HBA-ATS S.B. 1076 76(R)BILL ANALYSIS Office of House Bill AnalysisS.B. 1076 By: Carona Insurance 5/19/1999 Committee Report (Amended) BACKGROUND AND PURPOSE Currently, when a consumer makes a small loan, that consumer may purchase credit insurance from a regulated loan licenser to insure the amount of the loan in the event of an unexpected occurrence. A consumer also has the option of purchasing from such a licenser noncredit insurance such as term life, disability, accident and health, or loss of income coverage and other products such as a home security plan, an automobile club membership, or an extended service contract. While a consumer may finance the premiums for credit insurance, state law does not permit such financing for noncredit insurance. S.B. 1076 authorizes a customer of a regulated loan licenser to finance the charges for noncredit insurance and other products. This bill also authorizes customers of a regulated loan licenser to finance the a charge for noncredit insurance and other products. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the commissioner of insurance in SECTION 1.01 (Article 3A.717, V.T.C.S.) of this bill. SECTION BY SECTION ANALYSIS ARTICLE 1. AMENDMENTS TO TITLE 79, REVISED STATUTES SECTION 1.01. Amends Article 5069-3A.701 et seq., V.T.C.S., by adding Article 3A.717, as follows: Art. 3A.717. NONCREDIT INSURANCE AND OTHER PRODUCTS. (a) Authorizes an authorized lender to offer certain types of noncredit insurance and other products, in connection with or subsequent to a loan made under Subchapter E or G, if agent licensing requirements and policy forms comply with the applicable provisions of the Insurance Code and other insurance laws of this state. (b) Authorizes the cost of noncredit insurance or another product under Subsection (a) to be collected from the borrower only under certain conditions. (c) Prohibits an authorized lender from charging or collecting an amount for a type of noncredit insurance or other product that is not specified in Subsection (a) unless the commissioner of insurance (commissioner) authorizes the charge or collection. (d) Provides that the cost of noncredit insurance and other products purchased under this chapter, and any gain or advantage received by an authorized lender or an employee, officer, director, general or other agent, affiliate, or associate of the lender as a result of a charge for noncredit insurance or other products authorized under this chapter, is not considered a further or other charge or amount received in connection with a loan made under this chapter. (e) Requires the commissioner, by rule, to provide for Spanish-language disclosure of the information required in Subsection (b). SECTION 1.02. Amends Article 5069-3A.710, V.T.C.S., as follows: Art. 3A.710. New title: PAYMENT FOR INSURANCE AND OTHER PRODUCTS FROM LOAN PROCEEDS. (a) Provides that a lender who offers insurance or another product as permitted by this subchapter, rather than accepts insurance, may deduct the premium for the insurance or charge for the other product from the proceeds of the loan and shall pay the deducted amounts to the insurance company writing the insurance or to the vendor of the other product. Deletes text authorizing the lender to deduct an identifiable charge for the insurance. SECTION 1.03. Amends Article 5069-3A.852(b), V.T.C.S., to authorize a lender to assess and collect from the borrower an amount incurred by the lender for the premium, received in connection with the sale of insurance or the charge for any other product authorized under this chapter, on a loan subject to Subchapter E or a secondary mortgage loan subject to Subchapter G. Makes conforming changes. ARTICLE 2. AMENDMENTS TO FINANCE CODE SECTION 2.01. Amends Subchapter I, Chapter 342, Finance Code, by adding Section 342.4021, to make conforming changes. SECTION 2.02. Amends Section 342.410, Finance Code, as follows: Sec. 342.410. New title: PAYMENT FOR INSURANCE OR OTHER PRODUCTS FROM LOAN PROCEEDS. Makes conforming and nonsubstantive changes. SECTION 2.03. Amends Section 342.502(b), Finance Code, to make conforming changes. ARTICLE 3. EFFECTIVE DATE; APPLICATION; EMERGENCY SECTION 3.01. (a) Effective date: September 1, 1999, except as provided by Subsections (b) and (c). (b) Provides that Article 1 of this Act takes effect only if the Act of the 76th Legislature, Regular Session, 1999, relating to nonsubstantive additions to and corrections in enacted codes does not take effect. (c) Provides that Article 2 of this Act takes effect only if the Act of the 76th Legislature, Regular Session, 1999 relating to nonsubstantive additions to and corrections in enacted codes takes effect. SECTION 3.02. Makes application of this Act prospective. SECTION 3.03. Emergency clause. EXPLANATION OF AMENDMENTS Amendment No. 1: Amends S.B. 1076 in proposed Article 5069-3A.717(a), V.T.C.S., by authorizing an authorized lender to offer certain types of noncredit insurance and other products, contemporaneously, rather