Oliverson Bill Licenses Early-Pay Apps, Shields Them From Lending Law

The text as introduced · 4,653 words

89R8609 PRL-F

By: Oliverson
H.B. No. 5462

A BILL TO BE ENTITLED

AN ACT

relating to the regulation of earned income access providers and

earned income access transactions; requiring an occupational

license; authorizing fees; providing an administrative penalty;

creating a criminal offense.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 14.107, Finance Code, is amended to read

as follows:

Sec. 14.107. FEES. (a) The finance commission shall

establish reasonable and necessary fees for carrying out the

commissioner's powers and duties under this chapter, Title 4,

Chapter 393 with respect to a credit access business, and Chapters

371, 392, [ and ] 394 , and 398 and under Chapters 51, 302, 601, and

621, Business & Commerce Code.

(b) The finance commission by rule shall set the fees for

licensing and examination, as applicable, under Chapter 393 with

respect to a credit access business or Chapter 342, 347, 348, 351,

353, [ or ] 371 , or 398 at amounts or rates necessary to recover the

costs of administering those chapters. The rules may provide that

the amount of a fee charged to a license holder is based on the

volume of the license holder's regulated business and other key

factors. The commissioner may provide for collection of a single

fee for the term of the license from a person licensed under

Subchapter G of Chapter 393 or Chapter 342, 347, 348, 351, or 371.

The fee must include amounts due for both licensing and

examination.

SECTION 2. Section 14.112(a), Finance Code, is amended to

read as follows:

(a) The finance commission by rule shall prescribe the

licensing or registration period for licenses and registrations

issued under Chapters 342, 345, 347, 348, 351, 352, 353, 371, 393,

[ and ] 394 , and 398 of this code and Chapter 1956, Occupations Code,

not to exceed two years.

SECTION 3. Section 14.201, Finance Code, is amended to read

as follows:

Sec. 14.201. INVESTIGATION AND ENFORCEMENT AUTHORITY.

Investigative and enforcement authority under this subchapter

applies only to:

(1) this chapter;

(2) Subtitles B and C, Title 4;

(3) Chapter 393 with respect to a credit access

business;

(4) Chapter 394;

(5) Chapter 398; and

(6) [ (5) ] Subchapter B, Chapter 1956, Occupations

Code.

SECTION 4. Sections 14.251(a) and (b), Finance Code, are

amended to read as follows:

(a) The commissioner may assess an administrative penalty

against a person who knowingly and wilfully violates or causes a

violation of this chapter, Chapter 394, Chapter 398, or Subtitle B,

Title 4, or a rule adopted under this chapter, Chapter 394, Chapter

398, or Subtitle B, Title 4.

(b) The commissioner may order the following businesses or

other persons to pay restitution to an identifiable person:

(1) a person who violates or causes a violation of this

chapter, Chapter 394, or Subtitle B, Title 4, or a rule adopted

under this chapter, Chapter 394, or Subtitle B, Title 4;

(2) a credit access business who violates or causes a

violation of Chapter 393 or a rule adopted under Chapter 393;

(3) an earned income access provider who violates or

causes a violation of Chapter 398 or a rule adopted under Chapter

398; or

(4) [ (3) ] a person who violates or causes a violation

of Subchapter B, Chapter 1956, Occupations Code, or a rule adopted

under that subchapter.

SECTION 5. Title 5, Finance Code, is amended by adding

Chapter 398 to read as follows:

CHAPTER 398. EARNED INCOME ACCESS TRANSACTIONS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 398.001. SHORT TITLE. This chapter may be cited as the

Texas Earned Income Access Act.

Sec. 398.002. DEFINITIONS. In this chapter:

(1) "Commissioner" means the consumer credit

commissioner.

(2) "Consumer" means an individual who resides in this

state.

(3) "Debt collection activity" means:

(A) the business of collecting any debts,

directly or indirectly, owed or due another person or any debts

asserted to be owed or due another person;

(B) the business of a buyer of debts seeking to

collect the debts, directly or indirectly; or

(C) the business of a creditor collecting its own

debts if the creditor uses a name other than the creditor's own name

that would suggest or indicate that someone other than the creditor

is collecting or attempting to collect the debts.

(4) "Earned but unpaid income" means salary, wages, or

compensation that has been earned by, or has accrued to the benefit

of, a consumer for labor or services performed for or on behalf of

an obligor but has not, at the time of the payment of proceeds, been

paid to the consumer by the obligor.

(5) "Earned income access provider" or "provider"

means a person that:

(A) provides or offers to provide, on behalf of

an obligor, an earned income access transaction to a consumer

earning salary, wages, or compensation from the obligor;

(B) offers an earned income access transaction to

a consumer; or

(C) enters into an earned income access

transaction with a consumer.

(6) "Earned income access rate cap" means the limit,

established by the commissioner, on the amount that may be charged

to or received from a consumer for an earned income access

transaction, without option to the consumer.

