CHAPTER 307. COLLATERAL PROTECTION INSURANCE
FINANCE CODE
TITLE 4. REGULATION OF INTEREST, LOANS, AND FINANCED TRANSACTIONS
SUBTITLE A. INTEREST
CHAPTER 307. COLLATERAL PROTECTION INSURANCE
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 307.001. DEFINITIONS. In this chapter:
(1) "Collateral" means property pledged or used to secure
payment, repayment, or performance under a credit or lease
agreement, including personal property, real property, fixtures,
inventory, receivables, rights, or privileges.
(2) "Collateral protection insurance" means insurance coverage
described by Section 307.051.
(3) "Credit agreement" means a written document that sets forth
the terms of a credit transaction.
(4) "Credit transaction" means a transaction with terms that
require the payment of money, goods, services, property, rights,
or privileges on a future date and in which the obligation for
payment is secured by collateral.
(5) "Creditor" means a person who is a lender of money or a
vendor or lessor of goods, services, property, rights, or
privileges for which a payment is arranged through a credit
transaction and includes any successor to the rights, title,
interest, or liens of the lender, vendor, or lessor.
(6) "Debtor" means a borrower of money or a purchaser or lessee
of goods, services, property, rights, or privileges for which
payment is arranged through a credit agreement. The term does not
include a person who is not a primary obligor under a credit
transaction or who is not jointly and severally liable with the
debtor for the obligation.
(7) "Title insurance" means insurance that may be issued only by
persons regulated under Title 11, Insurance Code, and that
insures:
(A) a lender or owner against loss caused by:
(i) defective title held by the mortgagor or owner or insured;
(ii) unknown mortgages or defective recording of mortgages or
liens on real property;
(iii) failure of any person to pay ad valorem taxes resulting in
a lien; or
(iv) failure to research properly title, taxes, liens, or other
matters relative to the validity of loans or liens secured by
real property or insurance; or
(B) the validity, enforceability, or priority of any lien or
title on real property.
Added by Acts 2001, 77th Leg., ch. 726, Sec. 1, eff. Sept. 1,
2001.
Amended by:
Acts 2005, 79th Leg., Ch.
728, Sec. 11.115, eff. September 1, 2005.
SUBCHAPTER B. REQUIREMENTS FOR COLLATERAL PROTECTION INSURANCE
Sec. 307.051. COLLATERAL PROTECTION INSURANCE. (a) Collateral
protection insurance is insurance coverage that:
(1) is purchased by a creditor after the date of a credit
agreement;
(2) 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
(3) is purchased according to the terms of a credit agreement as
a result of a debtor'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 debtor.
(b) Collateral protection insurance includes insurance coverage
that is purchased to protect:
(1) only the interest of the creditor; or
(2) both the interest of the creditor and some or all of the
interest of a debtor.
(c) The term of a collateral protection insurance policy may be:
(1) not greater than 12 months; or
(2) 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 covering
collateral other than real property may not be based on an amount
that exceeds the actual amount of unpaid indebtedness of the
debtor 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:
(1) the amount of unpaid debt;
(2) the cash value of the collateral; or
(3) the cost of repair of the collateral.
(e-1) With respect to collateral protection insurance covering
real property, a creditor, at the creditor's option, may obtain
insurance that will cover either the replacement cost of
improvements or the amount of unpaid indebtedness, subject to
policy limits. The debtor shall be obligated to reimburse the
creditor for the premium, finance charges, and any other charges
incurred by the creditor in connection with the placement of the
insurance. The creditor may use the previous evidence of
insurance coverage furnished by the debtor to determine the
sufficient level of replacement cost coverage to be provided.
(f) Collateral protection insurance does not include insurance
coverage that:
(1) is purchased by the creditor for which the debtor is not
charged;
(2) is purchased at the inception of a credit transaction in
which the debtor is a party or to which the debtor agrees,
whether or not costs are included in a payment plan under the
credit transaction;
(3) 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;
(4) is credit insurance, mortgage protection insurance,
insurance issued to cover the life or health of the debtor, or
any other insurance maintained to cover the inability or failure
of the debtor to make payment under the credit agreement;
(5) is title insurance;
(6) is flood insurance required to be placed by creditors under
Section 102, National Flood Insurance Act of 1968 (42 U.S.C.
Section 4012a); or
(7) is insurance on a commercial vehicle securing a retail
installment contract under Chapter 348.
Added by Acts 2001, 77th Leg., ch. 726, Sec. 1, eff. Sept. 1,
2001. Amended by Acts 2003, 78th Leg., ch. 1219, Sec. 1, eff.
June 20, 2003.
Amended by:
Acts 2009, 81st Leg., R.S., Ch.
238, Sec. 1, eff. September 1, 2009.
Sec. 307.052. CREDITOR DUTIES. (a) A creditor who requires
collateral protection insurance that is paid for directly or
indirectly by a debtor may place collateral protection insurance
if:
(1) the debtor has entered into a credit transaction with the
creditor for which a credit agreement exists;
(2) the credit agreement requires the debtor to maintain
insurance on the collateral; and
(3) a notice has been included in the credit agreement or a
separate document provided to the debtor at the time the credit
agreement is executed that states that:
(A) the debtor is required to:
(i) keep the collateral insured against damage in the amount the
creditor specifies;
(ii) purchase the insurance from an insurer that is authorized
to do business in this state 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 debtor 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 debtor fails to meet any requirement listed in
Paragraph (A) or (B), the creditor may obtain collateral
protection insurance on behalf of the debtor at the debtor's
expense.