than in connection, with or subsequent to a loan made under Subchapter E (Interest Charges on NonReal Property Loans) or G (Interest and Other Charges on Secondary Mortgage Loans). Amends S.B. 1076 in proposed Article 5069-3A.717(a), V.T.C.S., by subjecting an authorized lender to agent licensing requirements, policy form requirements, and refunding methods. Amends S.B. 1076 in proposed Article 5069-3A.717(a), V.T.C.S., by changing one of the types of noncredit insurance or other products authorized to be offered by an authorized lender from disability insurance to disability income insurance. Amends S.B. 1076 by adding a new Article 5069-3A.717(b), V.T.C.S., to provide that a borrower must have the option of purchasing any of the noncredit insurance or other products separately. Amends S.B. 1076 by redesignating proposed Articles 5069-3A.717(b), (c), (d), and (e) to Articles 5069-3A.717(c), (d), (e), and (f). Amends S.B. 1076 in redesignated Article 5069-3A.717(c) by adding new Subdivisions (4) and (5) as additional conditions that must be met before the cost of noncredit insurance or another product may be collected. New Subdivision (4) sets forth that the borrower is to be provided a separate notice stating that the product is not credit insurance, the purchase of the product was not a condition for loan approval, the borrower has 30 days from the time the borrower receives the notice to cancel the purchase and receive a full refund, and, if the borrower elected to finance the purchase, the borrower is paying a finance charge for the cost of the product. New Subdivision (5) requires the separate notice sent to the borrower to include a separate section that may be detached and returned to the vendor to permit the customer to cancel the purchase and receive a full cash refund. New Subdivision (5) also requires this section also to contain the mailing address of the vendor. The amendment redesignates proposed Subdivision (4) to Subdivision (6) and makes conforming changes. Amends S.B. 1076 in existing Article 5069-3A.852(b), V.T.C.S., to provide that the premium received in connection with the sale of credit insurance, the premium received for noncredit insurance, and the charge for any other authorized product, rather than insurance or the charge for any other authorized product, may be assessed by the lender and collected from the borrower for a Subchapter E loan or Subchapter G secondary mortgage loan. Amends S.B. 1076 in proposed Section 342.4021(a), Finance Code, by authorizing an authorized lender to offer certain types of noncredit insurance and other products, contemporaneously, rather than in connection, with or subsequent to a loan made under Subchapter E (Refund of Precomputed Interest) or G (Insurance). Amends S.B. 1076 in proposed Section 342.4021(a), Finance Code, by subjecting an authorized lender to agent licensing requirements, policy form requirements, and refunding methods. Amends S.B. 1076 in proposed Section 342.4021(a), Finance Code, by changing one of the types of noncredit insurance or other products authorized to be offered by an authorized lender from disability insurance to disability income insurance. Amends S.B. 1076 by adding a new Section 342.4021(b), Finance Code, to provide that a borrower must have the option of purchasing any of the noncredit insurance or other products separately. Amends S.B. 1076 by redesignating proposed Sections 342.4021(b), (c), (d), and (e) to Section 342.4021(c), (d), (e), and (f). Amends S.B. 1076 in redesignated Section 342.4021(c) by adding new Subdivisions (4) and (5) as additional conditions that must be met before the cost of noncredit insurance or another product may be collected. New Subdivision (4) sets forth that the borrower is to be provided a separate notice stating that the product is not credit insurance, the purchase of the product was not a condition for loan approval, the borrower has 30 days from the time the borrower receives the notice to cancel the purchase and receive a full refund, and, if the borrower elected to finance the purchase, the borrower is paying a finance charge for the cost of the product. New Subdivision (5) requires the separate notice sent to the borrower to include a separate section that may be detached and returned to the vendor to permit the customer to cancel the purchase and receive a full cash refund. New Subdivision (5) also requires this section also to contain the mailing address of the vendor. The amendment redesignates proposed Subdivision (4) to Subdivision (6) and makes conforming changes. Amends S.B. 1076 in existing Section 342.502(b), Finance Code, to provide that the premium received in connection with the sale of credit insurance, the premium received for noncredit insurance, and the charge for any other authorized product, rather than insurance or the charge for any other authorized product, may be assessed by the lender and collected from the borrower for a Subchapter E loan or Subchapter G secondary mortgage loan.