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.