HBA-JLV C.S.S.B. 317 77(R)BILL ANALYSIS Office of House Bill AnalysisC.S.S.B. 317 By: Sibley Financial Institutions 5/9/2001 Committee Report (Substituted) BACKGROUND AND PURPOSE The Office of Consumer Credit Commissioner (OCCC) was created in 1967 to regulate the credit industry and educate consumers and creditors to produce a fair, lawful, and healthy credit environment for Texas. OCCC regulates businesses that loan money, sell merchandise on credit, or advance cash, including pawnshops and their employees. The Sunset Advisory Committee has reviewed OCCC and has set forth recommendations regarding OCCC. C.S.S.B. 317 continues OCCC and sets forth the recommendations of the Sunset Advisory Commission. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Finance Commission of Texas in SECTION 7 (Section 14.107, Finance Code), SECTION 10 (Section 341.403, Finance Code), SECTION 11 (Sections 341.501 and 341.502, Finance Code), SECTION 13 (Section 342.007, Finance Code), and SECTION 18 (Section 348.513, Finance Code) of this bill. ANALYSIS C.S.S.B. 317 amends the Finance Code to continue the Office of Consumer Credit Commissioner (OCCC) until September 1, 2013 and to set forth standard Sunset Advisory Commission recommendations regarding conflicts of interest, equal employment policy, and consumer information and complaints and to set forth regulations regarding certain financial businesses. The bill requires the consumer credit commissioner (commissioner) or the commissioner's designee to provide information and training to agency employees on the benefits and methods of participation in the state employee incentive program (Sec. 14.067). The bill establishes employment requirements for OCCC (Sec. 14.106). The bill requires the Finance Commission of Texas (commission), rather than the commissioner, to establish reasonable and necessary fees for carrying out the commissioner's powers and duties. The bill requires the commission, by rule, to set the fees for licensing and examination relating to consumer loans, motor vehicle installment sales, or pawnshops (Sec. 14.107). The bill requires that an appeal of a decision of the commissioner refusing to grant a license to an applicant or revoking the license of a license holder shall be under the substantial evidence rule, rather than by trial de novo (Sec. 14.302). The bill prohibits the commission from adopting rules restricting advertising or competitive bidding by a license holder regulated by the OCCC except to prohibit false, misleading, or deceptive practices. In its rules to prohibit false, misleading, or deceptive practices, the commission is prohibited from including a rule that restricts the use of any medium for advertising, restricts the use of a license holder's personal appearance or voice in an advertisement, relates to the size or duration of an advertisement by the license holder, or restricts the license holder's advertisement under a trade name, unless the trade name is deceptive (Sec. 341.403). The bill authorizes the commission, by rule, to adopt a system under which licenses relating to loans and financial transactions expire on various dates during the year (Sec. 341.501). The bill sets forth provisions regulating the form of a loan contract for a consumer loan, a motor vehicle installment transaction, or a home equity loan and requires the commission to adopt rules governing the form of loan contracts. The bill requires the rules to include model contracts complying with the rules (Sec. 341.502). The bill requires the commission to adopt rules to provide for the regulation of deferred presentment transactions (Sec. 342.007). The bill prohibits a person who is a party to a deferred presentment transaction from evading the application of applicable governing law or any rule by use of any device, subterfuge, or pretense. The bill provides that the characterization of a required fee as a purchase of a good or service in connection with a deferred presentment transaction is a device, subterfuge, or pretense (Sec. 342.008). The bill provides the provisions governing insurance premium financing do not apply to motor vehicle retail installment transactions (Sec. 348.012). The bill prohibits a person from acting as a holder of a license to perform motor vehicle installment sales (license) unless the person is an authorized lender, a credit union, or holds a license issued for the same purposes (Sec. 348.501). The bill provides the requirements for application of such a license (Sec. 348.502). On the filing of an application and payment of the required fees, the bill requires the commissioner to conduct an investigation to determine whether to issue the license (Sec. 348.503). The bill sets forth criteria to utilize when determining whether to approve or deny an application for a license (Sec. 348.504). If the commissioner denies the application, the bill requires the commissioner to retain the investigation fee and return the license fee submitted with the application to the applicant (Sec. 348.505). The bill requires a license holder, not later than December 1, to pay to the commissioner for each license held an annual fee for the year beginning the next January 1 or face having the license expire (Secs. 348.506 and 348.507). The bill sets forth provisions authorizing the commissioner, after notice of a hearing, to suspend or revoke a license (Sec. 348.508). The bills sets forth provisions authorizing the commissioner to reinstate a suspended license or issue a new