Bill Text: TX SB1169 | 2011-2012 | 82nd Legislature | Enrolled


Bill Title: Relating to the regulation of providers, administrators, and sellers of service contracts and identity recovery service contracts; providing penalties.

Spectrum: Partisan Bill (Republican 2-0)

Status: (Passed) 2011-06-17 - Effective on 9/1/11 [SB1169 Detail]

Download: Texas-2011-SB1169-Enrolled.html
 
 
  S.B. No. 1169
 
 
 
 
AN ACT
  relating to the regulation of providers, administrators, and
  sellers of service contracts and identity recovery service
  contracts; providing penalties.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
  ARTICLE 1.  SERVICE CONTRACTS
         SECTION 1.01.  Section 1304.002, Occupations Code, is
  amended by adding Subdivision (8-a) to read as follows:
               (8-a)  "Seller" means a person, other than the provider
  or administrator of a service contract, who markets, sells, offers
  to sell, negotiates, or issues a service contract to a consumer on
  behalf of a provider, but who is not contractually obligated to a
  service contract holder under the terms of a service contract.
         SECTION 1.02.  Chapter 1304, Occupations Code, is amended by
  adding Subchapter B to read as follows:
  SUBCHAPTER B. POWERS AND DUTIES OF DEPARTMENT
  AND COMMISSION
         Sec. 1304.052.  RULES. The commission shall adopt rules
  necessary to implement and administer this chapter.
         SECTION 1.03.  Section 1304.007, Occupations Code, is
  transferred to Subchapter B, Chapter 1304, Occupations Code, as
  added by this Act, redesignated as Section 1304.051, Occupations
  Code, and amended to read as follows:
         Sec. 1304.051 [1304.007].  GENERAL INVESTIGATIVE POWER OF
  EXECUTIVE DIRECTOR. (a)  The executive director may investigate a
  provider, administrator, seller, or other person as necessary to
  enforce this chapter and protect service contract holders in this
  state.
         (b)  On request of the executive director, a provider shall
  make the records required by Section 1304.155 available to the
  executive director as necessary to enable the executive director to
  reasonably determine compliance with this chapter.
         SECTION 1.04.  Section 1304.101, Occupations Code, is
  amended to read as follows:
         Sec. 1304.101.  REGISTRATION REQUIRED; EXEMPTION FROM OTHER
  LICENSING REQUIREMENTS. (a)  A person may not operate as a
  provider or administrator of service contracts sold or issued in
  this state unless the person is registered with the department.
         (b)  Except for the registration requirement of this chapter
  [subchapter], a provider, [service contract] seller,
  administrator, or other person who markets, sells, issues, or
  offers to sell service contracts is exempt from any licensing
  requirement of this state that relates to an activity regulated
  under this chapter.
         (c)  A provider or administrator may not contract with or use
  the services of a person to perform an activity that requires
  registration with the department as a provider or administrator
  unless that person is appropriately registered.
         SECTION 1.05.  Subsection (c), Section 1304.102,
  Occupations Code, is amended to read as follows:
         (c)  The department may refuse to issue or renew a
  registration, suspend or revoke a registration, or take any other
  disciplinary action under Subchapter E if the applicant or a
  controlling person of the applicant:
               (1)  has violated this chapter or a rule adopted or
  order issued by the commission or executive director under this
  chapter;
               (2)  has made a material misrepresentation or false
  statement in an application or in any document accompanying an
  application;
               (3)  has had a license issued under Title 13, Insurance
  Code, revoked as provided by that code; or
               (4)  has had a license or registration as a provider,
  administrator, or seller revoked in this state or another state.
         SECTION 1.06.  Subsection (a), Section 1304.1025,
  Occupations Code, is amended to read as follows:
         (a)  In addition to the requirements of Section 1304.102, an
  applicant for issuance or renewal of a provider registration must
  file with the application:
               (1)  the reimbursement insurance policy, if the
  provider is using a reimbursement insurance policy to meet the
  financial security requirements of Section 1304.151; [and]
               (2)  the financial security deposit and the
  documentation required by the department demonstrating adequate
  funding of the reserve account, if the provider is using a funded
  reserve account and financial security deposit to meet the
  financial security requirements of Section 1304.151;
               (3)  the proof necessary to demonstrate the applicant
  or its parent company maintains at least $100 million net worth, if
  the applicant is using net worth to meet the financial security
  requirements of Section 1304.151; and
               (4)  information about each controlling person of the
  applicant [a biographical affidavit,] in a form prescribed by the
  executive director[, for each controlling person of the provider].
         SECTION 1.07.  Subsections (a) and (b), Section 1304.103,
  Occupations Code, are amended to read as follows:
         (a)  The executive director shall develop a tiered schedule
  of registration and renewal fees under which a provider's fee is
  based on the number of service contracts the provider sold or issued
  in this state during the preceding 12-month period.
         (b)  The commission shall set [the amounts of] fees to cover
  the costs of administering this chapter, including registration and
  renewal fees for administrators.
         SECTION 1.08.  Section 1304.104, Occupations Code, is
  amended to read as follows:
         Sec. 1304.104.  INFORMATION CONCERNING NUMBER OF SERVICE
  CONTRACTS SOLD OR ISSUED. Information concerning the number of
  service contracts sold or issued by a provider that is submitted
  under Section 1304.103[:
               [(1)]  is a trade secret to which Section 552.110,
  Government Code, applies[; and
               [(2)     may be used only by the executive director and the
  department in developing the tiered fee schedule under Section
  1304.103].
         SECTION 1.09.  The heading to Subchapter D, Chapter 1304,
  Occupations Code, is amended to read as follows:
  SUBCHAPTER D.  PRACTICE BY SERVICE CONTRACT PROVIDERS,
  [AND] ADMINISTRATORS, AND SELLERS
         SECTION 1.10.  The heading to Section 1304.151, Occupations
  Code, is amended to read as follows:
