Senate Bill 1247 from Senator John Carona

by The CAB Man Texas on March 7, 2013

SB 1247:

This bill was authored by Senator John Carona, and is “relating to certain extension of consumer credit facilitated by credit access businesses, providing a civil penalty.” This 18 page bill is the longest one so far in the session relating to CABs. See below for an organized break down in simple language.

Debt collection:

No threats, coercion, or attempts to coerce that employ threats of violence, or false accusations.

Must not state that a customer is willingly refusing to pay when the debt is being disputed and notification of dispute has been made in writing.

Cannot threaten to sell the debt or place the debt with a collections agency, an assert that this will somehow subject the customer to less desirable collection activities, unsavory collectors, etc.

No threats that the debtor will be arrested for nonpayment, or threats to file a charge, complaint, with no real violation of criminal law.

Cannot threaten that nonpayment will result in repossession or sale of the vehicle with proper court proceedings.

Cannot reference the fact that the consumer previously signed certain certifications, and what penalties might arise from breaking those certifications. (references a new section of Texas Finance Code, Chapter 393.630)

Limits on re-financing:

A “CSO” cannot broker a loan in any other form except a “deferred presentment transaction” or a “motor vehicle loan” that meets the recently evolved definitions of those terms. (Sections 393.634 through 393.637). Make note that this addresses CSO’s not Credit Access Businesses (“CABs”).

Any refinance by a “CSO” of a payday or title loan may not include an increase of the loan. This would be important for CABs who are offering “line of credit” style loans, loan increases, credit lines, add-ons, upsizes, etc.

A CSO doing a refinance must be authorized under Subchapter G, and meet all the requirements of Subchapter G that originally apply in this scenario, except for if Subchapter G specifically said it is not authorized.

Notices:

A CAB will be required to post a notice that lets customers know “Extended Payment Plans” are available. The notice will also need to be available as a handout as with the OCCC Consumer Disclosures.

OCCC Consumer Disclosures will remain a requirement, and they will need to be provided prior to performing CAB services. There is a revision to existing OCCC Consumer Disclosures in that the name of the CAB and their license # must now be on the document.

Military Borrowers and their dependents:

The definition of a “military borrower” is fine tuned by stating that the term includes a “covered member” or a “dependent” of a covered member, as those terms are defined by 10 USC Section 987.

Loans to Military borrowers cannot be go over 90 days as a deferred presentment/payday loan and cannot go over 180 days on an auto title loan.

General restrictions:

If a customer gets a new loan within 5 or less days of paying off a prior loan, this is considered a refinance.

CAB loans cannot go over 180 days.

CABs must give the customer a copy of the consumer loan documentation.

CABs must give the customer copies of all required notices (OCCC Consumer Disclosures and Extended Payment Plan).

All of the required notices and disclosures must be provided in Spanish if customer requests, or if the agreement was discussed in Spanish.

The actual executed agreement between the CAB and the consumer must be written in English.

If the customer agrees to it in writing, the customer’s loan may be sold to another CAB. If this occurs the transaction limits remain the same as originally agreed except for the 180 day limit.

The sale of the debt is to be treated as a refinance, and a new 180 day term would be granted.

Before working out the loan with a customer, a CAB must consider whether the customer has the ability to repay the loan in full or if they would be able to pay any refinances.

Limits on the # of loans a consumer may have:

This applies to payday loans, not auto title loans.

A consumer may only have 1 loan out with a CAB.

If a consumer wants a loan via a CAB, they must sign a written certification stating that they:

Have no other loans out with any other CAB.

Have not had an extended payment plan with a CAB in the last 14 days.

Have not defaulted on a CAB loan in the last 30 days.

A consumer would not be considered in default until their loan is 10 days past due.

A CAB must verify that the consumer is not falsifying the written certification, to the best of the employee’s ability.

In order to “verify” the consumer is being truthful, the CAB employee would need to consider all information shared by the consumer during the negotiation. The employee would need to closely review the documents and records presented during that process that are traditionally consulted during the normal course of CAB business today. This would likely be CRA reports and bank statements.

A consumer or CAB who violates this section would face a civil penalty of $1,000 for each incident.

The Finance Commission will have some later input on the implementation of CAB operating rules for this section.

Limitations on auto title loans:

The proceeds from a sale of a repossessed vehicle will satisfy all debts of the consumer.

Consumers are not liable for the debt after repossession and sale, unless they have committed fraud when getting the loan.

“Any” fee charged to a consumer for the repossession of their vehicle must be “reasonable.”

Proof of income and proof of vehicle value:

A CAB must require documentation to establish income with one of the following: paystub, paycheck, bank statement, credit report, tax return, W2, letter from employer, or another possible document from the Finance Commission.

CABs will need to keep copies of the income documents.

CABs must establish “retail value” on a motor vehicle for a title loan by referring to a recognized appraisal guide (NADA) or agree in good faith to the vehicle’s value.

Local ordinances pre-empted:

The local ordinances regulating CABs or CAB transactions are “pre-empted” because they are not within the “political subdivision’s standard zoning or police powers.”

Limits on single payment payday loans:

If a consumer’s annual income is $29,437 or less (125% of the federal poverty level for a family of four), their loan cannot exceed 25% of their gross monthly income. This translates to a maximum of $613.

$23,550 x 125% = $29,437/12 = $2,453x.25 = $613 maximum loan amount.