(b) Not later than the 31st day after the date the collateral
protection insurance is charged to the debtor, the creditor, by
prepaid, first class mail, shall mail to each debtor 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 debtor 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 debtor;
(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 debtor may pay the cost of
insurance, interest, or finance charge relating to the purchase
of the collateral protection insurance;
(7) at the option of the creditor, other repayment options to
which the debtor has agreed in the original credit transaction;
and
(8) if collateral protection insurance covering real property is
obtained under Section 307.051(e-1):
(A) that coverage may be available to the debtor through the
Texas FAIR plan at a lower cost; and
(B) contact information about the Texas FAIR plan.
(c) The creditor shall mail the notice required under Subsection
(b) 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 debtor.
(d) The creditor may delegate the notice requirements under
Subsections (b) and (c) to the insurer or the insurer's agent.
(e) The notice required by Subsection (b) 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 debtor, cosigner, or guarantor
is returned to the creditor undelivered, the creditor shall:
(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.
(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:
(1) a final balloon payment on or before the 30th day after the
date of the last scheduled payment required by the credit
agreement;
(2) 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
(3) any other repayment terms agreed to by a debtor in the
original credit transaction.
Added by Acts 2001, 77th Leg., ch. 726, Sec. 1, eff. Sept. 1,
2001. Amended by Acts 2003, 78th Leg., ch. 1219, Sec. 2, eff.
June 20, 2003.
Sec. 307.053. AMORTIZATION OF DEBT. If any form of amortization
is used by the creditor, the creditor shall send to each debtor
notice of the terms of the amortization and any change in the
debtor's periodic payment.
Added by Acts 2001, 77th Leg., ch. 726, Sec. 1, eff. Sept. 1,
2001.
Sec. 307.054. CANCELLATION OF COLLATERAL PROTECTION INSURANCE.
A debtor may at any time cause the cancellation of collateral
protection insurance by providing proper evidence to the creditor
that the debtor has obtained insurance as required by the credit
agreement. If a debtor provides the creditor with proper evidence
that the debtor 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 debtor continues
to have insurance on the collateral as required by the credit
agreement, the creditor shall cancel the insurance that it
purchased and may not charge the debtor any costs, interest, or
other charges in connection with the insurance.
Added by Acts 2001, 77th Leg., ch. 726, Sec. 1, eff. Sept. 1,
2001.
Sec. 307.055. REFUND OF UNEARNED PREMIUMS. (a) On the date the
collateral protection insurance is canceled or expires, the
amount of unearned premiums, as computed by the Texas Automobile
Rules and Rating Manual for collateral to which that manual
applies and pro rata for all other types of collateral, shall be
refunded to the creditor. Except as otherwise provided in
Subsection (b), not later than the 14th day after the date the
creditor receives the refund, the creditor shall distribute a
refund of unearned premiums by any method selected by the
creditor, including:
(1) payment to the debtor by check; or
(2) an adjustment to a credit transaction of the debtor.
(b) If not later than the 28th day after the date the creditor
receives the refund the creditor distributes the refund of the
unearned premiums by an adjustment to a credit transaction of the
debtor that is made effective not later than the 14th day after
the date the creditor receives the refund, the creditor shall be
in compliance with this section.
Added by Acts 2001, 77th Leg., ch. 726, Sec. 1, eff. Sept. 1,
2001.
Sec. 307.056. CHOICE OF CARRIER. Collateral protection
insurance may be placed with an insurer that is authorized to
write insurance in this state or an eligible surplus lines
insurer selected by the creditor. The insurance shall be
evidenced by an individual policy or a certificate of insurance.
Added by Acts 2001, 77th Leg., ch. 726, Sec. 1, eff. Sept. 1,
2001.
Sec. 307.057. CREDITOR LIABILITY. (a) A creditor, its insurer,
or the insurer's agent that places collateral protection
insurance in substantial compliance with the terms of this
chapter is not directly or indirectly liable to a debtor,
cosigner, or guarantor or any other person in connection with the
placement of the collateral protection insurance.
(b) This chapter does not impose a fiduciary relationship
between the creditor and debtor. Placement of collateral
protection insurance is for the principal purpose of protecting
the interest of the creditor if the debtor fails to insure
collateral as required by the credit agreement.
(c) A creditor is not required under this chapter to purchase
collateral protection insurance or to otherwise insure
collateral. A creditor is not liable to a debtor or any other
person for failing to purchase collateral protection insurance,
failing to purchase a certain amount or level of coverage of
collateral protection insurance, or purchasing collateral
protection insurance that protects only the interests of the
creditor or less than all the interest of a debtor. This chapter
does not create a cause of action for damages on behalf of a
debtor or any other person in connection with the placement of
collateral protection insurance.
Added by Acts 2001, 77th Leg., ch. 726, Sec. 1, eff. Sept. 1,
2001.
Sec. 307.058. RIGHTS OF CREDITOR AND DEBTOR. (a) The
obligations and rights of the creditor and debtor with respect to
the collateral under Chapters 1 through 9, Business &
Commerce Code, are not affected by this chapter.
(b) This chapter does not impair other remedies, rights, or
options available to a creditor under any law, rule, regulation,
ruling, court order, or agreement.
(c) This chapter does not impair or alter other requirements of
this code or other law that may apply to a credit transaction.
Added by Acts 2001, 77th Leg., ch. 726, Sec. 1, eff. Sept. 1,
2001.