         Sec. 1304.151.  FINANCIAL SECURITY REQUIREMENTS;
  DISTRIBUTION OF FUNDS HELD IN TRUST.
         SECTION 1.11.  Section 1304.151, Occupations Code, is
  amended by amending Subsections (a) and (b) and adding Subsection
  (f) to read as follows:
         (a)  To ensure the faithful performance of a provider's
  obligations to its service contract holders, each provider must:
               (1)  insure the provider's service contracts under a
  reimbursement insurance policy issued by an insurer authorized to
  transact insurance in this state or by a surplus lines insurer
  eligible to place coverage in this state under Chapter 981,
  Insurance Code;
               (2)  maintain a funded reserve account covering the
  provider's obligations under its service contracts that are issued
  and outstanding in this state and place in trust with the executive
  director a financial security deposit consisting of:
                     (A)  [a surety bond issued by an authorized
  surety;
                     [(B)     securities of the type eligible for deposit
  by an authorized insurer in this state;
                     [(C)]  a statutory deposit of cash [or cash
  equivalents];
                     (B) [(D)]  a letter of credit issued by a
  qualified financial institution; or
                     (C)  a certificate of deposit issued by a
  qualified financial institution [(E)     another form of security
  prescribed by rules adopted by the commission]; or
               (3)  maintain, or have a parent company that maintains,
  a net worth or stockholders' equity of at least $100 million.
         (b)  If the provider ensures its obligations under
  Subsection (a)(2), the amount maintained in the reserve account may
  not be less than an amount equal to 40 percent of the gross
  consideration the provider received from consumers from the sale of
  all service contracts issued and outstanding in this state, minus
  any claims paid. The executive director may review and examine the
  reserve account. The amount of the security deposit may not be less
  than $250,000. The provider must submit to the executive director
  on request a copy of the provider's financial statements that must
  be prepared in accordance with generally accepted accounting
  principles, be without qualification as to the going concern status
  of the provider, and be audited by an independent certified public
  accountant. The commission by rule may require the provider to
  submit additional financial reports [the greater of:
               [(1)  $25,000; or
               [(2)     an amount equal to five percent of the gross
  consideration the provider received from consumers from the sale of
  all service contracts issued and outstanding in this state, minus
  any claims paid].
         (f)  In the event of a provider's bankruptcy or a similar
  event affecting the ability of the provider to faithfully perform
  its obligations to its service contract holders, the executive
  director may distribute any funds held in trust as financial
  security for the provider under this section to eligible service
  contract holders as payment for claims. The executive director
  must distribute the funds in an equitable and cost-effective manner
  as determined by the executive director.
         SECTION 1.12.  Subchapter D, Chapter 1304, Occupations Code,
  is amended by adding Sections 1304.1521 and 1304.1531 to read as
  follows:
         Sec. 1304.1521.  FINANCIAL SECURITY TRANSITION.  (a)  In
  this section, "provider that maintained a funded reserve account"
  means a provider that, in order to ensure the faithful performance
  of the provider's obligations to service contract holders,
  maintained a funded reserve account covering the provider's
  obligations under service contracts that were issued and
  outstanding in this state and placed in trust with the executive
  director a financial security deposit consisting of:
               (1)  a surety bond issued by an authorized surety;
               (2)  securities of the type eligible for deposit by an
  authorized insurer in this state;
               (3)  a statutory deposit of cash or cash equivalents;
               (4)  a letter of credit issued by a qualified financial
  institution; or
               (5)  another form of security prescribed by commission
  rules.
         (b)  This section applies only to a provider that maintained
  a funded reserve account on August 31, 2011.
         (c)  Not later than September 1, 2012, a provider that
  maintained a funded reserve account shall submit to the executive
  director documentation that the provider is in compliance with the
  financial security requirements provided by Section 1304.151 for
  service contracts sold or issued in this state on or after September
  1, 2012. A provider that maintained a funded reserve account may
  not sell or issue a service contract on or after September 1, 2012,
  unless the provider is in compliance with this subsection.
         (d)  A provider that maintained a funded reserve account
  shall:
               (1)  continue to maintain the funded reserve account
  and security deposit at appropriate levels for service contracts
  that were sold or issued in this state before September 1, 2012,
  until the contracts are no longer in effect; or
               (2)  provide financial security for service contracts
  sold or issued before September 1, 2012, by complying with the
  financial security requirements of Section 1304.151.
         (e)  If a provider provides financial security for service
  contracts sold or issued before September 1, 2012, by complying
  with the financial security requirements of Section 1304.151, the
  provider shall give to the executive director satisfactory
  documentation that the reimbursement insurance policy, funded
  reserve account and security deposit, or net worth covers all
  outstanding service contracts issued before September 1, 2012.
         (f)  A service contract that is sold or issued before
  September 1, 2012, and is covered under a funded reserve account and
  security deposit may not be extended or renewed at the end of the
  service contract term unless the provider provides financial
  security for those service contracts by complying with the
  financial security requirements of Section 1304.151 before the
  extension or renewal.
         Sec. 1304.1531.  SERVICE CONTRACT SELLERS;
  RESPONSIBILITIES. (a)  A provider may employ or contract with a
  seller to be responsible for:
               (1)  all or any part of the sale or marketing of service
  contracts for the provider; and