If a consumer’s income is above 125% of the federal poverty level for a family of four and they are not military borrowers, they will be allowed to take out loans at a maximum of 35% of their gross monthly income. 125% of the federal poverty level for a family of four is $29,437 annually and $2,453 monthly. 35% of that translates to a maximum of $858.

Single payment payday loans cannot be for less than 10 days.

Single payment payday loans cannot be refinanced more than 4 times.

If a consumer refinances a single payment payday loan 4 times the CAB shall offer an extended payment plan.

Consumers will not be offered the extended payment plan if they have had 2 extended payment plans in the last 12 months.

Extended payment plans can be requested on or after the date of the 4th refinance.

Extended payment plans can only be requested on or before the date the payday loan must be paid in full, it cannot be past due.

Limits on multi-payment payday loans:

The sum of all scheduled payments due in a month cannot exceed 15% of the consumer’s gross monthly income if that consumer’s annual income is $29,437 or less (125% of the federal poverty level for a family of four).

$23,550 x 125% = $29,437/12 = $2,453x.15 = $367 maximum monthly payment.

If a consumer’s income is above 125% of the federal poverty level for a family of four and they are not military borrowers, they will be allowed to take out multi-payment loans with a maximum monthly payment of 20% of their gross monthly income. 125% of the federal poverty level for a family of four is $29,437 annually and $2,453 monthly. 20% of that translates to a maximum monthly payment of $490.

May not be payable in more than 12 installments and the loan agreement for these transactions must specify the number, date, and total amount due with regard to each installment.

Must be payable in fully amortizing, declining principal balance basis, with substantially equal payments.

The first installment payment after the initial loan funding may not be due before 10 days have passed.

Installment payment dates may not be less than 14 days apart.

Installment payment dates may not be more than 31 days apart.

Can only be refinanced one time.

The combined total of days the loan can be extended to via a refinance is 270 days.

Extended payment plans are not required with multi-payment payday loans.

Limits on single payment auto title loans:

Cannot exceed 6% of the consumers annual gross income, if the consumer’s income is below 125% of the federal poverty line for a family of four. That figure is $29.437.

$23,550 x 125% = $29,437×6%= $1,766 maximum loan amount.

If a consumer’s income is above 125% of the federal poverty level for a family of four and they are not military borrowers, they will be allowed to take out a single payment auto title loan with a maximum amount of 8% of their gross annual income.

Loan amounts also cannot exceed 70% of the retail value of the vehicle.

Loans and loan payments must be due in at least 30 days, no less.

May not be refinanced more than 6 times.

An extended payment plan must be offered to a consumer before initiating any activities to repossess the vehicle.

Consumer may request the extended payment plan at any time on or after the date the consumer refinances the loan for the 6th time, and on or before the date the loan must be paid in full, cannot be past due.

The extended payment plan must comply with Section 393.638.

Multi-payment auto title loans:

A scheduled payment cannot exceed 15% of the consumer’s gross monthly income, if the consumer’s income is below 125% of the federal poverty line for a family of four. That figure is $29.437.

$23,550 x 125% = $29,437/12×15%= $367 maximum monthly payment.

If a consumer’s income is above 125% of the federal poverty level for a family of four and they are not military borrowers, they will be allowed to take out a multi-payment auto title loan with a maximum monthly payment amount of 20% of their gross monthly income.

Loan amounts also cannot exceed 70% of the retail value of the vehicle.

Must be payable in fully amortizing, declining principal balance basis, with substantially equal payments.

May not be payable in more than 6 installments, and the loan agreement for these transactions must specify the number, date, and total amount due with regard to each installment.

The first installment payment after the initial loan funding may not be due before 10 days have passed.

Payments must be no less than 30 days apart.

Can only be refinanced one time.

The combined total of days the loan can be extended to via a refinance is 270 days.

A CAB may not initiate any repossession activity on customer vehicles before offering the consumer an extended payment plan. Must comply with Section 393.638.

Extended payment plans:

This is referred to as Section 393.638 in various other sections of the bill.

For single payment loans – must be 4 equal installments.

For single payment loans – after the 4 equal payments the balance will be paid in full.

For multi-payment loans – must be 2 additional equal installments

For multi-payment loans – after the equal payments the balance will be paid in full.

For single payment payday loans – the # of days between extended payment plan payments cannot be less than in the original agreement.

For multi-payment auto title loans – the # of days between extended payment plan payments cannot be less than 30 days.

The first payment of an extended payment plan may not be less than 10 days from plan request date.

A CAB cannot charge additional fees or interest or help consumer get a new loan while in the plan.

A consumer may pay the debt in full at any time while in the plan without prepayment penalties.

Debt collection and repossession activities cannot occur while a consumer is in compliance with the plan.

Refinance definitions:

A refinance or renewal of a CAB loan is considered made on the date the CAB loan being refinanced or renewed was made.

The Finance Commission may adopt any rules necessary to implement the restrictions and limits outlined in this bill.

Would goes into effect 9-1-2013.

Click here for a PDF of SB 1247! SB.1247

This website, its blogs, summaries, and comments are not official comments of Texas regulators and lawmakers. CAB Consulting and Brokerage is a privately held firm and has generated these materials as a service to Credit Access Business stakeholders in Texas. For questions, please contact Michael Brown at 214-293-8676 or Michael@CreditAccessBusiness.com.

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