license (Sec. 348.509). The bill provides that the suspension, revocation, or surrender of a license does not affect the obligation of a contract between a license holder and a retail buyer entered into before the suspension, revocation, or surrender. The surrender of a license does not affect the license holder's civil or criminal liability for an act committed before the surrender (Sec. 348.511). The bill provides that a license may be transferred or assigned only with the approval of the commissioner (Sec. 348.512). The bill authorizes the commission to adopt rules to enforce motor vehicle installment sales. The bill also requires the commissioner to recommend proposed rules to the commission (Sec. 348.513). The bill requires the commissioner or the commissioner's representative to examine each place of business of each license holder or investigate the license holder's transactions and records. The bill requires the license holder to give the commissioner or the commissioner's representative free access to the license holder's office, place of business, files, safes, and vaults, and allow the commissioner or the commissioner's representative to make a copy of an item that may be investigated. The bill provides that a license holder's failure to comply with these provisions is grounds for the suspension or revocation of the license. The bill authorizes the commissioner or the commissioner's representative to administer oaths. The bill provides that the information is confidential, and provides that an examination of a license holder's place of business may be made only after advance notice and during normal business hours (Sec. 348.514). The bill sets forth provisions authorizing the commissioner or the commissioner's representative to pursue a general investigation to enforce law governing motor vehicle installment sales (Sec. 348.515). The bill requires a license holder to pay to the commissioner an amount to cover the direct and indirect costs of an examination and a proportionate share of general administrative expenses (Sec. 348.516). The bill sets forth provisions requiring the license holder to maintain a detailed record of retail installment transactions (Sec. 348.517). The bill authorizes the commissioner and the Texas Department of Transportation to share information, including criminal history information, relating to a licensed person. The bill provides that information otherwise remains confidential (Sec. 348.518). The provisions requiring a person to hold a license take effect September 1, 2002 (SECTION 27). The bill increases, from $100 to $200, the reference amount relating to pawn service charges (Sec. 371.159). The bill decreases, from 60 to 30 days, the number of days during which a pawnbroker is required to hold pledged goods in connection with a pawn transaction (Sec. 371.169). The bill requires the commission and the commissioner to conduct a study of mortgage lending practices with emphasis on identifying possible predatory and discriminating lending patterns or practices. In conducting the study, the commission shall collect data from entities making mortgage loans and also study and consider parameters that could be used to consistently classify credit risk among mortgage loans. The bill requires the commission and the commissioner to prepare a report detailing the findings and recommendations resulting from the study and deliver the report to the lieutenant governor, the speaker of the house of representatives, and the legislative committees dealing with lending entities before December 1, 2002 (SECTION 26). The bill repeals provisions relating to the fees for registration of a license holder and the penalties for failing to register and sets forth that these provisions take effect September 1, 2002 (SECTIONS 24 and 25). The bill amends the Government Code to authorize the commissioner to obtain criminal history record information relating to an applicant for or holder of a license for consumer loans (Sec. 411.095) EFFECTIVE DATE September 1, 2001, except as otherwise provided by this bill. Provisions relating to the applicability of insurance premium financing take effect on passage, or if the Act does not receive the necessary vote, September 1, 2001. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.S.B. 317 modifies the original to provide that an appeal of a decision of the consumer credit commissioner (commissioner) shall be under the substantial evidence rule, rather than by trial de novo (Sec. 14.302). The substitute provides that the characterization of a required fee as a purchase of a good or service in connection with a deferred presentment transaction is a device, subterfuge, or pretense (Sec. 342.008). The substitute provides that the provisions governing insurance premium financing do not apply to motor vehicle retail installment transactions (Sec. 348.012). The substitute requires the applicant for a motor vehicle retail installment transaction license to pay to the commissioner an investigation fee not to exceed $200, rather than an investigation fee of $200 (Sec. 348.502). The substitute amends the Government Code to authorize the commissioner to obtain criminal history record information that relates to an applicant for or holder of a license for consumer loans (Sec. 411.095). The substitute modifies the effective date to provide that provisions relating to insurance premium financing take effect on passage, or if the Act does not receive the necessary vote, September 1, 2001.