HBA-JLV S.B. 272 77(R)    BILL ANALYSIS


Office of House Bill AnalysisS.B. 272
By: Carona
Financial Institutions
4/11/2001
Engrossed



BACKGROUND AND PURPOSE 

Under current law,  there is an established maximum interest charge
permitted on non-real property loans which varies depending on the loan
terms and borrowed amount.  The maximum interest rate for consumers who
qualify for larger loans is less than the maximum interest rate for
consumers who qualify for smaller loans.  There is concern that consumers
who only qualify for the minimum loan amounts may seek alternative means to
obtain additional funds, such as loans that originate outside the state.
Senate Bill 272 establishes an alternate maximum interest charge on a
consumer loan contract that is not secured by real property. 

RULEMAKING AUTHORITY

It is the opinion of the Office of House Bill Analysis that this bill does
not expressly delegate any additional rulemaking authority to a state
officer, department, agency, or institution. 

ANALYSIS

Senate Bill 272 amends the Finance Code to establish an alternate maximum
interest charge on a consumer loan contract that is not secured by real
property.  The bill authorizes such a loan to provide for a rate or amount
of interest computed by using the daily earnings method or the scheduled
installment earnings method that does not exceed: 

_30 percent per year on that part of the cash advance provided that the
maximum cash advance is less than or equal to the amount computed by the
consumer credit commissioner by dividing the reference base index into the
consumer price index using the reference base amount of $1,000; and 

_24 percent per year on that part of the cash advance that is more than the
amount, but less than or equal to an amount computed by the consumer credit
commissioner by dividing the reference base index into the consumer price
index using the reference base amount of $2,500. 

The bill prohibits a lender from contracting for or receiving an
administrative fee more than once in any 365day period for such a loan.
The bill requires that one dollar of each administrative fee be deposited
with the comptroller for use in carrying out the finance commission's
(commission) responsibilities.  The bill provides that for the purposes of
refunding precomputed interest on a contract, the simple annual rate is
equal to the rate computed under the scheduled installment earnings method,
rather than the rate that the contract would have  produced over its full
term assuming that payments were made on time. 

The bill requires the commission to instruct the consumer credit
commissioner to establish a program to address alternatives to high-cost
lending in this state.  The bill requires the program to study and report
on the problem of high-cost lending, evaluate alternatives to high-cost
lending, develop models to provide lower-cost alternatives to assist
borrowers who contract for high-cost loans, and track the location of
certain lenders who enter into loan contracts providing for an interest
charge.  The bill authorizes the  program to provide funding for pilot
programs and make grants to nonprofit institutions working to provide
alternatives to high-cost loans.  The bill requires the consumer credit
commissioner, rather than the commission, to provide to the legislature a
report detailing its findings and making recommendations no later than
December 1 of each year. 

EFFECTIVE DATE

September 1, 2001.