               (2)  compliance with this chapter in connection with
  the sale or marketing of service contracts.
         (b)  The hiring of or contracting with a seller under this
  section does not affect a provider's responsibility to comply with
  this chapter.
         (c)  Unless registered as a provider or administrator, a
  seller is prohibited from engaging in activities that would require
  registration as a provider or administrator.
         (d)  A seller shall process a service contract application
  and a payment from a consumer in accordance with this chapter and
  with any sales agreement or contract between the provider and the
  seller.
         SECTION 1.13.  Subsections (a), (b), and (d), Section
  1304.156, Occupations Code, are amended to read as follows:
         (a)  A service contract marketed, sold, offered for sale,
  issued, made, proposed to be made, or administered in this state
  must:
               (1)  be written, printed, or typed in clear,
  understandable language that is easy to read;
               (2)  state the name and address of the provider;
               (3)  state the purchase price of the contract and the
  terms under which the contract is sold;
               (4)  state the terms and restrictions governing
  cancellation of the contract by the provider or the service
  contract holder before the expiration date of the contract;
               (5)  identify:
                     (A)  any administrator and any registration
  number issued to the administrator under this chapter;
                     (B)  the [contract] seller; and
                     (C)  the service contract holder, if the service
  contract holder provides the holder's name;
               (6)  state the amount of any deductible;
               (7)  specify the products and services to be provided
  under the contract and any limitation, exception, or exclusion;
               (8)  specify any restriction governing the
  transferability of the contract;
               (9)  state the duties of the service contract holder,
  including any duty to protect against any further damage and any
  requirement to follow the instructions in the owner's manual; and
               (10)  state whether the contract provides for or
  excludes consequential damages or preexisting conditions, if
  applicable.
         (b)  The identity and, if applicable, registration number
  issued under this chapter of a person described by Subsection
  (a)(5) is not required to be preprinted on the service contract and
  may be added to the contract at the time of sale.
         (d)  A service contract insured under a reimbursement
  insurance policy under Section 1304.152 [1304.151(a)(1)] must:
               (1)  state the name and address of the insurer;
               (2)  state that the service contract holder may apply
  for reimbursement directly to the insurer if:
                     (A)  a covered service is not provided to the
  service contract holder by the provider before the 61st [not later
  than the 60th] day after the date of proof of loss; or
                     (B)  a refund or credit is not paid before the 46th
  day after the date on which the contract is canceled [returned to
  the provider] under Section 1304.1581 [1304.158]; and
               (3)  contain a statement substantially similar to the
  following: "Obligations of the provider under this service
  contract are insured under a service contract reimbursement
  insurance policy."
         SECTION 1.14.  Subchapter D, Chapter 1304, Occupations Code,
  is amended by adding Section 1304.1581 to read as follows:
         Sec. 1304.1581.  CANCELLATION BY SERVICE CONTRACT HOLDER;
  REFUND. (a)  A service contract must allow the service contract
  holder to cancel the service contract at any time.
         (b)  If a service contract holder cancels a service contract
  before the 31st day after the date of purchase, the provider:
               (1)  shall refund to the service contract holder or
  credit to the account of the service contract holder the full
  purchase price of the contract, decreased by the amount of any
  claims paid under the contract; and
               (2)  may not impose a cancellation fee.
         (c)  If a service contract holder cancels a service contract
  on or after the 31st day after the date of purchase, the provider:
               (1)  shall refund to the service contract holder or
  credit to the account of the service contract holder the prorated
  purchase price of the contract reflecting the remaining term of the
  contract, based on mileage, time, or another reasonably applicable
  measure of the remaining term that must be disclosed in the
  contract, decreased by the amount of any claims paid under the
  contract; and
               (2)  may impose a reasonable cancellation fee not to
  exceed $50.
         (d)  A provider may allow a service contract holder to cancel
  a service contract on other terms included in the contract,
  provided the terms do not conflict with this section.
         (e)  A provider who does not pay the refund or credit the
  service contract holder's account before the 46th day after the
  date notice of cancellation is received by the provider is liable to
  the service contract holder for a penalty for each month an amount
  remains outstanding equal to 10 percent of the amount outstanding.
  The penalty is in addition to the full or prorated purchase price of
  the contract that is owed to the service contract holder under this
  section or the terms of the contract.
         (f)  The right to cancel a service contract is not
  transferable to a subsequent holder of the contract.
         SECTION 1.15.  The heading to Section 1304.159, Occupations
  Code, is amended to read as follows:
         Sec. 1304.159.  CANCELLATION BY PROVIDER; REFUND [CANCELING
  A SERVICE CONTRACT].
         SECTION 1.16.  Section 1304.159, Occupations Code, is
  amended by amending Subsection (b) and adding Subsection (c) to
  read as follows:
         (b)  The provider is not required to provide prior notice of
  cancellation if the service contract is canceled because of:
               (1)  nonpayment of the consideration for the contract;
               (2)  fraud or a material misrepresentation by the
  service contract holder to the provider or the provider's
  administrator; or
               (3)  a substantial breach of a duty by the service
  contract holder relating to the covered product or its use.
         (c)  A service contract holder whose contract is canceled by
  the provider in accordance with this section is entitled to a
