A creditor may place collateral protection insurance only if specified credit-agreement and notice conditions are met, and must send required notices within set time limits.
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.