Texas

The relevant statutes are the Motor Vehicle Installment Sales Act, Tex. Finance Code §§348.001 through 348.413 (“TX-MVRISA”) and Collateral Protection Insurance, Tex. Finance Code § 307.001, et seq. (“TX-CPI”).

A. Actions creditor may take:

(1) TX-MVRISA §348.207 — If buyer fails to present reasonable evidence that required insurance has been obtained, creditor may procure substitute insurance coverage, substantially similar to or more limited than that originally required, and add the premium to the amount due.

(2) TX-CPI §§307.051(a), 307.051(c) —

(a) Collateral protection insurance is insurance coverage that:

i) Is purchased by a creditor after the date of a credit agreement;

ii) Provides monetary protection against loss of or damage to the collateral or against liability arising out of the ownership or use of the collateral; and

iii) Is purchased according to the terms of a credit agreement as a result of a buyer's failure to provide evidence of insurance or failure to obtain or maintain insurance covering the collateral, with the costs of the collateral protection insurance, including interest and any other charges incurred by the creditor in connection with the placement of collateral protection insurance, payable by a buyer.

(b) Collateral protection insurance includes insurance coverage that is purchased to protect:

i) Only the interest of the creditor; or

ii) Both the interest of the creditor and some or all of the interest of a buyer.

(c) The term of a collateral protection insurance policy may be:

i) Not greater than 12 months; or

ii) The remaining term of the credit transaction if the remaining term is less than or equal to 24 months.

(d) The effective date of coverage for collateral protection insurance may be earlier than the date of issuance of the policy. The effective date may not be earlier than the date the collateral became uninsured.

(e) A premium for collateral protection insurance may not be based on an amount that exceeds the actual amount of unpaid indebtedness of the buyer as of the effective date of the policy. This condition applies without regard to whether the coverage under the policy limits the insurer's liability to:

i) The amount of unpaid debt;

ii) The cash value of the collateral; or

iii) The cost of repair of the collateral.

(f) Collateral protection insurance does not include insurance coverage that:

i) Is purchased by the creditor for which the buyer is not charged;

ii) Is purchased at the inception of a credit transaction in which the buyer is a party or to which the buyer agrees, whether or not costs are included in a payment plan under the credit transaction;

iii) Is maintained by the creditor for the protection of collateral that comes into the possession or control of the creditor through foreclosure, repossession, or a similar event;

iv) Is credit insurance, mortgage protection insurance, insurance issued to cover the life or health of the buyer, or any other insurance maintained to cover the inability or failure of the buyer to make payment under the credit agreement.

B. Notices required:

(1) TX-MVRISA §348.207(c) — When any substitute insurance is obtained by creditor due to buyer's failure to obtain or maintain required coverage, the amendment adding the premium to buyer's contract does not need to be signed by buyer, but creditor must send to buyer specific written notice of the action.

(2) TX-CPI §§307.052(a) through 307.052(f) —

(a) A creditor who requires collateral protection insurance that is paid for directly or indirectly by a buyer may place collateral protection insurance if:

i) The buyer has entered into a credit transaction with the creditor for which a credit agreement exists;

ii) The credit agreement requires the buyer to maintain insurance on the collateral; and

iii) A notice has been included in the credit agreement or a separate document provided to the buyer at the time the credit agreement is executed that states that:

a) The buyer is required to:

I) Keep the collateral insured against damage in the amount equal to the lessee's indebtedness to the creditor ;

II) Purchase the insurance from an insurer that is authorized to do business in Texas or an eligible surplus lines insurer; and

III) Name the creditor as the person to be paid under the policy in the event of a loss;

b) The buyer must, if required by the creditor, deliver to the creditor a copy of the policy and proof of the payment of premiums; and

c) If the buyer fails to meet any requirement listed in B.(2)(a)iii)a) or B.(2)(a)iii)b), above, the creditor may obtain collateral protection insurance on behalf of the buyer at the buyer's expense.

(b) Not later than the 31st day after the date the collateral protection insurance is charged to the buyer, the creditor, by prepaid, first class mail, must mail to each buyer at the last known address on file with the creditor a notice that states:

(1) That the creditor has purchased or will purchase collateral protection insurance on behalf of the buyer and at the debtor's expense as provided by the credit agreement;

(2) The type of insurance that the creditor has obtained or will obtain, the extent of the coverage, and whose interest the policy protects;

(3) The beginning and ending dates of the policy period;

(4) The total cost of the policy to the buyer;

(5) The annual interest rate charged on the cost of insurance if that rate is different from the rate charged in the related credit transaction;

(6) The manner in which the buyer may pay the cost of insurance, interest, or finance charge relating to the purchase of the collateral protection insurance; and

(7) At the option of the creditor, other repayment options to which the buyer has agreed in the original credit transaction.

(c) The creditor must mail the notice required under B.(2)(b), above, to each person who is a cosigner or guarantor to the debt, if the last known address of that person differs from the last known address of the buyer.

(d) The creditor may delegate the notice requirements under B.(2)(b) and B.(2)(c), above, to the insurer or the insurer's agent.

(e) The notice required by B.(2)(b), above, must be printed in type that is:

(1) Underlined;

(2) In all capital letters;

(3) In all bold letters; or

(4) Otherwise conspicuous.

(f) If the required notice to any buyer, cosigner, or guarantor is returned to the creditor undelivered, the creditor must:

(1) Locate the person by using the procedures the creditor regularly uses for locating debtors; and

(2) Mail a second notice at the time the person is located.

(3) TX-CPI §307.054 — A buyer may at any time cause the cancellation of collateral protection insurance by providing proper evidence to the creditor that the buyer has obtained insurance as required by the credit agreement. If a buyer provides the creditor with proper evidence that the buyer had insurance on the collateral as required by the credit agreement on or before the date the collateral protection insurance is effective and that the buyer continues to have insurance on the collateral as required by the credit agreement, the creditor must cancel the insurance that it purchased and may not charge the buyer any costs, interest, or other charges in connection with the insurance.

C. Charges permitted:

(1) TX-CPI §307.052(g) — The terms for payment of the costs of the collateral protection insurance, including interest and any other charges actually incurred that the creditor may impose in connection with the placement of the collateral protection insurance, must include one or more of the following:

(a) A final balloon payment on or before the 30th day after the date of the last scheduled payment required by the credit agreement;

(b) Full amortization over the term of the credit transaction, the term of the collateral protection insurance coverage, or the term for which the amortization is used by the creditor; or

(c) Any other repayment terms agreed to by a buyer in the original credit transaction.

(2) TX-CPI §307.053 — If any form of amortization is used by the creditor, the creditor must send to each buyer notice of the terms of the amortization and any change in the buyer's periodic payment.

D. Finance charge allowed on creditor's payment:

(1) TX-MVRISA §348.214 — If a premium is added to the unpaid balance of a retail installment contract, the finance charge agreed to in the contract remains in effect and must be applied to the new unpaid balance, or the contract may be rescheduled in accordance with TX-MVRISA §§348.113 through 348.117.

(2) TX-CPI §307.052(g) — The terms for payment of the costs of the collateral protection insurance, including interest and any other charges actually incurred that the creditor may impose in connection with the placement of the collateral protection insurance, must include one or more of the following:

(a) A final balloon payment on or before the 30th day after the date of the last scheduled payment required by the credit agreement;

(b) Full amortization over the term of the credit transaction, the term of the collateral protection insurance coverage, or the term for which the amortization is used by the creditor; or

(c) Any other repayment terms agreed to by a buyer in the original credit transaction.

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