  prorated refund of the purchase price of the contract reflecting
  the remaining term of the contract, based on mileage, time, or
  another reasonably applicable measure of the remaining term that
  must be disclosed in the contract, decreased by the amount of any
  claims paid under the contract. A provider who cancels a contract
  under this section may not impose a cancellation fee.
         SECTION 1.17.  Section 1304.161, Occupations Code, is
  amended to read as follows:
         Sec. 1304.161.  [MISLEADING STATEMENTS] PROHIBITED ACTS.
  (a)  A provider, administrator, seller, or other [or the
  provider's] representative of the provider may not, in the
  provider's service contracts or literature or in any written
  communication:
               (1)  make, permit, or cause to be made any false,
  deceptive, or misleading statement; or
               (2)  deliberately omit a material statement if the
  omission would be considered misleading.
         (b)  A person, including a bank, a savings and loan
  association, a lending institution, or the manufacturer or seller
  of a product, may not require the purchase of a service contract as
  a condition of a loan or the sale of property.
         (c)  A provider, administrator, seller, or other
  representative of the provider may not make a telemarketing call to
  a consumer as provided by Sections 304.002 and 304.003, Business &
  Commerce Code, unless the provider, administrator, seller, or
  representative has an established business relationship, as
  defined by Section 304.002, Business & Commerce Code, with the
  consumer.
         SECTION 1.18.  Section 1304.201, Occupations Code, is
  amended to read as follows:
         Sec. 1304.201.  DISCIPLINARY ACTION. [(a)]  On a finding
  that a ground for disciplinary action exists under this chapter,
  the commission or executive director may impose an administrative
  sanction or[, including an] administrative penalty or seek a civil
  penalty or any other remedy as provided by this chapter and
  [Subchapter F,] Chapter 51.
         SECTION 1.19.  Subchapter E, Chapter 1304, Occupations Code,
  is amended by adding Section 1304.205 to read as follows:
         Sec. 1304.205.  REMEDY FOR SERVICE CONTRACT HOLDERS.
  (a)  If the commission by order, including an agreed order,
  determines that a person has operated as a provider or
  administrator in this state without holding the appropriate
  registration under this chapter, the person shall offer to a
  service contract holder who holds a service contract sold or issued
  by the person during the period that the person was not registered
  under this chapter the right to:
               (1)  cancel the contract and obtain a refund of the full
  purchase price of the contract; or
               (2)  retain the contract.
         (b)  If a seller fails to process a service contract
  application or a payment from a consumer in accordance with this
  chapter and any sales agreement or contract between the provider
  and the seller, the commission or executive director may, by
  commission order, including an agreed order, require the seller to
  refund the full purchase price of the contract to the consumer.
         (c)  The remedies described in this section are in addition
  to any administrative penalty, administrative sanction, civil
  penalty, or other disciplinary or enforcement action sought under
  this chapter or Chapter 51.
         SECTION 1.20.  (a)  On the effective date of this Act, the
  following provisions of the Occupations Code are repealed:
               (1)  Section 1304.006; and
               (2)  Subsection (d), Section 1304.102.
         (b)  On January 1, 2012, the following provisions of the
  Occupations Code are repealed:
               (1)  Section 1304.157; and
               (2)  Section 1304.158.
         SECTION 1.21.  (a)  Not later than April 1, 2012, the Texas
  Commission of Licensing and Regulation shall adopt rules necessary
  to implement Chapter 1304, Occupations Code, as amended by this
  Act.
         (b)  Sections 1304.102 and 1304.1025, Occupations Code, as
  amended by this Act, apply only to an application for a registration
  or renewal of a registration filed with the Texas Department of
  Licensing and Regulation on or after the effective date of this Act.
  An application filed before that date is governed by the law in
  effect on the date the application was filed, and the former law is
  continued in effect for that purpose.
         (c)  Sections 1304.156 and 1304.159, Occupations Code, as
  amended by this Act, and Section 1304.1581, Occupations Code, as
  added by this Act, apply only to a service contract sold or issued
  on or after January 1, 2012. A service contract sold or issued
  before that date is governed by the law in effect on the date the
  contract was sold or issued, and the former law is continued in
  effect for that purpose.
         (d)  Notwithstanding Subsection (c) of this section, a
  service contract sold or issued before January 1, 2012, may not be
  extended or renewed at the end of the service contract term unless
  the contract complies with Sections 1304.156 and 1304.159,
  Occupations Code, as amended by this Act, and Section 1304.1581,
  Occupations Code, as added by this Act.
         (e)  Section 1304.201, Occupations Code, as amended by this
  Act, applies only to a disciplinary action initiated by the Texas
  Department of Licensing and Regulation on or after the effective
  date of this Act. An action initiated before the effective date of
  this Act is governed by the law in effect on the date the action was
  initiated, and the former law is continued in effect for that
  purpose.
         (f)  Section 1304.205, Occupations Code, as added by this
  Act, applies only to an act or omission of a person operating as a
  provider, administrator, or seller of a service contract that
  occurs on or after the effective date of this Act. An act or
  omission that occurs before that date is governed by the law in
  effect on the date the act or omission occurred, and the former law
  is continued in effect for that purpose.
  ARTICLE 2.  IDENTITY RECOVERY SERVICE CONTRACTS
         SECTION 2.01.  Section 1306.002, Occupations Code, is
  amended by adding Subdivision (11) to read as follows:
               (11)  "Seller" means a person, other than the provider
  or administrator of an identity recovery service contract, who
  markets, sells, offers to sell, negotiates, or issues an identity
  recovery service contract to a consumer on behalf of a provider, but
  who is not contractually obligated to a service contract holder
