Chapter
393. Credit Services Organizations
§ 393.001. Definitions
In this chapter:
(1) "Consumer" means an individual who is solicited to purchase or who purchases the services of a credit services organization.
(2) "Consumer reporting agency" has the meaning assigned
by Section 603(f), Fair Credit Reporting Act (15 U.S.C. Section 1681a(f)).
(3) "Credit services organization" means a person who
provides, or represents that the person can or will provide, for the payment of
valuable consideration any of the following services with respect to the
extension of consumer credit by others:
(A) improving a consumer's
credit history or rating;
(B)
obtaining an extension of consumer credit for a consumer; or
(C) providing advice or
assistance to a consumer with regard to Paragraph (A) or (B).
(4) "Extension of consumer credit" means the right to
defer payment of debt offered or granted primarily for personal, family, or
household purposes or to incur the debt and defer its payment.
§ 393.002. Persons Not
Covered
(a) This chapter does not apply to:
(1) a person:
(A) authorized to make a loan or grant an extension of consumer
credit under the laws of this state or the
(B) subject to regulation and supervision by this state or the
(2) a lender approved by the United States secretary of housing
and urban development for participation in a mortgage insurance program under
the National Housing Act (12 U.S.C. Section 1701 et seq.);
(3) a bank or savings association the deposits or accounts of
which are eligible to be insured by the Federal Deposit Insurance Corporation
or a subsidiary of the bank or association;
(4) a credit union doing
business in this state;
(5) a nonprofit organization
exempt from taxation under Section 501(c)(3), Internal Revenue Code of 1986 (26 U.S.C. Section 501(c)(3));
(6) a real estate broker or
salesperson licensed under Chapter 1101, Occupations Code,
who is acting within the course and scope of that license;
(7) an individual licensed to
practice law in this state who is acting within the course and scope of the
individual's practice as an attorney;
(8) a broker-dealer registered
with the Securities and Exchange Commission or the Commodity Futures Trading
Commission acting within the course and scope of that regulation;
(9) a consumer reporting
agency;
(10) a person whose primary
business is making loans secured by liens on real property;
(11) a mortgage broker or loan
officer licensed under Chapter 156, Finance Code, who is acting within the
course and scope of that license; or
(12) an electronic return
originator who:
(A) is an authorized Internal
Revenue Service e-file provider; and
(B) makes, negotiates, arranges
for, or transacts a loan that is based on a person's federal income tax refund
on behalf of a bank, savings bank, savings and loan association, or credit
union.
(b) In an action under this chapter, a person claiming an
exemption under this section has the burden of proving the exemption.
§ 393.003. Waiver Void
A waiver of a provision of this chapter by a consumer is void.
[Sections 393.004 to
393.100 reserved for expansion]
[Sections 393.004 to
393.100 reserved for expansion]
Subchapter B. Registration and Disclosure
Statements
§ 393.101. Registration
Statement
(a) Before conducting business in this state, a credit services
organization shall register with the secretary of state by filing a statement
that:
(1) contains the name and address of:
(B) each person who directly or
indirectly owns or controls at least 10 percent of the outstanding shares of
stock in the organization; and
(2) fully discloses any litigation or unresolved complaint
relating to the operation of the organization filed with a governmental
authority of this state or contains a notarized statement that there has been
no litigation or unresolved complaint of that type.
(b) The organization shall keep a copy of the registration
statement in its files.
(c) The secretary of state may not require an organization to
provide information other than information contained in the registration
statement.
(d) A registration
certificate expires on the first anniversary of its date of issuance. A
registered credit services organization may renew a registration certificate by
filing a renewal application, in the form prescribed by the secretary of state,
and paying the renewal fee.
§ 393.102. Update of
Registration Statement
A credit services organization shall update information contained
in the registration statement not later than the 90th day after the date on
which the information changes.
§ 393.103. Inspection
of Registration Statement
A credit services organization shall allow a consumer to inspect
the registration statement on request.
§ 393.104. Filing Fee
The secretary of state may charge a credit services organization a
reasonable fee to cover the cost of filing a registration statement or renewal
application in an amount not to exceed $100.
