The provisions in this subchapter are intended to constitute a complete plain language Chapter 342, Subchapter G home improvement transaction; however, a licensee is not limited to the contract provisions addressed by these rules.

§90.602.Contract Provisions.

A Chapter 342, Subchapter G second lien home improvement loan transaction may include, but is not limited to, the following contract provisions to the extent not prohibited by law or regulation. If the licensee desires to exercise its rights under one of the following provisions, it must include that provision in the contract. A licensee who does not desire to apply a provision is not required to include it in the contract. For example, a licensee who does not assess a fee for dishonored checks may omit the fee for dishonored check clause. A licensee may also exclude non-relevant portions of a model clause. For example, a licensee who does not routinely finance certain insurance coverages may omit those non-applicable portions of the model clause. A Chapter 342, Subchapter G home improvement loan transaction may contain the following provisions:

(1) For a contract for use in a transaction that does not allow withdrawals or multiple advances:

(B) A definitions section;

(D) A clause regarding the contract price;

(E) A transfer of lien clause;

(F) A provision specifying that completion is made by the contractor, not the lender;

(G) A partial lien clause;

(H) A provision regarding charges and extras;

(I) A provision regarding receipts and releases;

(J) A provision specifying that no work has been done prior to execution of the contract;

(K) A provision regarding the trustee's duties;

(L) A notice specifying the preservation of claims and defenses;

(M) A notice specifying that the owner and the contractor are responsible for meeting the terms of the contract;

(N) An assignment; and

(O) A provision regarding notice of confidentiality rights.

(2) For a promissory note for use in a transaction that does not allow withdrawals or multiple advances:

(B) A Truth in Lending Act (TILA) disclosure box;

(D) A security for payment provision;

(E) A definitions section;

(F) A promise to pay;

(G) A late charge provision;

(H) A provision for after maturity interest;

(I) A prepayment clause;

(J) A provision specifying the finance charge earnings and refund method;

(K) A deferment clause;

(L) A provision contracting for a fee for a dishonored check;

(M) A provision specifying the conditions causing default;

(N) A provision regarding property insurance;

(O) A credit insurance disclosure box;

(P) A provision regarding the mailing of notices to the borrower;

(Q) A provision specifying that the borrower's statements are truthful;

(R) A provision regarding the due on sale clause, notice of intent to accelerate, and notice of acceleration;

(S) A provision expressing no waiver of the licensee's rights;

(T) A collection expenses clause;

(U) A provision providing for joint liability;

(V) A usury savings clause;

(W) A savings clause stating that if any part of the loan agreement is declared invalid, the rest remains valid;

(X) An integration clause stating that the contract supersedes all prior agreements and that the contract may not be changed by oral agreement;

(Y) provision specifying that federal law and Texas law apply to the contract;

(Z) Complaints and inquiries notice;

(AA) A provision describing the collateral;

(BB) A notice regarding the preservation of claims and defenses; and

(CC) Signature blocks.

(3) For a contract for use in a transaction that allows for withdrawals or multiple advances:

(B) A definitions section;

(D) A clause regarding the contract price;

(E) A clause regarding the note payable to the lender;

(F) A clause regarding the note being secured by the lien;

(G) A transfer of lien clause;

(H) A clause regarding exceptions to conveyance and warranty;

(I) A provision specifying that completion is made by the contractor, not the lender;

(J) A partial lien clause;

(K) A provision regarding charges and extras;

(L) A provision regarding receipts and releases;

(M) A provision specifying that no work has been done prior to execution of the contract;

(N) A provision regarding the owner's promises and rights;

(O) A provision regarding the owner's duties;

(P) A provision regarding the contractor's duties;

(Q) A provision regarding the contractor's rights;

(R) A provision regarding the trustee's duties;

(S) General provisions;

(T) A notice specifying the preservation of claims and defenses;

(U) A notice specifying that the owner and the contractor are responsible for meeting the terms of the contract; and

(V) An assignment.

(4) For a promissory note for use in a transaction that allows for withdrawals or multiple advances: