Proposed Rules Title 16

TITLE 16. ECONOMIC REGULATION

PART 4. TEXAS DEPARTMENT OF LICENSING AND REGULATION

CHAPTER 77. SERVICE CONTRACT PROVIDERS AND ADMINISTRATORS

The Texas Department of Licensing and Regulation ("Department") proposes the repeal of 16 Texas Administrative Code ("TAC") Chapter 77, §§77.1, 77.10, 77.21, 77.22, 77.70, 77.72, 77.80, and 77.90 and proposes new 16 TAC Chapter 77, §§77.1, 77.10, 77.20 - 77.23, 77.40 - 77.43, 77.70, 77.80, and 77.90, regarding service contract providers and administrators.

The existing rules at 16 TAC Chapter 77 implement the statutory requirements under Texas Occupations Code, Chapter 1304, the Service Contract Regulatory Act. The Department is proposing the repeal of the existing rules and the adoption of new rules in order to clarify and reflect the current policies, practices and procedures for registering and regulating service contract providers and administrators. In addition, the new rules are necessary to clarify and detail the providers' financial security obligations and the providers' responsibilities to their service contract holders.

Proposed new Chapter 77 rules clarify and detail the registration requirements for service contract providers ("providers") and service contract administrators ("administrators"). The proposed rules compile the existing registration requirements found throughout the statute, rules and registration forms into one comprehensive list of registration requirements. The proposed rules separate registration requirements for providers and administrators into separate rules, and separate the requirements for initial registrations and renewals into separate rules. In addition, the proposed new rules clarify and detail the financial security requirements for providers, which are set out in general terms in the statute and which are critical for ensuring the performance of the providers' obligations to their service contract holders.

The proposed rules set out the responsibilities that providers and administrators have to their service contract holders and to the Department, including providing disclosures to consumers in advertisements and in service contracts and providing updated information to the Department. The proposed rules establish new procedures that providers must follow if they cease operations in Texas but still have active service contracts in effect. Finally, the proposed rules include a fees section; however, there are no proposed changes to the fee amounts found in the existing rules.

William H. Kuntz, Jr., Executive Director, has determined that for the first five-year period the proposed repeal and new rules are in effect, there will be no direct cost or effect on revenue to state or local government as a result of enforcing or administering the proposal.

Mr. Kuntz also has determined that for each year of the first five-year period the proposed repeal and new rules are in effect, the public will benefit because the proposed rules clarify the service contract providers' financial obligations and contractual responsibilities to members of the public who purchase service contracts ("service contract holders"). The public also will benefit from enhanced disclosures that providers must give to potential and new service contract holders. Existing service contract holders will benefit from receiving at least 30-days advance notice if their service contract provider ceases operations in Texas. These service contract holders will have the opportunity to seek a refund or other resolution before the provider ceases operations. Currently, providers that are ceasing operations are not notifying service contract holders, and service contract holders are finding out weeks, months or even years later when they try to make claims on their service contracts that the provider is no longer in business.

The service contract industry will benefit because of the additional clarity and detail provided in the rules regarding registration and financial security requirements and because the rules reflect the current policies, practices and procedures of the Department.

There are approximately 203 service contract providers and 49 service contract administrators currently registered with the Department to do business in Texas. Many of these businesses are large national corporations. The Department assumes that at least some of the providers and administrators may be classified as "small businesses" or "micro-businesses" as defined under Texas Government Code, Chapter 2006. After evaluating the proposed rules, the Department believes that there will be no adverse economic effect on small and micro-businesses, but the agency anticipates that there may be minimal economic costs to persons who are required to comply with the rules as proposed. Because there may be economic costs, the agency has prepared an Economic Impact Statement and a Regulatory Flexibility Analysis, as detailed under Texas Government Code §2006.002.

Most of the proposed changes in the new rules provide additional detail and clarification to the existing rules, but not additional new requirements. There will be no costs to those persons who are required to comply with the rules as a result of these changes. There are two additions to the existing rules that may result in minimal costs to providers (not administrators), but the Department has narrowly tailored the new requirements and does not anticipate an adverse economic cost to small or micro-businesses as a result of these proposed changes.

The first proposed change requires the provider to identify itself on the advertising materials that are used by the provider, its administrator or its sellers. The public often receives letters and postcards in the mail advertising various service contracts, but some of these advertisements do not provide the name of the service contract provider, just a phone number. Since service contract sellers are not registered with the Department, it is important for the public and the Department to know the name of the provider who is financially and contractually responsible for a particular service contract being advertised and whether that provider is registered in Texas to do business.

The Department has narrowly tailored this new provision to require only the name of the provider on the solicitation. The less burdensome alternative is not requiring the provider's name on the advertising, which is the current status and which leaves the public wondering whether the provider behind the anonymous advertisement is registered to do business in Texas. Other alternatives to the proposed rule would require the provider to provide additional information on the solicitations, which would probably be more burdensome and costly. The Department believes the proposed change is a reasonable solution. The Department believes that the legitimate service contract providers currently include their names on their marketing materials and that this requirement should not result in an additional cost to those providers.

The second proposed change requires a provider that is ceasing operations in the state to notify its service contract holders who have active contracts in effect and the Department regarding the fact that the provider is going out of business. The provider also must provide certain information to the Department. While there may be some minimal economic cost to these requirements, the Department finds this to be a necessary cost of properly conducting business.

The Department has experienced several instances over the last few years of providers ceasing operations and not telling their service contract holders or the Department that they were going out of business and that they would no longer be honoring the service contracts. The service contract holders only find out weeks, months or even years later when they try to make claims on the service contracts and they discover that the provider is no longer in business. The Department often finds out when it starts receiving complaints from consumers or when the provider does not renew its registration with the Department the following year. Service contract providers like any other business entity should wind down business operations in an organized and proper manner and provide notice to customers who have paid upfront and in full for service contracts (often multi-year contracts) that they will no longer be able to use the service contracts or receive the coverage for which they paid.

The Department has narrowly tailored this new requirement and has not prescribed the method or format for notifying consumers or the Department, just the timing. In addition, the Department has limited the information required to be provided to the Department to that which is necessary to identify and handle potential complaints in the future from affected service contract holders. The less burdensome alternative is not requiring the provider to notify service contract holders with active contracts or the Department when it ceases operations, which is the current status. Other alternatives to the proposed rule would require the provider to provide additional information and would prescribe the method and format for doing so, which would probably be more burdensome and costly. The Department believes the proposed rules are a reasonable solution. The Department has attempted to minimize the potential for any economic costs to persons who are required to comply with the rules as proposed, while ensuring that the necessary information is provided to the public and the Department.

Comments on the proposal may be submitted by mail to Caroline Jackson, Legal Assistant, General Counsel's Office, Texas Department of Licensing and Regulation, P.O. Box 12157, Austin, Texas 78711, or by facsimile to (512) 475-3032, or electronically to erule.comments@license.state.tx.us. The deadline for comments is 30 days after publication in the Texas Register.

16 TAC §§77.1, 77.10, 77.21, 77.22, 77.70, 77.72, 77.80, 77.90

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

The repeal is proposed under Texas Occupations Code, Chapter 51, which authorizes the Commission, the Department's governing body, to adopt rules as necessary to implement this chapter and any other law establishing a program regulated by the Department. The repeal is also proposed under Texas Occupations Code, Chapter 1304, which establishes the service contract program and gives regulatory authority of this program to the Commission and the Department.

The statutory provisions affected by the repeal are those set forth in Texas Occupations Code, Chapters 51 and 1304. No other statutes, articles, or codes are affected by the proposal.

§77.1.Authority.

§77.10.Definitions.

§77.21.Registration and Renewal Requirements--Provider.

§77.22.Registration and Renewal Requirements--Administrator.

§77.70.Responsibilities of Registrant--Provider and Administrator.

§77.72.Financial Security.

§77.80.Fees.

§77.90.Sanctions--Administrative Sanctions/Penalties.

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

Filed with the Office of the Secretary of State on July 13, 2009.

TRD-200902850

William H. Kuntz, Jr.

Executive Director

Texas Department of Licensing and Regulation

Earliest possible date of adoption: August 23, 2009

For further information, please call: (512) 463-7348

16 TAC §§77.1, 77.10, 77.20 - 77.23, 77.40 - 77.43, 77.70, 77.80, 77.90

The new rules are proposed under Texas Occupations Code, Chapter 51, which authorizes the Commission, the Department's governing body, to adopt rules as necessary to implement this chapter and any other law establishing a program regulated by the Department. The new rules also are proposed under Texas Occupations Code, Chapter 1304, which establishes the service contract program and gives regulatory authority of this program to the Commission and the Department.

The statutory provisions affected by the proposal are those set forth in Texas Occupations Code, Chapters 51 and 1304. No other statutes, articles, or codes are affected by the proposal.

§77.1.Authority.

This chapter is promulgated under the authority of Texas Occupations Code, Chapter 1304 and Texas Occupations Code, Chapter 51.

§77.10.Definitions.

The following words and terms, as used in this chapter and Texas Occupations Code, Chapter 1304, have the following meanings:

(1) "Service contract seller" or "seller" means a person, other than the provider of the service contract, who is responsible for marketing, offering, or selling service contracts, but is not contractually obligated to a service contract holder under the terms of a service contract.

(2) "Third-party administration of a service contract" includes any of the following activities performed on behalf of a service contract provider:

(A) performing or arranging the collection, maintenance, or disbursement of money to compensate any party for claims or repairs pursuant to a service contract;

(B) participating in the processing or adjustment of claims arising under a service contract;

(D) complying with provider requirements, other than financial security requirements, of Texas Occupations Code, Chapter 1304.

(3) The term "third party administration of a service contract" does not include the performance of repairs, or clerical functions ancillary to the performance of repairs, by a repair facility that performs no other activities with respect to a service contract.

§77.20.Registration Requirements--Provider.

(a) No person may operate as a provider of service contracts, or offer to be a provider of service contracts, in this state without first registering with the Department, unless the service contracts offered by such person are specifically exempt from the application of Texas Occupations Code, Chapter 1304.

(b) A registration is valid for one year from the date issued.

(c) Initial applications for registration must provide the Department with all of the following required information, on forms prescribed by the Executive Director:

(1) a completed registration form;

(2) a completed biographical affidavit from each controlling person as defined in Texas Occupations Code §1304.0035;

(3) a completed criminal history questionnaire from each controlling person as defined in Texas Occupations Code §1304.0035, if applicable;

(4) the required fee; and

(5) proof of financial security as prescribed under §77.40.

(d) Not later than the 30th day after the date of a provider's initial registration, the provider must submit the following information to the Department:

(1) a list of internet website addresses through which a consumer may purchase the provider's service contracts, if any;

(2) a list of administrator(s) appointed by the provider, if any, including each administrator's name, assumed name, street address, telephone number, and Department registration number; and

(3) a list of sellers of the provider's service contracts, except those excluded under Texas Occupations Code §1304.1025(c)(2), including each service contract seller's name, assumed name, street address, and telephone number.

(e) Falsification of information on an application is cause for denial and/or revocation of the registration.

(f) The Department may refuse to issue a registration if the applicant or a controlling person of the applicant has violated Texas Occupation Code, Chapter 1304, this chapter, or a rule or an order issued by the Commission or Executive Director.

§77.21.Registration Renewal Requirements--Provider.

(a) In order for a provider to continue operating in this state, a registration must be renewed annually.

(b) Non-receipt of a registration renewal notice from the Department does not exempt a person from any requirements of this chapter.

(c) Renewal applications for registration must provide the Department with all of the following required information, on forms prescribed by the Executive Director:

(1) a completed registration form;

(2) the number of service contracts sold by the provider in the preceding 12-month period;

(3) the updated lists of information required under §77.20(d);

(4) a biographical affidavit from each controlling person as defined in Texas Occupations Code §1304.0035, or a form indicating there has been no change in the biographical affidavit since the previous registration or renewal from each controlling person;

(5) a completed criminal history questionnaire from each controlling person as defined in Texas Occupations Code §1304.0035, if applicable, or a form indicating there has been no change in criminal history since the previous registration or renewal from each controlling person, as applicable;

(6) the required fee; and

(7) proof of new or continuing financial security as prescribed under §77.40.

(d) Falsification of information on an application is cause for denial and/or revocation of the registration.

(e) The Department may refuse to renew a registration if the applicant or a controlling person of the applicant has violated Texas Occupation Code, Chapter 1304, this chapter, or a rule or an order issued by the Commission or Executive Director.

(f) A person shall not perform work requiring registration under Texas Occupations Code, Chapter 1304 or this chapter with an expired registration.

§77.22.Registration Requirements--Administrator.

(a) No person may operate as an administrator for a provider or offer to act as an administrator for a provider operating in this state without first registering with the Department.

(b) A registration is valid for one year from the date issued.

(c) Initial applications for registration must provide the Department with all of the following required information, on forms prescribed by the Executive Director:

(1) a completed registration form;

(2) the name and Department registration number for each service contract provider(s) for which the person will act as an administrator;

(3) a list of the administrator's controlling persons as defined in Texas Occupations Code §1304.0035; and

(4) the required fee.

(d) Falsification of information on an application is cause for denial and/or revocation of the registration.

(e) The Department may refuse to issue a registration if the applicant or a controlling person of the applicant has violated Texas Occupation Code, Chapter 1304, this chapter, or a rule or an order issued by the Commission or Executive Director.

§77.23.Registration Renewal Requirements--Administrator.

(a) In order for an administrator to continue operating in this state, a registration must be renewed annually.

(b) Non-receipt of a registration renewal notice from the Department does not exempt a person from any requirements of this chapter.

(c) Renewal applications for registration must provide the Department with all of the following required information, on forms prescribed by the Executive Director:

(1) a completed registration form;

(2) the name and Department registration number for each service contract provider(s) for which the person will act as an administrator;

(3) a list of the administrator's controlling persons as defined in Texas Occupations Code §1304.0035; and

(4) the required fee.

(d) Falsification of information on an application is cause for denial and/or revocation of the registration.

(f) A person shall not perform work requiring registration under Texas Occupations Code, Chapter 1304 or this chapter with an expired registration.

§77.40.Financial Security--General Requirements.

(a) A provider must maintain financial security to ensure the faithful performance of a provider's obligations to its service contract holders and for the benefit of those service contract holders who suffer actual financial loss due to the provider's failure to perform those obligations.

(b) A provider must submit proof of one of the following three forms of financial security that meets the requirements of Texas Occupations Code §1304.151 and/or §1304.152:

(1) a reimbursement insurance policy;

(2) a funded reserve account and a security deposit; or

(3) net worth of at least $100 million.

(c) All forms of financial security must be maintained by the provider for the entire time the provider continues to do business in this state or is registered to do business in this state.

(d) All forms of financial security must be kept in effect until the later of:

(1) two years after the provider ceases to do business in this state;

(2) two years after the provider's registration expires; or

(3) the Executive Director receives satisfactory proof from the provider and determines that the provider has discharged or otherwise adequately met all obligations to its service contract holders in this state.

(e) If any form of financial security is canceled or lapses during the term of the provider's registration, the provider may not issue a new service contract after the effective date of the cancellation or lapse, unless and until the provider files with the Executive Director a copy of a new form of financial security that meets the financial security requirements provided by Texas Occupations Code, Chapter 1304 and this chapter and that provides coverage after that date.

(f) Cancellation or lapse of the financial security does not affect the provider's liability for a service contract issued by the provider before or after the effective date of the cancellation or lapse.

§77.41.Financial Security--Reimbursement Insurance Policy.

(a) A provider that uses a reimbursement insurance policy to comply with the financial security requirements of Texas Occupations Code §1304.151 and §1304.152, will not be allowed to obtain or renew a registration unless the insurer issuing the policy has provided all of the information and met all of the requirements set forth in Texas Occupations Code §1304.152(a-1).

(b) A reimbursement insurance policy that is used to comply with the financial security requirements of Texas Occupations Code §1304.151 and §1304.152 must include:

(1) the "Service Contract Provider Texas Endorsement" prescribed by the Executive Director, or equivalent language; and

(2) copy of the approval letter from the Texas Department of Insurance for using the endorsement.

(c) If a reimbursement insurance policy, which is used to comply with the financial security requirements of Texas Occupations Code §1304.151 and §1304.152, is issued by a risk retention group, the provider must disclose to the Department:

(1) the identity of all of the policyholders/investors in the risk retention group; and

(2) the percentage of ownership of each policyholder/investor.

§77.42.Financial Security--Funded Reserve Account and Security Deposit.

(a) A provider that uses a funded reserve account and security deposit to comply with the financial security requirements of Texas Occupations Code §1304.151, will not be allowed to obtain or renew a registration unless the provider:

(1) maintains the funded reserve account and the security deposit at or above the financial levels required under §1304.151(b); and

(2) meets the requirements under this section.

(b) The funded reserve account maintained by the provider must:

(1) be kept separate from the provider's operating accounts; and

(2) not be used for any purpose other than to cover the provider's obligations under its service contracts that are issued and outstanding in this state.

(c) In addition to maintaining the funded reserve account, the provider must submit one of the following forms of security deposit:

(1) A surety bond that:

(A) is issued by a surety company authorized to do business in the State of Texas;

(B) conforms to the Texas Insurance Code;

(D) is payable to the Executive Director for the satisfaction of eligible service contract holder claims; and

(E) states that the surety company will provide the Department 60 days prior written notice of its intent to cancel the bond;

(2) A certificate of deposit that is assigned to the Executive Director;

(3) Securities of the type eligible for deposit by an authorized insurer in Texas;

(4) A deposit of cash or cash equivalents; or

(5) An original letter of credit that:

(A) is irrevocable;

(B) is issued by a qualified financial institution which is financially responsible in the amount of the letter of credit;

(C) does not require examination of the performance of the underlying transaction between the Department and the provider;

(D) is payable to the Department on demand or within a reasonably brief period of time after presentation of all required documents; and

(E) does not include any condition that makes payment to the Department contingent upon the consent of or other action by the provider or other party.

§77.43.Financial Security--Minimum Net Worth.

A provider that maintains, or has a parent company maintain, a net worth or stockholder's equity of at least $100 million to comply with the financial security requirements of Texas Occupations Code §1304.151, will not be allowed to obtain or renew a registration unless the provider gives the Department audited financial statements as described under §1304.151(c) and (d) or information for accessing and viewing the proof of net worth online.

§77.70.Responsibilities of Registrant--Provider and Administrator.

(a) The provider must clearly and conspicuously identify itself on all written service contracts and advertising materials that are used by the provider, its administrator(s), or its seller(s).

(b) The provider and/or any administrator appointed by the provider must provide service contract holders with a notification that meets all of the following requirements.

(1) The notification must provide the name, mailing address, and telephone number of the Department.

(2) The notification must contain a statement that unresolved complaints concerning a registrant or questions concerning the regulation of service contract providers and administrators may be addressed to the Department.

(3) The notification must be included on all written service contacts. The notification may be stamped on the contract or printed on a separate sheet and stapled to the contract.

(c) The provider and/or any administrator appointed by the provider must provide service contract holders with the provider's complaint resolution procedures.

(d) The provider and/or any administrator appointed by the provider must disclose the following information to service contract holders:

(1) the procedures and timeframes for returning a service contract in accordance with Texas Occupations Code §1304.157;

(2) the procedures and timeframes for voiding a service contract in accordance with Texas Occupations Code §1304.158;

(3) the procedures and timeframes for refunding the purchase price of the service contract to the service contract holder in accordance with Texas Occupations Code §1304.158; and

(4) the conditions in which the provider and/or administrator may cancel a service contract in accordance with Texas Occupations Code §1304.159.

(e) The provider and/or any administrator appointed by the provider must provide a copy of the service contract to the service contract holder within 45 days from the date of purchase.

(f) The provider and/or any administrator appointed by the provider must provide a receipt for or other written evidence of the purchase of a service contract to the service contract holder within 45 days from the date of purchase.

(g) The provider is responsible for the activities of the service contract sellers used to sell the provider's service contracts.

(h) A provider shall report to the Department within 30 days any change in information required by §77.20 and §77.21.

(i) An administrator shall report to the Department within 30 days any change in information required by §77.22 and §77.23.

(j) Upon notification by the Department, the provider and/or any administrator appointed by the provider shall allow the Department to audit records required to be maintained by Texas Occupations Code, Chapter 1304. These records include copies of the service contracts marketed, sold, administered or issued in this state.

(k) A provider must notify the Department no later than 60 days prior to the provider ceasing operations in this state or not renewing its registration in this state. A provider must notify the Department as soon as possible after the provider files for bankruptcy or is placed into receivership and must provide the contact information for the bankruptcy trustee or receiver and the court handling these proceedings.

(l) Within 10 days after notifying the Department in accordance with subsection (k), a provider must submit to the Department:

(1) the name(s) and the number of the active service contracts affected;

(2) the names and addresses of the service contract holders with active service contracts in this state and the remaining amount of time left on these active service contracts; and

(3) any other information determined necessary by the Department relating to the provider ceasing operations and/or terminating registration in this state.

(m) A provider must notify service contract holders with active service contracts in this state no later than 30 days prior to the provider ceasing operations in this state or not renewing its registration in this state. The provider remains financially responsible to service contract holders with active service contracts in this state.

§77.80.Fees.

(a) All registration fees are non-refundable.

(b) The initial registration fee for a service contract provider is $250.

(1) $250 for registrants providing 0 to 250 service contracts;

(2) $500 for registrants providing 251 to 499 service contracts; and

(3) $1,000 for registrants providing 500 or more service contracts.

(d) The initial registration fee for an administrator is $250.

(e) The annual renewal registration fee for an administrator is $250.

(f) The fee for a duplicate or amended registration certificate is $25.

(g) Late renewal fees for registrations issued under this chapter are provided under §60.83 of this title (relating to Late Renewal Fees).

§77.90.Administrative Penalties and Sanctions.

If a person violates any provision of Texas Occupations Code, Chapter 1304, this chapter, or any rule or order of the Executive Director or Commission, proceedings may be instituted to impose administrative penalties, administrative sanctions, or both in accordance with the provisions of Texas Occupations Code, Chapter 1304; Texas Occupations Code, Chapter 51; and any associated rules.

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

Filed with the Office of the Secretary of State on July 13, 2009.

TRD-200902851

William H. Kuntz, Jr.

Executive Director

Texas Department of Licensing and Regulation

Earliest possible date of adoption: August 23, 2009

For further information, please call: (512) 463-7348

PART 9. TEXAS LOTTERY COMMISSION

CHAPTER 401. ADMINISTRATION OF STATE LOTTERY ACT

SUBCHAPTER D. LOTTERY GAME RULES

16 TAC §401.301

The Texas Lottery Commission (Commission) proposes amendments to 16 TAC §401.301 (General Definitions). The purpose of the proposed amendments is to change the general definitions of the lottery game rules so that they may conform to the requirements of new §401.317 for terminal printed instant games which is being proposed simultaneously with this amendment.

Kathy Pyka, Controller, has determined that for each year of the first five years the amendments will be in effect, there will be a positive fiscal impact for state or local governments as a result of the proposed amendments. There will be no adverse effect on small businesses, micro businesses, or local or state employment. There will be no additional economic cost to persons required to comply with the amendments as proposed. Furthermore, an Economic Impact Statement and Regulatory Flexibility Analysis is not required because the amendments will not have an economic effect on small businesses as defined in Texas Government Code §2006.001(2).

Michael Anger, Director of the Lottery Operations Division, has determined that for each year of the first five years the proposed amendments, in conjunction with new §401.317, would be in effect, the public benefit anticipated from the adoption of the proposed amendments and new rule is additional revenue to the state and an opportunity for a wider variety of lottery game features for players.

The Commission requests comments on the amendments from any interested person. Comments on the proposed amendments may be submitted to Pete Wassdorf, Assistant General Counsel, by mail at Texas Lottery Commission, P.O. Box 16630, Austin, Texas 78761-6630; by facsimile at (512) 344-5189; or by e-mail at legal.input@lottery.state.tx.us. The Commission will hold a public hearing on this proposal at 2:00 p.m. on Wednesday, August 5, 2009, at 611 E. 6th Street, Austin, Texas 78701. Comments must be received within 30 days after publication of this proposal in order to be considered.

The amendments are proposed under the authority of Texas Government Code §466.015, which provides the Commission with the authority to adopt rules governing the operation of the lottery. The amendments are also proposed under the authority of Texas Government Code §467.102, which provides the Commission with the authority to adopt rules for the enforcement and administration of the laws under the Commission's jurisdiction.

This proposal is intended to implement Texas Government Code, Chapter 466.

§401.301.General Definitions.

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

(1) - (19) (No change.)

[(20) Instant game--An instant ticket lottery game, developed and offered for sale to the public in accordance with commission rules, that is played by removing the latex covered play area on an instant ticket to reveal the ticket play symbols.]

(20) [~~(21)~~] Instant retailer--A commission retailer authorized by the commission to sell instant scratch-off game tickets only.

(21) Instant scratch-off game--An instant scratch-off lottery game, developed and offered for sale to the public in accordance with commission rules that is played by removing the latex covered play area on an instant scratch-off ticket to reveal the ticket play symbols. Instant scratch-off games and instant scratch-off game tickets may be referred to in these rules as scratch-off games or scratch-off tickets.

(22) - (26) (No change.)

(27) On-line--All references to "on-line game", "on-line retailer", "on-line system", or "on-line terminal", may apply to terminal printed instant games when the context requires and is consistent with the definition of a terminal printed instant game, and is not in conflict with a rule specific to terminal printed instant games.

(28) [~~(27)~~] On-line game--A lottery game which utilizes a computer system to administer plays, the type of game, and amount of play for a specified drawing date, and in which a player either selects a combination of numbers or allows number selection by a random number generator operated by the computer, referred to as Quick Pick. The commission will conduct a drawing to determine the winning combination(s) in accordance with the rules of the specific game being played and the drawing procedures for the specific game. The definition of "on-line game" does not include the product defined in this rule as "terminal printed instant game" even though the terminal printed instant game may be sold with, and the results produced in conjunction with, an on-line game product.

(29) [~~(28)~~] On-line retailer--A lottery retailer authorized by the commission to sell on-line tickets and terminal printed instant game tickets. On-line retailers shall sell all on-line lottery games, terminal printed instant games, and at least two instant scratch-off [ ~~instant ticket~~] games offered by the commission.

(30) [~~(29)~~] On-line system--The commission or commission's vendor's on-line computer system consisting of on-line terminals, central processing equipment, and a communication network.

(31) [~~(30)~~] On-line terminal--The commission or commission's vendor's computer hardware through which an on-line retailer enters player selections, [or] Quick Pick selections, or terminal printed instant game selections and by which on-line tickets, or terminal printed instant game tickets are generated and claims are validated.

(32) [~~(31)~~] On-line ticket--A computer-generated ticket issued to a player, by an on-line retailer, as a receipt for the combination of numbers a player has selected, and generated on an on-line terminal provided by the commission or commission's vendor on official Texas Lottery paper stock, by either selecting his or her own numbers or selecting Quick Pick, which is a random number generator operated by the computer. That ticket shall be the only acceptable evidence of the combination of digits, numbers, or symbols selected. On-line tickets may be purchased only from on-line retailers.

(33) [~~(32)~~] Pack number--The unique number on the back of the instant scratch-off game ticket that designates the number of the pack within a specific instant scratch-off game.

(34) [~~(33)~~] Play area--The latex-covered area of an instant scratch-off game ticket that when removed, reveals the ticket play symbols.

(35) [~~(34)~~] Playstyle--The method of play to determine a winner for an individual game.

(36) [~~(35)~~] Play symbol--The printed data under the latex on the front of an instant scratch-off game ticket that is used to determine eligibility for a prize. The symbols for individual games will be specified in individual instant scratch-off game procedures.

(37) [~~(36)~~] Preliminary drawing--An event in which entries received by a specific deadline are utilized for the selection of contestants for a promotional drawing.

(38) [~~(37)~~] Present at the terminal--A player remains physically present at the on-line terminal from the time the player's order for the purchase of on-line lottery tickets is paid for and accepted by the lottery on-line retailer until the processing of the order is completed and the tickets are delivered to the player at the licensed on-line retailer terminal location.

(39) [~~(38)~~] Prize amounts for on-line games--The amount of money payable to each share in a prize category, the annuitized future value of each share in a prize category, or the net present cash value of each share in a prize category for each on-line game drawing. Prize amounts are calculated by dividing the prize category contribution, the annuitized future value of the prize category contribution, or the net present cash value of the prize category contribution by the number of shares determined for the prize category.