§ 393.105. Disclosure
Statement
Before executing a contract with a consumer or receiving valuable
consideration from a consumer, a credit services organization shall provide the
consumer with a document containing:
(1) a complete and detailed description of the services to be performed by the organization for the consumer and the total cost of those services;
(2) an explanation of the consumer's right to proceed against the
surety bond or account obtained under Section 393.302;
(3) the name and address of the
surety company that issued the surety bond or the name and address of the
depository and the trustee and the account number of the surety account, as
appropriate;
(4) a
complete and accurate statement of the consumer's right to review information
on the consumer maintained in a file by a consumer reporting agency, as
provided by the Fair Credit Reporting Act (15 U.S.C. Section 1681 et seq.);
(5) a
statement that information in the consumer's file is available for review:
(A) without charge on request
made to the consumer reporting agency not later than the 30th day after the
date on which the agency receives notice the consumer has been denied credit;
and
(B) for a minimal charge at any
other time;
(6) a
complete and accurate statement of the consumer's right to dispute directly
with a consumer reporting agency the completeness or accuracy of an item
contained in the consumer's file maintained by the agency;
(7) a
statement that accurate information cannot be permanently removed from the
files of a consumer reporting agency;
(8) a
complete and accurate statement explaining:
(A) when consumer information
becomes obsolete; and
(B) that a consumer reporting
agency is prevented from issuing a report containing obsolete information; and
(9) a
complete and accurate statement of the availability of nonprofit credit
counseling services.
§ 393.106. Copy of
Disclosure Statement
A credit services organization shall keep in its files a copy of a
document required under Section 393.105,
signed by the consumer, acknowledging receipt, until the second anniversary of
the date on which the organization provides the document.
[Sections 393.107 to
393.200 reserved for expansion]
[Sections 393.107 to
393.200 reserved for expansion]
Subchapter C. Contract for Services
§ 393.201. Form and
Terms of Contract
(a) Each contract for the purchase of the services of a credit
services organization by a consumer must be in writing, dated, and signed by
the consumer.
(b) In addition to the notice required by Section 393.202,
the contract must:
(1) contain the payment terms, including the total payments to be made by the consumer, whether to the organization or to another person;
(2) fully describe the services
the organization is to perform for the consumer, including each guarantee and
each promise of a full or partial refund and the estimated period for
performing the services, not to exceed 180 days;
(3) contain the address of the
organization's principal place of business; and
(4) contain the name and
address of the organization's agent in this state authorized
to receive service of process.
§ 393.202. Notice of
Cancellation
(a) The contract must conspicuously state the following, in type
that is boldfaced, capitalized, underlined, or otherwise distinguished from the
surrounding written material and in immediate proximity to the space reserved
for the consumer's signature: "You, the buyer, may cancel this contract at
any time before midnight of the third day after the date of the transaction.
See the attached notice of cancellation form for an explanation of this
right."
(b) The contract must have attached two easily detachable copies
of a cancellation notice. The notice must be in boldfaced type and in the
following form:
You may cancel this contract, without any penalty or obligation, within three days after the date the contract is signed.
"Notice of Cancellation
If you cancel, any payment made by you under this contract will be returned within 10 days after the date of receipt by the seller of your cancellation notice.
To cancel this contract, mail or deliver a signed dated copy of
this cancellation notice, or other written notice, to:
(name of seller) at (address of seller) (place of business) not
later than midnight (date)
I hereby cancel this transaction.
(date)
(purchaser's signature)"
§ 393.203. Issuance of
Contract and Other Documents
A credit services organization shall give to the consumer, when
the document is signed, a copy of the completed contract and any other document
the organization requires the consumer to sign.
§ 393.204. Breach of
Contract
The breach by a credit services organization of a contract under
this chapter, or of an obligation arising from a contract under this chapter,
is a violation of this chapter.
[Sections 393.205 to
393.300 reserved for expansion]
[Sections 393.205 to
393.300 reserved for expansion]
Subchapter D. Prohibitions and Restrictions
§ 393.301.
Representative
In this subchapter, a representative of a credit services
organization includes:
(1) a salesperson, agent, or other representative of the organization; and
(2) an independent contractor who sells or attempts to sell the
services of the organization.