  under the terms of an identity recovery service contract.
         SECTION 2.02.  Chapter 1306, Occupations Code, is amended by
  adding Subchapter A-1 to read as follows:
  SUBCHAPTER A-1. POWERS AND DUTIES OF DEPARTMENT
  AND COMMISSION
         Sec. 1306.022.  RULES. The commission shall adopt rules
  necessary to implement and administer this chapter.
         SECTION 2.03.  Section 1306.008, Occupations Code, is
  transferred to Subchapter A-1, Chapter 1306, Occupations Code, as
  added by this Act, redesignated as Section 1306.021, Occupations
  Code, and amended to read as follows:
         Sec. 1306.021 [1306.008].  GENERAL INVESTIGATIVE POWER OF
  EXECUTIVE DIRECTOR. (a)  The executive director may investigate a
  provider, administrator, seller, or other person as necessary to
  enforce this chapter and protect identity recovery service contract
  holders in this state.
         (b)  On request of the executive director, a provider shall
  make the records required by Section 1306.105 available to the
  executive director as necessary to enable the executive director to
  reasonably determine compliance with this chapter.
         SECTION 2.04.  Section 1306.051, Occupations Code, is
  amended by amending Subsections (a) and (b) and adding Subsection
  (d) to read as follows:
         (a)  A person may not operate as a provider or administrator
  of identity recovery service contracts sold or issued in this state
  unless the person is registered with the department.
         (b)  Except for the registration requirement of this chapter
  [subchapter], a provider, [identity recovery service contract]
  seller, administrator, or other person who markets, sells, issues,
  or offers to sell identity recovery service contracts is exempt
  from any licensing requirement of this state that relates to an
  activity regulated under this chapter.
         (d)  A provider or administrator may not contract with or use
  the services of a person to perform an activity that requires
  registration with the department as a provider or administrator
  unless that person is appropriately registered.
         SECTION 2.05.  Subsection (c), Section 1306.052,
  Occupations Code, is amended to read as follows:
         (c)  The department may refuse to issue or renew a
  registration, suspend or revoke a registration, or take any other
  disciplinary action under Subchapter D if the applicant or a
  controlling person of the applicant:
               (1)  has violated this chapter or a rule adopted or
  order issued by the commission or executive director under this
  chapter;
               (2)  has made a material misrepresentation or false
  statement in an application or in any document accompanying an
  application;
               (3)  has had a license issued under Title 13, Insurance
  Code, revoked as provided by that code; or
               (4)  has had a license or registration as a provider,
  administrator, or seller revoked in this state or another state.
         SECTION 2.06.  Subsection (a), Section 1306.053,
  Occupations Code, is amended to read as follows:
         (a)  In addition to the requirements of Section 1306.052, an
  applicant for issuance or renewal of a provider registration must
  file with the application:
               (1)  the reimbursement insurance policy required by
  Section 1306.102, if the provider is using a reimbursement
  insurance policy to meet the financial security requirements of
  Section 1306.101; [and]
               (2)  the financial security deposit and the
  documentation required by the department demonstrating adequate
  funding of the reserve account, if the provider is using a funded
  reserve account and financial security deposit to meet the
  financial security requirements of Section 1306.101;
               (3)  the proof necessary to demonstrate the applicant
  or its parent company maintains at least $100 million net worth, if
  the applicant is using net worth to meet the financial security
  requirements of Section 1306.101; and
               (4)  information about each controlling person of the
  applicant [a biographical affidavit,] in a form prescribed by the
  executive director[, for each controlling person of the provider].
         SECTION 2.07.  Subsections (b) and (d), Section 1306.054,
  Occupations Code, are amended to read as follows:
         (b)  To register or renew a registration, a provider or
  administrator must pay the appropriate fee.  The commission shall
  set by rule the [amounts of the registration and renewal] fees
  required to cover the costs of administering this chapter.
         (d)  The information concerning the number of identity
  recovery service contracts sold or issued by a provider that is
  submitted under Subsection (c)[:
               [(1)]  is a trade secret to which Section 552.110,
  Government Code, applies[; and
               [(2)     may be used only by the executive director and the
  department for the purposes of this section].
         SECTION 2.08.  The heading to Subchapter C, Chapter 1306,
  Occupations Code, is amended to read as follows:
  SUBCHAPTER C.  PRACTICE BY IDENTITY RECOVERY SERVICE CONTRACT
  PROVIDERS, [AND] ADMINISTRATORS, AND SELLERS
         SECTION 2.09.  The heading to Section 1306.101, Occupations
  Code, is amended to read as follows:
         Sec. 1306.101.  FINANCIAL SECURITY REQUIREMENTS;
  DISTRIBUTION OF FUNDS HELD IN TRUST.
         SECTION 2.10.  Section 1306.101, Occupations Code, is
  amended by amending Subsections (a) and (b) and adding Subsection
  (f) to read as follows:
         (a)  To ensure the faithful performance of a provider's
  obligations to its identity recovery service contract holders, each
  provider must:
               (1)  insure the provider's identity recovery service
  contracts under a reimbursement insurance policy issued by an
  insurer authorized to transact insurance in this state or by a
  surplus lines insurer eligible to place coverage in this state
  under Chapter 981, Insurance Code;
               (2)  maintain a funded reserve account covering the
  provider's obligations under its identity recovery service
  contracts that are issued and outstanding in this state and place in
  trust with the executive director a financial security deposit
  consisting of:
                     (A)  [a surety bond issued by an authorized
  surety;
                     [(B)     securities of the type eligible for deposit
  by an authorized insurer in this state;
                     [(C)]  a statutory deposit of cash [or cash
  equivalents];