(40) Prize amounts for terminal printed instant game--The amount of money payable will be according to the predetermined prize structure stored in the lottery operator's gaming system and displayed on the terminal printed instant game ticket provided to the player.

(41) [~~(39)~~] Prize breakage--The money which is left over from the rounding down of the pari-mutuel prize levels to the next lowest whole dollar amount or money which is in excess of the amount needed to pay a prize.

(42) [~~(40)~~] Prize category--The matching combinations of numbers and their corresponding prize levels as described in rules for the specific game being played.

(43) [~~(41)~~] Prize category contributions--Refers to contributions for each drawing to each prize category including direct and indirect prize category contributions.

(44) [~~(42)~~] Prize fund--The monies allocated to be returned to players in winning tickets within a specific instant scratch-off or terminal printed instant game.

(45) [~~(43)~~] Prize pool--The total amount of money available for prizes as a percentage of the total sales for the current draw period.

(46) [~~(44)~~] Prize structure--The number, value, prize pay out percentage, and odds of winning prizes for an individual game as approved by the executive director.

(47) [~~(45)~~] Promotion--An event coordinated or conducted by the Texas Lottery Commission at retail sites, fairs, festivals and appropriate venues to educate players about Lottery products and/or sell Lottery games through a licensed Lottery retailer in specific markets to maximize Lottery sales and statewide awareness.

(48) [~~(46)~~] Promotional drawing--A drawing in which qualified contestants are awarded prizes in a random manner in accordance with the procedures set forth for a specific promotional event.

(49) [~~(47)~~] Quick Pick--A play option that generates random numbers by the computer.

(50) [~~(48)~~] Roll-over--The amount in a specific prize pool category resulting from no matching combinations and/or prize breakage from the previous drawing.

(51) [~~(49)~~] Sales agent--A person licensed under the State Lottery Act to sell tickets.

(52) [~~(50)~~] Shares--The total number of matching combinations within each prize category as determined for each drawing.

(53) [~~(51)~~] Sign-on slip--The receipt produced by the on-line terminal when the retailer signs on to the system.

(54) Terminal printed instant game--A terminal printed instant game, developed and offered for sale to the public in accordance with commission rules, and may be played in conjunction with a then existing online lottery product or as a stand-alone game, and is only available through a clerk assisted terminal. (The terminal printed instant game operates consistent with the instant scratch-off games, the main difference being terminal printed instant games reside in a game file maintained on the lottery operator's gaming system. Instead of being pre-produced for sale in paper form ("scratch-off"), the winning and non-winning plays are randomly and fairly distributed in a game file maintained on the lottery operator's gaming system in the same way as instant scratch-off ticket games. The winning and non-winning tickets are printed and distributed on demand from the gaming system in sequence, as game tickets are sold by licensed on-line retailers. The numbers and/or symbols appearing on the terminal printed instant game tickets are generated only as representations of the pre-determined win or non-win status of the sequential ticket purchased. There is no contemporaneous computation of a win/non-win status with the purchase of a ticket associated with the game.)

(55) Terminal printed instant game ticket--A terminal printed instant game ticket issued to a player, by an on-line retailer, as a receipt for the order and payment for a terminal printed instant game purchase. A terminal printed instant game ticket is generated on an on-line terminal provided by the commission or commission's vendor on official Texas Lottery paper stock. That ticket shall be the only acceptable evidence of a winning determination of a terminal printed instant game.

(56) [~~(52)~~] Texas Lottery Commission--The agency created by House Bill 54, 72nd Legislature, First Called Session, as amended by House Bill 1587 and House Bill 1013, 73rd Legislature, Regular Session.

(57) [~~(53)~~] Ticket--Any tangible evidence issued by the commission to allow participation in a game or activity authorized by the State Lottery Act.

(58) [~~(54)~~] Ticket number--The number on the back of the instant scratch-off ticket that refers to the ticket sequence within a specific pack of an instant scratch-off game.

(59) [~~(55)~~] Ticket bearer--The person who has signed the Lottery game ticket or who has possession of an unsigned Lottery game ticket.

(60) [~~(56)~~] Validation number--The unique number sequence printed on a ticket that provides for the verification of the ticket as a valid winner.

(61) [~~(57)~~] Valid ticket--A ticket which meets all specifications and validation requirements and entitles the holder to a specific prize amount.

(62) [~~(58)~~] Void ticket--Any ticket that is stolen, unissued, illegible, mutilated, altered, counterfeit in whole or part, misregistered, defective, incomplete, printed or produced in error, multiply printed, fails any of the commission's confidential validation tests, or is a ticket produced by or for the commission for education and training purposes.

(63) [~~(59)~~] Winning combination--One or more digits, numbers, or symbols randomly selected by the commission in a drawing which has been certified.

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

Filed with the Office of the Secretary of State on July 9, 2009.

TRD-200902822

Kimberly L. Kiplin

General Counsel

Texas Lottery Commission

Earliest possible date of adoption: August 23, 2009

For further information, please call: (512) 344-5113

16 TAC §401.302

The Texas Lottery Commission (Commission) proposes amendments to 16 TAC §401.302 (Instant Game Rules). The purpose of the amendments is to add a definitional preamble to §401.302 necessitated by amendments to §401.301.

Michael Anger, Director of the Lottery Operations Division, has determined that for each year of the first five years the proposed amendments would be in effect, the public benefit anticipated from the adoption of the proposed amendments, in conjunction with the adoption of the amendments to §401.301, is additional revenue to the state and an opportunity for a wider variety of lottery game features for players.

The amendments are proposed under authority of Texas Government Code §466.015, which provides the Commission with the authority to adopt rules governing the operation of the lottery. The amendments are also proposed under the authority of Texas Government Code §467.102, which provides the Commission with the authority to adopt rules for the enforcement and administration of the laws under the Commission's jurisdiction.

This proposal is intended to implement Texas Government Code, Chapter 466.

§401.302.Instant Scratch-off Game Rules.

(a) In this section, any reference to "instant game" shall mean "instant scratch-off game" as defined in §401.301 of this title (relating to General Definitions).

(b) [~~(a)~~] Sale of instant game tickets.

(1) Only retailers who have been licensed by the commission are authorized to sell instant game tickets, and tickets may be sold only at a licensed location.

(2) Each instant game ticket shall sell for the retail sales price authorized by the executive director and stated in the individual game procedures.

(3) Each instant game ticket shall state the overall estimated odds of winning a prize of any kind, including a break even prize.

(1) The director of the marketing division may approve and publish individual game procedures prior to each instant game being introduced for sale to the public. Game procedures shall be published in the Texas Register and shall be made available upon request to the public.

(2) At a minimum, the game procedures for each game shall contain the following information:

(A) confirming captions;

(G) ticket order quantity;

(H) retail sales price;

(I) dollar amount of prizes that may be paid by retailers; and

(J) eligibility requirements for a prize drawing, if any.

(3) The play style for an individual game shall be fully described in the game procedures and may take the form of one of the following methods of play:

(A) match up;

(B) add up;

(D) key number/symbol match;

(E) yours beats theirs;

(F) prize legend;

(G) cards;

(H) bingo;

(I) directional arrows through maze;

(J) bonus game features; or

(K) any other approved play style or bonus game feature developed by the commission.

(d) [~~(c)~~] Determination of prize winner.