§ 393.302. Charge or
Receipt of Consideration Before Completion of Services
A credit services organization or a representative of the
organization may charge or receive from a consumer valuable consideration
before completely performing all the services the organization has agreed to
perform for the consumer only if the organization has obtained a surety bond
for each of its locations or established and maintained a surety account for
each of its locations in accordance with Subchapter E [FN1].
[FN1] V.T.C.A., Finance Code § 393.401 et seq.
§ 393.303. Charge or
Receipt of Consideration for Referral
A credit services organization or a representative of the
organization may not charge or receive from a consumer valuable consideration
solely for referring the consumer to a retail seller who will or may extend to
the consumer credit that is substantially the same as that available to the
public.
§ 393.304. False or
Misleading Representation or Statement
A credit services organization or a representative of the
organization may not:
(1) make or use a false or misleading representation in the offer or sale of the services of the organization, including:
(A) guaranteeing to "erase
bad credit" or words to that effect unless the representation clearly
discloses this can be done only if the credit history is inaccurate or
obsolete; and
(B) guaranteeing an extension
of consumer credit regardless of the person's credit history unless the
representation clearly discloses the eligibility requirements for obtaining the
extension; or
(2) make, or advise a consumer to make, a statement relating to a
consumer's credit worthiness, credit standing, or credit capacity that the
person knows, or should know by the exercise of reasonable care, to be false or
misleading to a:
(A) consumer reporting agency;
or
(B) person who has extended
consumer credit to a consumer or to whom a consumer is
applying for an extension of consumer credit.
§ 393.305. Fraudulent
or Deceptive Conduct
A credit services organization or a representative of the
organization may not directly or indirectly engage in a fraudulent or deceptive
act, practice, or course of business relating to the offer or sale of the
services of the organization.
§ 393.306. Advertising
Services Without Filing Registration Statement
A credit services organization or a representative of the
organization may not advertise the services of the organization if the
organization has not filed a registration statement required by Subchapter B.
[FN1]
[FN1] V.T.C.A., Finance Code § 393.101 et seq.
§ 393.307. Causing
Waiver Prohibited
A credit services organization may not attempt to cause a consumer
to waive a right under this chapter.
[Sections 393.308 to
393.400 reserved for expansion]
[Sections 393.308 to
393.400 reserved for expansion]
Subchapter E. Surety Bond; Surety Account
§ 393.401. Surety Bond
(a) The surety bond of a credit services organization must be
issued by a surety company authorized to do business in this state.
(b) A copy of the bond shall be filed with the secretary of state.
§ 393.402. Surety
Account
(a) The surety account of a credit services organization must be
held in trust at a federally insured bank or savings association located in
this state.
(b) The name of the depository and the trustee and the account
number of the surety account must be filed with the secretary of state.
§ 393.403. Amount of
Surety Bond or Account
The surety bond or account of a credit services organization must
be in the amount of $10,000.
§ 393.404. Beneficiary
of Surety Bond or Account
The surety bond or account of a credit services organization must
be in favor of:
(1) this state for the benefit of a person damaged by a violation of this chapter; and
(2) a person damaged by a
violation of this chapter.
§ 393.405. Claim
Against Surety Bond or Account
(a) A person making a claim against a surety bond or account of a
credit services organization for a violation of this chapter may file suit
against:
(1) the organization; and
(2) the surety or trustee.
(b) A surety or trustee is liable only for actual damages,
reasonable attorney's fees, and court costs awarded under Section 393.503(a).
(c) The aggregate liability of a surety or trustee for an
organization's violation of this chapter may not exceed the amount of the
surety bond or account.
§ 393.406. Term of
Surety Bond or Account
The surety bond or account of a credit services organization must
be maintained until the second anniversary of the date on which the
organization ceases operations.
§ 393.407. Payment of
Money in Surety Account to Credit Services Organization
(a) A depository may not pay money in a surety account to the
credit services organization that established the account or a representative
of the organization unless the organization or representative presents a
statement issued by the secretary of state indicating that the requirement of Section 393.406 has been satisfied in relation to the account.
(b) The secretary of state may conduct an investigation and
require information to be submitted as necessary to enforce this section.
[Sections 393.408 to
393.500 reserved for expansion]
[Sections 393.408 to
393.500 reserved for expansion]
Subchapter F. Criminal Penalties and Civil
Remedies
§ 393.501. Criminal
Penalty
(a) A person commits an offense if the person violates this
chapter.