                     (B) [(D)]  a letter of credit issued by a
  qualified financial institution; or
                     (C)  a certificate of deposit issued by a
  qualified financial institution [(E)     another form of security
  prescribed by rules adopted by the commission]; or
               (3)  maintain, or have a parent company that maintains,
  a net worth or stockholders' equity of at least $100 million.
         (b)  If the provider ensures its obligations under
  Subsection (a)(2), the amount maintained in the reserve account may
  not be less than an amount equal to 40 percent of the gross
  consideration the provider received from consumers from the sale of
  all identity recovery service contracts issued and outstanding in
  this state, minus any claims paid. The executive director may
  review and examine the reserve account. The amount of the security
  deposit may not be less than $250,000. The provider must submit to
  the executive director on request a copy of the provider's
  financial statements that must be prepared in accordance with
  generally accepted accounting principles, be without qualification
  as to the going concern status of the provider, and be audited by an
  independent certified public accountant. The commission by rule
  may require the provider to submit additional financial reports
  [the greater of:
               [(1)  $25,000; or
               [(2)     an amount equal to five percent of the gross
  consideration the provider received from consumers from the sale of
  all identity recovery service contracts issued and outstanding in
  this state, minus any claims paid].
         (f)  In the event of a provider's bankruptcy or a similar
  event affecting the ability of the provider to faithfully perform
  its obligations to its identity recovery service contract holders,
  the executive director may distribute any funds held in trust as
  financial security for the provider under this section to eligible
  identity recovery service contract holders as payment for claims.
  The executive director must distribute the funds in an equitable
  and cost-effective manner as determined by the executive director.
         SECTION 2.11.  Subchapter C, Chapter 1306, Occupations Code,
  is amended by adding Sections 1306.1021 and 1306.1031 to read as
  follows:
         Sec. 1306.1021.  FINANCIAL SECURITY TRANSITION. (a)  In
  this section, "provider that maintained a funded reserve account"
  means a provider that, in order to ensure the faithful performance
  of the provider's obligations to identity recovery service contract
  holders, maintained a funded reserve account covering the
  provider's obligations under identity recovery service contracts
  that were issued and outstanding in this state and placed in trust
  with the executive director a financial security deposit consisting
  of:
               (1)  a surety bond issued by an authorized surety;
               (2)  securities of the type eligible for deposit by an
  authorized insurer in this state;
               (3)  a statutory deposit of cash or cash equivalents;
               (4)  a letter of credit issued by a qualified financial
  institution; or
               (5)  another form of security prescribed by commission
  rules.
         (b)  This section applies only to a provider that maintained
  a funded reserve account on August 31, 2011.
         (c)  Not later than September 1, 2012, a provider that
  maintained a funded reserve account shall submit to the executive
  director documentation that the provider is in compliance with the
  financial security requirements provided by Section 1306.101 for
  identity recovery service contracts sold or issued in this state on
  or after September 1, 2012. A provider that maintained a funded
  reserve account may not sell or issue an identity recovery service
  contract on or after September 1, 2012, unless the provider is in
  compliance with this subsection.
         (d)  A provider that maintained a funded reserve account
  shall:
               (1)  continue to maintain the funded reserve account
  and security deposit at appropriate levels for identity recovery
  service contracts that were sold or issued in this state before
  September 1, 2012, until the contracts are no longer in effect; or
               (2)  provide financial security for identity recovery
  service contracts sold or issued before September 1, 2012, by
  complying with the financial security requirements of Section
  1306.101.
         (e)  If a provider provides financial security for identity
  recovery service contracts sold or issued before September 1, 2012,
  by complying with the financial security requirements of Section
  1306.101, the provider shall give to the executive director
  satisfactory documentation that the reimbursement insurance
  policy, funded reserve account and security deposit, or net worth
  covers all outstanding identity recovery service contracts issued
  before September 1, 2012.
         (f)  An identity recovery service contract that is sold or
  issued before September 1, 2012, and is covered under a funded
  reserve account and security deposit may not be extended or renewed
  at the end of the identity recovery service contract term unless the
  provider provides financial security for those service contracts by
  complying with the financial security requirements of Section
  1306.101 before the extension or renewal.
         Sec. 1306.1031.  IDENTITY RECOVERY SERVICE CONTRACT
  SELLERS; RESPONSIBILITIES. (a)  A provider may employ or contract
  with a seller to be responsible for:
               (1)  all or any part of the sale or marketing of
  identity recovery service contracts for the provider; and
               (2)  compliance with this chapter in connection with
  the sale or marketing of identity recovery service contracts.
         (b)  The hiring of or contracting with a seller under this
  section does not affect a provider's responsibility to comply with
  this chapter.
         (c)  Unless registered as a provider or administrator, a
  seller is prohibited from engaging in activities that would require
  registration as a provider or administrator.
         (d)  A seller shall process an identity recovery service
  contract application and a payment from a consumer in accordance
  with this chapter and with any sales agreement or contract between
  the provider and the seller.
         SECTION 2.12.  Subsections (a), (b), and (d), Section
  1306.106, Occupations Code, are amended to read as follows:
         (a)  An identity recovery service contract marketed, sold,
  offered for sale, issued, made, proposed to be made, or