(1) The play symbols shall be used by a player to determine eligibility for instant prizes. Qualifying play symbols are stated in the game procedures.

(2) A player's eligibility to win a prize is subject to the ticket validation requirements provided in subsection (e) [~~(d)~~] of this section.

(3) For each individual game, the player shall rub off the latex covering on the front of the ticket to reveal the play symbols. Eligibility to win a prize is based on the approved play style as follows.

(A) Match up. If the designated number of identical play symbols is revealed on the ticket, the player shall win the prize indicated.

(B) Add up. If the player adds up all of the play symbols printed on the ticket and the amount is greater than or equal to the required total amount printed on the ticket, the player shall win the prize indicated.

(C) Three in a line. If the player reveals three identical play symbols, either diagonally, vertically, or horizontally, on the same ticket, the player shall win the prize indicated.

(D) Key number/symbol match. If the player reveals a play symbol that matches the designated key play symbol, the player shall win the prize indicated.

(E) Yours beats theirs. If the player reveals a play symbol designated as yours that is greater than the play symbol(s) designated as theirs, the player shall win the prize indicated.

(F) Prize legend. If the player reveals the designated number of play symbols, the player wins the prize amount that corresponds to the legend.

(G) Cards. If the player reveals the play symbol needed for that particular card game in a winning combination, the player shall win the prize indicated.

(H) Bingo. If the player matches their Bingo card numbers with all of the Caller's Card numbers and reveals certain patterns as specified on the ticket, the player shall win the prize indicated for that Bingo card and pattern.

(I) Directional arrows through maze. If the player follows the directional arrows to make a path or paths through a maze and the path(s) leads to a prize amount, the player shall win that prize.

(J) Bonus game features. These features are added to the game for extra play value and entertainment. The specific variants, as described below, are used for a particular game and are described in the individual game procedures:

(i) Doubler. If the player reveals the designated play symbol as part of the winning combination of the game, the player doubles their prize. The player may also reveal the "doubler" play symbol in a prize box, in which case the prize amount that the player won is doubled.

(ii) Wild card. The player may use this designated play symbol as part of the winning combination of the game.

(iii) Double and Double Doubler. If the player reveals one of these designated play symbols as part of the winning combination of the game, the player either doubles or quadruples their prize respectfully, as stated in the game card itself. The player may also reveal the "double" or "double doubler" play symbols in a prize box, in which case the prize amount that the player won is either doubled or quadrupled respectfully, as stated in the game card itself.

(iv) Tripler. If the player reveals the designated play symbol as part of the winning combination of the game, the player triples their prize. The player may also reveal the "tripler" play symbol in a prize box, in which case the prize amount that the player won is tripled.

(v) Auto win. If the player reveals the designated play symbol, the player wins the corresponding prize automatically.

(vi) Entry ticket. If the player reveals the designated play symbol, the player may use the ticket as a means of entering a drawing, subject to the game procedures for each game.

(K) Any other approved play style or bonus game feature developed by the Texas Lottery. If the player reveals the designated play symbols or bonus play features, the player shall win the prize(s) as indicated.

(e) [~~(d)~~] Ticket validation requirements.

(1) Each instant game ticket shall be validated according to validation procedures prior to payment of a prize.

(2) An instant game ticket shall comply with all of the following.

(A) The ticket shall not be stolen or appear on any list of omitted tickets on file with the commission.

(B) The ticket shall not be counterfeit or forged, in whole or in part.

(D) The ticket shall have been issued by the commission in an authorized manner.

(E) The ticket shall have been received or recorded by the commission by applicable deadlines.

(F) The ticket shall pass all the confidential validation and security tests appropriate to the applicable playstyle.

(G) The validation number of an apparent winning ticket shall appear on the commission's official list of validation numbers of winning tickets for the particular game and pack. A ticket with that validation number shall not have been paid previously.

(3) The commission may pay the prize for a ticket that is partially mutilated or not intact if the ticket can still be verified as a valid ticket and validated by the other validation requirements and procedures.

(4) Any ticket not passing all of the validation tests and requirements is void and ineligible for any prize and shall not be paid. The executive director may, at his/her exclusive determination, reimburse the player for the cost of the void ticket.

(5) If a defective ticket is purchased and is void, the sole remedy available against the commission and the commission's sole liability shall be, at the executive director's sole discretion, reimbursement for the cost of the void ticket, or replacement of the defective ticket with another unplayed ticket in that Instant Game (or a ticket of equivalent sales price from any other current Instant Game).

(f) [~~(e)~~] Payment of low-tier and mid-tier prizes.

(1) Low-tier and mid-tier prizes shall be paid by any retailer or claim center.

(2) Retailers may pay cash prizes in cash or by certified check, cashier's check, or money order. Retailers may also pay prizes by business check if acceptable to the claimant. If a retailer decides to pay a prize with a business check, the retailer shall inform the claimant prior to ticket validation.

(3) Retailers may pay claims for prizes during their normal business hours, if the commission's validation system is operational.

(4) Before paying a prize, retailers shall validate the winning ticket according to established validation requirements and procedures.

(5) Payment of a prize by a retailer will be made to the bearer of the validated winning ticket for that prize upon presentation of proper identification, if appropriate.

(6) If a low or mid-tier claim is presented to the commission, the claimant shall follow all procedures of the commission related to claiming a prize, including but not limited to filling out a claim form, presenting appropriate identification if required, completing the back of the ticket, and submitting these items including the apparent winning ticket to the commission by mail or in person. Upon validation of a winning ticket, the commission shall present or mail a check to the claimant in payment of the amount due. If the ticket is determined to be a non-winning ticket, the claim shall be denied and the claimant shall be promptly notified. Tickets will not be returned to the claimant.

(g) [~~(f)~~] Payment of high-tier prizes.

(1) High-tier prizes must be presented for payment to the commission. For purposes of this provision, the term "commission" includes claim centers located throughout Texas. In connection with certain instant games, the top level prizes must be claimed at commission headquarters.

(2) If a high tier claim is presented to the commission, the claimant shall follow all procedures of the commission related to claiming a prize, including but not limited to filling out a claim form, presenting appropriate identification if required, completing the back of the ticket, and submitting these items including the apparent winning ticket to the commission by mail or in person. Upon validation of the ticket as a winning ticket, the commission shall pay the claimant the amount due in accordance with commission procedures. If the ticket is determined to be a non-winning ticket, the claim shall be denied and the claimant shall be promptly notified. Tickets will not be returned to the claimant.

(3) Before paying any prize, claim center personnel shall validate the winning ticket according to established validation requirements and procedures.

(4) All prizes shall be subject to tax withholding, offsets, and other withholdings as provided by law.

(5) If a person is indebted or owes delinquent taxes to the state, other than those specified in paragraph (4) of this subsection, the winnings of a person shall be withheld until the debt or taxes are paid.

(6) When paying a prize of $600 or more, the commission shall file the appropriate income reporting form with the Internal Revenue Service.

(7) Payment of a prize will be made to the bearer of the validated winning ticket for that prize upon presentation of proper identification.

