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.