  administered in this state must:
               (1)  be written, printed, or typed in clear,
  understandable language that is easy to read;
               (2)  state the name and address of the provider;
               (3)  state the purchase price of the contract and the
  terms under which the contract is sold;
               (4)  state the terms and restrictions governing
  cancellation of the contract by the provider or the identity
  recovery service contract holder before the expiration date of the
  contract;
               (5)  identify:
                     (A)  any administrator and any registration
  number issued to the administrator under this chapter;
                     (B)  the [contract] seller; and
                     (C)  the identity recovery service contract
  holder, if the identity recovery service contract holder provides
  the holder's name;
               (6)  state the amount of any deductible;
               (7)  specify the services to be provided under the
  contract and any limitation, exception, or exclusion;
               (8)  specify any restriction governing the
  transferability of the contract; and
               (9)  state the duties of the identity recovery service
  contract holder, including any duty to protect against any further
  damage and any requirement to follow the instructions in the
  identity recovery service contract.
         (b)  The identity and, if applicable, registration number
  issued under this chapter of a person described by Subsection
  (a)(5) is not required to be preprinted on the identity recovery
  service contract and may be added to the contract at the time of
  sale.
         (d)  An identity recovery service contract insured under a
  reimbursement insurance policy under Section 1306.102 must:
               (1)  state the name and address of the insurer;
               (2)  state that the identity recovery service contract
  holder may apply for reimbursement directly to the insurer if:
                     (A)  a covered service is not provided to the
  identity recovery service contract holder by the provider before
  the 61st day after the date of proof of loss; or
                     (B)  a refund or credit is not paid before the 46th
  day after the date on which the contract is canceled [returned to
  the provider] under Section 1306.1081 [1306.107]; and
               (3)  contain a statement substantially similar to the
  following: "Obligations of the provider under this identity
  recovery service contract are insured under an identity recovery
  service contract reimbursement insurance policy."
         SECTION 2.13.  Subchapter C, Chapter 1306, Occupations Code,
  is amended by adding Section 1306.1081 to read as follows:
         Sec. 1306.1081.  CANCELLATION BY IDENTITY RECOVERY SERVICE
  CONTRACT HOLDER; REFUND. (a)  An identity recovery service
  contract must allow the identity recovery service contract holder
  to cancel the identity recovery service contract at any time.
         (b)  If an identity recovery service contract holder cancels
  an identity recovery service contract before the 31st day after the
  date of purchase, the provider:
               (1)  shall refund to the identity recovery service
  contract holder or credit to the account of the identity recovery
  service contract holder the full purchase price of the contract,
  decreased by the amount of any claims paid under the contract; and
               (2)  may not impose a cancellation fee.
         (c)  If an identity recovery service contract holder cancels
  an identity recovery service contract on or after the 31st day after
  the date of purchase, the provider:
               (1)  shall refund to the identity recovery service
  contract holder or credit to the account of the identity recovery
  service contract holder the prorated purchase price of the contract
  reflecting the remaining term of the contract, based on mileage,
  time, or another reasonably applicable measure of the remaining
  term that must be disclosed in the contract, decreased by the amount
  of any claims paid under the contract; and
               (2)  may impose a reasonable cancellation fee not to
  exceed $50.
         (d)  A provider may allow an identity recovery service
  contract holder to cancel an identity recovery service contract on
  other terms included in the contract, provided the terms do not
  conflict with this section.
         (e)  A provider who does not pay the refund or credit the
  identity recovery service contract holder's account before the 46th
  day after the date notice of cancellation is received by the
  provider is liable to the identity recovery service contract holder
  for a penalty for each month an amount remains outstanding equal to
  10 percent of the amount outstanding. The penalty is in addition to
  the full or prorated purchase price of the contract that is owed to
  the identity recovery service contract holder under this section or
  the terms of the contract.
         (f)  The right to cancel an identity recovery service
  contract is not transferable to a subsequent holder of the
  contract.
         SECTION 2.14.  The heading to Section 1306.109, Occupations
  Code, is amended to read as follows:
         Sec. 1306.109.  CANCELLATION BY A PROVIDER; REFUND 
  [CANCELING AN IDENTITY RECOVERY SERVICE CONTRACT].
         SECTION 2.15.  Section 1306.109, Occupations Code, is
  amended by amending Subsection (b) and adding Subsection (c) to
  read as follows:
         (b)  The provider is not required to provide prior notice of
  cancellation if the identity recovery service contract is canceled
  because of:
               (1)  nonpayment of the consideration for the contract;
               (2)  fraud or a material misrepresentation by the
  identity recovery service contract holder to the provider or the
  provider's administrator; or
               (3)  a substantial breach of a duty by the identity
  recovery service contract holder.
         (c)  An identity recovery service contract holder whose
  contract is canceled by the provider in accordance with this
  section is entitled to a prorated refund of the purchase price of
  the contract reflecting the remaining term of the contract, based
  on mileage, time, or another reasonably applicable measure of the
  remaining term that must be disclosed in the contract, decreased by
  the amount of any claims paid under the contract. A provider who
  cancels a contract under this section may not impose a cancellation
  fee.
         SECTION 2.16.  Section 1306.111, Occupations Code, is