(8) The director shall recognize only one person as claimant of a particular prize. A claim may be made in the name of a person other than an individual only if the person possesses a federal employer identification number (FEIN) issued by the Internal Revenue Service and such number is shown on the claim form. Groups, family units, clubs, organizations, or other persons without an FEIN shall designate one individual in whose name the claim is to be filed. If a claim is erroneously entered with multiple claimants, the claimants shall designate one of them as the individual recipient of the prize, or, if they fail to designate an individual recipient, the director may designate any one of the claimants as the sole recipient. In either case, the claim shall then be considered as if it were originally entered in the name of the designated individual and payment of any prizes won shall be made to that single individual. Once a ticket is validated, it will not be returned to the winner, but will be forwarded to the lottery, along with the completed claim form.

(9) The executive director has discretion to set a maximum total cash amount or maximum payment time period for each prize level.

(h) [~~(g)~~] Payment of prize awarded to minor.

(1) A person 18 years of age or older may purchase a ticket to give as a gift to another person, including a minor.

(2) If a minor is entitled to a cash prize of less than $600, the commission shall deliver to an adult member of the minor's family or to the minor's guardian a check or warrant in the amount of the prize payable to the order of the minor.

(3) If a minor is entitled to a cash prize of more than $600, the commission shall deposit the amount of the prize in a custodial bank account, with an adult member of the minor's family or the minor's guardian serving as custodian for the minor.

(4) If a minor is entitled to a prize other than money, the commission shall pay the cash equivalent of such prize in the manner provided by paragraphs (2) and (3) of this subsection.

(5) A retailer is not authorized to pay a prize claimed by a minor.

(i) [~~(h)~~] Ticket responsibility.

(1) A ticket is a bearer instrument until signed on the back by the ticket holder.

(2) The commission shall not be responsible for lost, stolen, or destroyed tickets.

(3) The commission shall not be responsible for erroneous or mutilated tickets.

(4) The commission shall not be responsible for tickets claimed by a player in error for a lower prize at a retailer.

(5) The commission shall not be responsible for tickets delivered to any address other than that designated by the commission for such purpose.

(j) [~~(i)~~] Disputed ticket. If a dispute arises between the commission and a ticket claimant concerning whether the ticket is a winning ticket and if the ticket prize has not been paid, the executive director may, exclusively at his/her determination, reimburse the claimant for the cost of the disputed ticket. This shall be the claimant's exclusive remedy.

(k) [~~(j)~~] Game closing.

(1) The executive director or his/her designee shall determine the closing date for an individual instant game in accordance with an instant game closing procedure that defines the criteria used to monitor Instant Ticket sales performance and that identifies when instant games should be closed.

(A) The procedure shall provide for the timely closing of an instant game after all top level prizes in the game have been claimed or on an earlier date as determined by the executive director.

(B) The procedure shall provide for ending ticket sales in an instant game within 45 days after game closing procedures have been initiated.

(2) No tickets in an instant game may be sold after the instant game closing date.

(l) [~~(k)~~] Governing law. In purchasing an instant game ticket, the lottery player agrees to comply with and abide by Texas law, all rules, procedures, and final decisions of the commission, and all procedures and instructions established by the executive director for the conduct of the instant game.

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

Filed with the Office of the Secretary of State on July 9, 2009.

TRD-200902823

Kimberly L. Kiplin

General Counsel

Texas Lottery Commission

Earliest possible date of adoption: August 23, 2009

For further information, please call: (512) 344-5113

16 TAC §401.317

Kathy Pyka, Controller, has determined that for each year of the first five years the new rule will be in effect, there will be a positive fiscal impact for state or local governments as a result of the proposed new rule. There will be no adverse effect on small businesses, micro businesses, or local or state employment. There will be no additional economic cost to persons required to comply with the new rule as proposed. Furthermore, an Economic Impact Statement and Regulatory Flexibility Analysis is not required because the new rule will not have an economic effect on small businesses as defined in Texas Government Code §2006.001(2).

Michael Anger, Director of the Lottery Operations Division, has determined that for each year of the first five years the proposed new rule would be in effect, the public benefit anticipated from the adoption of the proposed new rule is additional revenue to the state and an opportunity for a wider variety of lottery game features for players.

The Commission requests comments on the new rule from any interested person. Comments on the proposed rule may be submitted to Pete Wassdorf, Assistant General Counsel, by mail at Texas Lottery Commission, P.O. Box 16630, Austin, Texas 78761-6630; by facsimile at (512) 344-5189; or by e-mail at legal.input@lottery.state.tx.us. The Commission will hold a public hearing on this proposal at 2:00 p.m. on Wednesday, August 5, 2009, at 611 E. 6th Street, Austin, Texas 78701. Comments must be received within 30 days after publication of this proposal in order to be considered.

The new rule is proposed under Texas Government Code §466.015, which provides the Commission with the authority to adopt rules governing the operation of the lottery. The new rule is also proposed under the authority of Texas Government Code §467.102, which provides the Commission with the authority to adopt rules for the enforcement and administration of the laws under the Commission's jurisdiction.

This proposal is intended to implement Texas Government Code, Chapter 466.

§401.317.Terminal Printed Instant Game Rule.

(a) The executive director is authorized to conduct terminal printed instant games. The terminal printed instant games may have different names and game formats associated with the games. The executive director may issue further directives for the conduct of terminal printed instant games as necessary to implement this rule. The terms, conditions, and playing procedures of each terminal printed instant game will be published in the In Addition section of the Texas Register.

(b) Sale of terminal printed instant game tickets.

(1) Terminal printed instant game tickets may only be sold through a clerk assisted terminal by a licensed on-line retailer at a licensed location. (Terminal printed instant game tickets may not be sold on self-service terminals. Terminal printed instant games are not played on a video lottery terminal.)

(2) Each terminal printed instant game ticket shall sell for the retail sales price authorized by the executive director.

(3) Each terminal printed instant game ticket shall state the overall odds of winning a prize of any kind, including a break even prize.

(4) A terminal printed instant game may be played in conjunction with a then existing on-line lottery product (also referred to as the "underlying game").

(5) A terminal printed instant game may be an added option to more than one on-line game at a time. All rules of the underlying game shall take precedence over this rule for the underlying game.

(6) A terminal printed instant game may be played as a stand-alone game.

(7) Participation in a terminal printed instant game may be made by selection on a playslip or by request to the on-line retailer.

(8) When a terminal printed instant game play is purchased, an on-line retailer shall issue a terminal printed instant game ticket as evidence of each play.

(A) If purchased as an add-on to an underlying game, a separate ticket will be printed for each playboard purchased in the underlying on-line game along with the results for the terminal printed instant game. Each ticket will show the information necessary for the underlying game and be printed on official Texas Lottery paper stock. Each terminal printed instant game ticket will display the win/non-win status of the play.

(B) A player does not select numbers for a terminal printed instant game play that is associated with an underlying game. The winning and non-winning numbers are generated for the terminal printed instant game only as representations of the pre-determined win or non-win status, and prize amount of the next sequential purchase from a game file maintained on the lottery operator's gaming system.

(D) Only one terminal printed instant game play per playboard may be purchased.

(E) Terminal printed instant game play is not available for future drawings of a multi-draw play. Only one terminal printed instant game ticket will be produced when multi-draw has been selected.

(F) When purchased as a stand-alone product, no selection of numbers or symbols is permitted by the player; any numbers or symbols required for representation of win/non-win status, or amount of prize will be generated by the gaming system on the terminal printed instant ticket. Each terminal printed ticket will display the win/non-win status of the play.