(b) An offense under this chapter is a Class B misdemeanor.
§ 393.502. Injunctive
Relief
A district court on the application of the attorney general or a
consumer may enjoin a violation of this chapter.
§ 393.503. Damages
(a) A consumer injured by a violation of this chapter is entitled
to recover:
(1) actual damages in an amount not less than the amount the consumer paid the credit services organization;
(2) reasonable attorney's fees;
and
(b) A consumer who prevails in an action under this section may
also be awarded punitive damages.
§ 393.504. Deceptive
Trade Practice
A violation of this chapter is a deceptive trade practice
actionable under Subchapter E, Chapter 17, Business & Commerce Code. [FN1]
[FN1] V.T.C.A., Business and Commerce Code § 17.41 et seq.
§ 393.505. Statute of
Limitations
An action under Section 393.503 or 393.504 must be
brought not later than the fourth anniversary of the date on which the contract
to which the action relates is executed.
Current through Chapters effective immediately through Ch. 89 of
the 2007 Regular Session of the 80th Legislature
END OF DOCUMENT
Case Law
I identified one significant cases
construing the Act.
In re Zuniga, 332 B.R. 760 (Bkrtcy. S.D.
In re Zuniga, 332 B.R. 760 (Bkrtcy. S.D.
S.D.
In re Martha Lidia ZUNIGA,
Debtor.
Background: Chapter 7 trustee filed motion to show cause asking that court
inquire into relationship among credit counseling firm,
Holdings: The Bankruptcy Court, Jeff Bohm, J.,
held that:
(1) both California attorney and
local counsel failed to disclose credit counseling firm's involvement in
procuring and transferring debtor's $1,199.00 fee to California law firm, and
they failed to accurately disclose that compensation, in violation of the
Bankruptcy Code and rules;
(2) debtor's mailing list did not
comply with the local bankruptcy rules;
(3) both attorneys violated the
local federal rules by practicing in the Southern District of Texas without
having been admitted to practice in the district;
(4) by filing the bankruptcy
petition, both attorneys made an appearance before the court, and so were
governed by the Texas Disciplinary Rules;
(5) under Texas law, California
attorney and his firm engaged in the unauthorized practice of law;
(6) under Texas law, local counsel
engaged in the unauthorized practice of law;
(7) neither attorney kept debtor
reasonably informed about the status of her bankruptcy nor about the bankruptcy
process, as required by the Texas Disciplinary Rules;
(8) the fee received by both
attorneys was unreasonable;
(9) both attorneys violated the
Texas Disciplinary Rule requiring candor toward the tribunal;
(10) both attorneys violated the
Texas Disciplinary Rule prohibiting lawyers from making false or misleading
communications concerning services;
(11) credit counseling firm engaged
in the unauthorized practice of law;
(12) credit counseling firm
violated the Credit Repair Organizations Act;
(13) as sanctions, local counsel
would be ordered to disgorge the $500.00 fee paid to him by California counsel
and debtor, and to pay the sum of $5,000.00 to the court; and
(14) as sanctions, California
attorney and his firm would be ordered to disgorge the $699.00 fee paid to them
by debtor, to pay debtor $136.00 for lost income and $40.00 for expenses, to
pay trustee $2,022.94 for attorneys fees and expenses, and to pay the sum of
$2,500.00 to the court.
Motion granted; requested relief granted.
[1] KeyCite Notes
45 Attorney and
Client
45I The Office
of Attorney
45I(B) Privileges,
Disabilities, and Liabilities
45k32 Regulation of Professional Conduct, in General
45k32(5) k.
Persons Subject to Regulations. Most Cited Cases
51 Bankruptcy KeyCite Notes
51IX Administration
51IX(A) In
General
51k3029 Employment of Professional Persons or Debtor's Officers
51k3030 k.
Attorneys. Most Cited Cases
Attorneys who practice before a bankruptcy court must not only
concern themselves with the obligations set forth in the Bankruptcy Code and
the Federal Rules of Bankruptcy Procedure, but also with application of state
ethical rules.
[2] KeyCite Notes
45 Attorney and
Client
45I The Office
of Attorney