  amended to read as follows:
         Sec. 1306.111.  [MISLEADING STATEMENTS] PROHIBITED ACTS.
  (a)  A provider, administrator, seller, or other [or the
  provider's] representative of the provider may not, in the
  provider's identity recovery service contracts or literature or in
  any written communication:
               (1)  make, permit, or cause to be made any false,
  deceptive, or misleading statement; or
               (2)  deliberately omit a material statement if the
  omission would be considered misleading.
         (b)  A person regulated by Chapter 2301 may not require the
  purchase of an identity recovery service contract as a condition of
  a loan or the sale of a vehicle.
         (c)  A provider, administrator, seller, or other
  representative of the provider may not make a telemarketing call to
  a consumer as provided by Sections 304.002 and 304.003, Business &
  Commerce Code, unless the provider, administrator, seller, or
  representative has an established business relationship, as
  defined by Section 304.002, Business & Commerce Code, with the
  consumer.
         SECTION 2.17.  Section 1306.151, Occupations Code, is
  amended to read as follows:
         Sec. 1306.151.  DISCIPLINARY ACTION. On a finding that a
  ground for disciplinary action exists under this chapter, the
  commission or executive director may impose an administrative
  sanction or[, including an] administrative penalty or seek a civil
  penalty or any other remedy as provided by this chapter and 
  [Subchapter F,] Chapter 51.
         SECTION 2.18.  Subchapter D, Chapter 1306, Occupations Code,
  is amended by adding Section 1306.155 to read as follows:
         Sec. 1306.155.  REMEDY FOR IDENTITY RECOVERY SERVICE
  CONTRACT HOLDERS.  (a)  If the commission by order, including an
  agreed order, determines that a person has operated as a provider or
  administrator in this state without holding the appropriate
  registration under this chapter, the person shall offer to an
  identity recovery service contract holder who holds an identity
  recovery service contract sold or issued by the person during the
  period that the person was not registered under this chapter the
  right to:
               (1)  cancel the contract and obtain a refund of the full
  purchase price of the contract; or
               (2)  retain the contract.
         (b)  If a seller fails to process an identity recovery
  service contract application or a payment from a consumer in
  accordance with this chapter and any sales agreement or contract
  between the provider and the seller, the commission or executive
  director may, by commission order, including an agreed order,
  require the seller to refund the full purchase price of the contract
  to the consumer.
         (c)  The remedies described in this section are in addition
  to any administrative penalty, administrative sanction, civil
  penalty, or other disciplinary or enforcement action sought under
  this chapter or Chapter 51.
         SECTION 2.19.  (a)  On the effective date of this Act, the
  following provisions of the Occupations Code are repealed:
               (1)  Section 1306.007; and
               (2)  Subsection (d), Section 1306.052.
         (b)  On January 1, 2012, the following provisions of the
  Occupations Code are repealed:
               (1)  Section 1306.107; and
               (2)  Section 1306.108.
         SECTION 2.20.  (a)  Not later than April 1, 2012, the Texas
  Commission of Licensing and Regulation shall adopt rules necessary
  to implement Chapter 1306, Occupations Code, as amended by this
  Act.
         (b)  Sections 1306.052 and 1306.053, Occupations Code, as
  amended by this Act, apply only to an application for a registration
  or renewal of a registration filed with the Texas Department of
  Licensing and Regulation on or after the effective date of this Act.
  An application filed before that date is governed by the law in
  effect on the date the application was filed, and the former law is
  continued in effect for that purpose.
         (c)  Sections 1306.106 and 1306.109, Occupations Code, as
  amended by this Act, and Section 1306.1081, Occupations Code, as
  added by this Act, apply only to an identity recovery service
  contract sold or issued on or after January 1, 2012. An identity
  recovery service contract sold or issued before that date is
  governed by the law in effect on the date the contract was sold or
  issued, and the former law is continued in effect for that purpose.
         (d)  Notwithstanding Subsection (c) of this section, an
  identity recovery service contract sold or issued before January 1,
  2012, may not be extended or renewed at the end of the contract term
  unless the contract complies with Sections 1306.106 and 1306.109,
  Occupations Code, as amended by this Act, and Section 1306.1081,
  Occupations Code, as added by this Act.
         (e)  Section 1306.151, Occupations Code, as amended by this
  Act, applies only to a disciplinary action initiated by the Texas
  Department of Licensing and Regulation on or after the effective
  date of this Act. An action initiated before the effective date of
  this Act is governed by the law in effect on the date the action was
  initiated, and the former law is continued in effect for that
  purpose.
         (f)  Section 1306.155, Occupations Code, as added by this
  Act, applies only to an act or omission of a person operating as a
  provider, administrator, or seller of an identity recovery service
  contract that occurs on or after the effective date of this Act. An
  act or omission that occurs before that date is governed by the law
  in effect on the date the act or omission occurred, and the former
  law is continued in effect for that purpose.
  ARTICLE 3. EFFECTIVE DATE
         SECTION 3.01.  This Act takes effect September 1, 2011.
 
 
 
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
         I hereby certify that S.B. No. 1169 passed the Senate on
  April 21, 2011, by the following vote: Yeas 31, Nays 0; and that
  the Senate concurred in House amendment on May 25, 2011, by the
  following vote: Yeas 31, Nays 0.
 
 
  ______________________________
  Secretary of the Senate    
 
         I hereby certify that S.B. No. 1169 passed the House, with
  amendment, on May 23, 2011, by the following vote: Yeas 142,
  Nays 0, one present not voting.
 
 
  ______________________________
  Chief Clerk of the House   
 
 
 
  Approved:
 
  ______________________________ 
              Date
 
 
  ______________________________ 
            Governor
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