(9) Advance draw options are not available for a terminal printed instant game.

(10) The prize structure of each current terminal printed instant game available for sale will be published on the Texas Lottery Commission's web site and may also be obtained in a terminal report from a licensed sales agent.

(11) The executive director or his/her designee shall determine the closing date for an individual terminal printed instant game in accordance with a terminal printed instant game closing procedure that defines the criteria used to identify when the terminal printed instant game should be closed. The procedure shall provide for the timely closing of a terminal printed instant game after all top level prizes in the game have been claimed or on an earlier date as determined by the executive director. When a terminal printed instant game is closed, it may be immediately replaced by a new terminal printed instant game.

(12) When playing a terminal printed instant game, the win status will be determined in accordance with the play requirements published in the Texas Register. The play numbers or play symbols shall be used by the player to determine win status and win amount. The amount of winnings will be determined in accordance with the prize structure.

(13) Winning terminal printed instant game tickets may be claimed immediately after the ticket is purchased. When a winning terminal printed instant game ticket is issued in association with an underlying game and is claimed before the draw(s) for the underlying game, the winning terminal printed instant game ticket will be validated and an exchange ticket will be printed with the same selected or Quick Pick numbers as the original ticket for the underlying game. If the draw for the underlying game has already occurred, the ticket may be claimed for all wins represented by the ticket, whether terminal printed instant game or the underlying game, or both.

(14) Once a terminal printed instant game ticket has been issued, the ticket cannot be cancelled.

(15) Terminal printed instant game prizes must be redeemed within 180 days of the sale, if a stand-alone game, or within 180 days of the draw date of the underlying on-line game if purchased in association with an underlying game.

(1) All apparent winning tickets presented for payment to the lottery or an on-line retailer must meet the commission's validation requirements as set forth in subsection (d) of this section.

(2) To claim a terminal printed instant game prize of less than $600 claimant shall present the winning terminal printed instant ticket to an on-line retailer or to the commission. All tickets validated by a retailer must be paid by that retailer.

(3) If a claim of less than $600 is presented to an on-line retailer, the on-line retailer must validate the claim, and, if determined to be a winning ticket, make payment of the amount due the claimant.

(4) To claim a terminal printed instant game prize of $600 or more the claimant shall present the winning terminal printed instant ticket to the commission. For purposes of this provision, the term "commission" includes claim centers located throughout Texas. For any claim presented to the commission, the claimant shall follow all procedures of the commission related to claiming a prize, including but not limited to filling out a claim form, presenting appropriate identification if required, completing and submitting these items including the apparent winning ticket to the commission by mail or in person. Upon validation of the ticket as a winning ticket, the commission shall pay the claimant the amount due in accordance with commission procedures. If the ticket is determined to be a non-winning ticket, the claim shall be denied and the claimant shall be promptly notified. Tickets will not be returned to the claimant.

(5) Before paying any prize, claim center personnel shall validate the winning ticket according to established validation requirements and procedures.

(6) All prizes shall be subject to tax withholding and offsets and other withholdings as provided by law.

(7) If a person is indebted or owes delinquent taxes to the state, other than those specified in paragraph (6) of this subsection, the winnings of a person shall be offset or withheld until the debt or taxes are paid.

(8) When paying a prize of $600 or more, the commission shall file the appropriate income reporting form with the Internal Revenue Service.

(9) Payment of a prize will be made to the bearer of the validated winning ticket for that prize upon presentation of proper identification.

(10) The director shall recognize only one person as claimant of a particular prize. A claim may be made in the name of a person other than an individual only if the person possesses a federal employer identification number (FEIN) issued by the Internal Revenue Service and such number is shown on the claim form. Groups, family units, clubs, organizations, or other persons without an FEIN shall designate one individual in whose name the claim is to be filed. If a claim is erroneously entered with multiple claimants, the claimants shall designate one of them as the individual recipient of the prize, or, if they fail to designate an individual recipient, the director may designate any one of the claimants as the sole recipient. In either case, the claim shall then be considered as if it were originally entered in the name of the designated individual and payment of any prizes won shall be made to that single individual. Once a ticket is validated, it will not be returned to the winner, but will be forwarded to the commission, along with the completed claim form.

(11) The executive director has discretion to set a maximum total cash amount or maximum payment time period for each prize level.

(d) Validation requirements.

(1) To be a valid winning terminal printed instant game ticket, all of the following conditions must be met.

(A) All printing on the ticket shall be present in its entirety, be legible, and correspond, using the computer validation file, to the combination and data printed on the ticket. For terminal printed instant games associated with an underlying on-line game, the terminal printed instant game ticket must have been produced prior to the drawing.

(B) The ticket shall not be mutilated, altered, unreadable, reconstituted, misregistered, defective, incomplete, or tampered with in any manner.

(D) The ticket must have been issued by an authorized on-line retailer in an authorized manner on official Texas Lottery paper stock.

(E) The ticket shall not be stolen.

(F) The ticket shall not have been previously paid.

(G) The ticket data must match the computer record data in every respect.

(H) The ticket shall pass all other confidential security checks of the commission.

(2) The commission may pay the prize for a ticket that is partially mutilated or not intact if the on-line ticket can still be validated by the other validation requirements.

(3) Liability for void tickets, if any, is limited to replacement of ticket or refund of sales price.

(4) A ticket shall be the only valid receipt for claiming a prize. A copy of a ticket or a playslip has no pecuniary or prize value and shall not constitute evidence of ticket purchase or of win status.

(5) In submitting an official terminal printed instant game ticket for validation, the player agrees to abide by applicable laws, all commission rules, regulations, policies, directives, instructions, conditions, procedures, and final decisions of the executive director.

(6) All prizes shall be subject to tax withholdings, offsets, and other withholdings as provided by law.

(e) Payment of prizes by on-line retailers.

(1) An on-line retailer may pay to the terminal printed instant game ticket bearer prizes of $599 or less for any valid claims presented to that on-line retailer. All tickets validated by a retailer must be paid by that retailer. These prizes may be paid during normal business hours of a retailer, provided the on-line system is operational and claims can be validated. The on-line retailer shall not charge the claimant any fee for payment of the prize or for cashing a business check drawn on the licensed retailer's account.

(2) Retailers may pay prizes in cash or by certified check, cashier's check, or money order. Retailers may also pay prizes by business check if acceptable to the claimant. If a retailer decides to pay a prize with a business check, the retailer shall inform the claimant prior to ticket validation. An on-line retailer that pays a prize with a check which is dishonored may be subject to suspension or revocation of its license.

(f) Payment of prize awarded to minor.

(1) A person 18 years of age or older may purchase a ticket to give as a gift to another person, including a minor.

(3) If a minor is entitled to a cash prize of more than $600, the commission shall deposit the amount of the prize in a custodial account in a financial institution, with an adult member of the minor's family or the minor's guardian serving as custodian for the minor.

(4) If a minor is entitled to a prize other than money, the commission shall pay the cash equivalent of such prize in the manner provided by paragraphs (2) and (3) of this subsection.

(5) A retailer is not authorized to pay a prize claimed by a minor.

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

Filed with the Office of the Secretary of State on July 9, 2009.

TRD-200902824

Kimberly L. Kiplin

General Counsel

Texas Lottery Commission

Earliest possible date of adoption: August 23, 2009

For further information, please call: (512) 344-5113