Texas Governor Passes Legislation Related to Vehicle Installment Contracts, Documentary Fees, and Deferred Presentment Transactions for Military Borrowers

State Issues State Legislation Military Lending Act Servicemembers Auto Finance

On June 9, Texas Governor Greg Abbott signed legislation (H.B. 2339) amending the state’s Finance Code provisions governing trade-in credit agreements related to motor vehicle retail installment contracts. The law now authorizes a seller—upon execution of a contract—to offer to sell to a buyer a “trade-in credit agreement,” which is “a contractual arrangement under which a retail seller agrees to provide a specified amount as a motor vehicle trade-in credit for the diminished value of the motor vehicle that is the subject of the retail installment contract in connection with which the trade-in credit agreement is offered if the motor vehicle is damaged but not rendered a total loss as a result of a collision accident, with the credit to be applied toward the purchase or lease of a different motor vehicle from the retail seller or an affiliate of the retail seller.” Specifically, a trade-in credit agreement is separate from a retail installment contract, not a term of the retail installment contract, and not insurance. The law further outlines changes related to the amount charged for a trade-in credit agreement as well as terms and conditions of the retail installment contract. The law takes effect September 1, 2017.

On June 15, the governor signed legislation (H.B. 2949) relating to the maximum amount a retail seller of motor vehicles can charge for a documentary fee. Under the changed provisions, a seller is now required to provide written notice to the finance commission of the amount it intends to charge unless the documentary fee is considered reasonable, which is established as an amount “less than or equal to the amount of the documentary fee presumed reasonable . . . by rule of the finance commission.” In determining whether a fee is reasonable, the commissioner considers the resources a retail seller may need to employ to perform its duties when handling and processing documents related to the sale and financing of the vehicle. The law takes effect September 1, 2017.

Separately on June 15, the governor signed legislation (H.B 2008) amending the Texas Finance Code to require a lender that enters into a deferred presentment transaction with a military servicemember or a dependent of a servicemember to comply with the Military Lending Act (MLA) (10 U.S.C. § 987) and its implementing regulation. The MLA prohibits creditors from extending consumer credit if the “creditor rolls over, renews, repays, refinances, or consolidates any consumer credit extended to the covered borrower by the same creditor with the proceeds of other consumer credit extended by that creditor to the same covered borrower.” Creditors engaged in deferred presentment transactions or similar payday loan transactions are subject to these limitations “provided however, that the term does not include a person that is chartered or licensed under Federal or State law as a bank, savings association, or credit union.” The law takes effect September 1, 2017.