(7) "Earned income access transaction" means a payment

of earned but unpaid income to a consumer occurring on a day other

than:

(A) the consumer's regular payday; or

(B) a regularly scheduled day on which the

obligor pays to the consumer wages or compensation that has been

earned by or has accrued to the benefit of the consumer.

(8) "Fee":

(A) means:

(i) an amount charged to a consumer by a

provider for an earned income access transaction; and

(ii) an amount received by a provider from a

consumer for an earned income access transaction; and

(B) includes an amount paid voluntarily as

described by Section 398.103(a)(11).

(9) "Finance commission" means the Finance Commission

of Texas.

(10) "Legal representative" means an executor,

administrator, trustee, conservator, receiver, or other person

appointed by a court or by trust or will to be empowered to control

the person or property of any person. The term includes a successor

to the person in accordance with the provisions of the appointment.

(11) "Nonrecourse" means, with respect to an earned

income access transaction, the unavailability of a legal cause of

action or remedy that may be brought against a consumer relating to

the transaction.

(12) "Obligor" means a person who is obligated to pay a

consumer a sum of money on an hourly, project-based, piecework, or

other basis for labor or services performed by the consumer for or

on behalf of the person. The term does not include:

(A) a customer of an obligor; or

(B) a third party, other than a person described

by Paragraph (A), that has an obligation to make a payment to a

consumer based solely on the consumer's agency relationship with

the obligor.

(13) "Proceeds" means money received by a consumer

under an earned income access transaction.

Sec. 398.003. CONTROL. (a) For purposes of this chapter, a

person has control of another person if the person has possession,

directly or indirectly, of the power to direct or cause the

direction of the management and policies of the other person

through the ownership of voting shares or in another manner.

(b) The following create a presumption that a person has

control of another person:

(1) a person's ownership of, control of, or having the

power to vote 20 percent or more of:

(A) another person's outstanding voting shares;

or

(B) the outstanding voting shares of a person

that owns, controls, or holds the power to vote 10 percent or more

of the outstanding voting shares of a person described by Paragraph

(A); or

(2) subject to Subsection (c), a person who, directly

or indirectly, could effectively shut down the operations of

another person by the person's voting activities or by authorities

that lie within the other person's established corporate governance

structure.

(c) A person is not considered to have control of another

person who is a company solely by virtue of being an officer or

director of the company.

Sec. 398.004. RULES. The finance commission may adopt

rules as necessary to implement this chapter.

SUBCHAPTER B. LICENSE REQUIREMENT

Sec. 398.051. LICENSE REQUIRED; EXEMPTION. (a) Except as

provided by Subsection (b), a person must hold a license under this

chapter to engage in the business of:

(A) providing or offering to provide, on behalf

of an obligor, an earned income access transaction to a consumer

earning a salary, wages, or compensation from the obligor;

(B) offering an earned income access transaction

to a consumer; or

(C) entering into an earned income access

transaction with a consumer.

(b) The following persons are not required to obtain a

license under Subsection (a):

(1) a bank, credit union, savings bank, or savings and

loan association organized under the laws of the United States or

under the laws of the financial institution's state of domicile;

(2) a service provider, including a payroll service

provider, whose role may include verifying available earnings, but

who is not contractually obligated to pay earned but unpaid income

as part of an earned income access transaction; or

(3) an obligor that offers a portion of salary, wages,

or compensation directly to the obligor's employees or independent

contractors before the normally scheduled pay date.

(c) An application for a license under this subchapter must:

(1) be in writing and made under oath;

(2) be filed with and in the form prescribed by the

commissioner; and

(3) be accompanied by a license fee and investigation

fee, in amounts set by finance commission rule.

(d) On filing the application, the applicant shall pay an

application fee, in an amount not to exceed $375 as determined by

the commissioner.

Sec. 398.052. APPROVAL OR DENIAL OF APPLICATION; ISSUANCE

OF LICENSE. (a) On receipt of an application and payment of the

fees under Section 398.051, the commissioner shall review the

application. Except as provided by Subsection (b), if the

commissioner determines that the application is complete, the

commissioner shall issue a license to the applicant.

(b) The commissioner may refuse to issue a license if, after

an investigation, the commissioner finds the financial condition

and responsibility, business experience, character, and general

fitness of the applicant or any person associated with the

applicant are not sufficient to command the confidence of the

public and to warrant the belief that the business will be operated

honestly and fairly within the purposes of this chapter.

(c) For the purposes of this section:

(1) an applicant that is a partnership or

unincorporated association is considered to include all the members

of the partnership or unincorporated association; and

(2) an applicant that is a corporation is considered

to include all the shareholders, officers, and directors of the

corporation.

(d) The license to engage in business at the location

specified in the application must be executed in triplicate by the

commissioner. The commissioner shall send one copy to the

applicant, file a copy with the Office of Consumer Credit

Commissioner, and file a copy with the county clerk of the county of

the location designated in the license. For purposes of this

subsection, the location specified in an application may be online.

(e) If the commissioner refuses to issue a license, the

commissioner shall:

(1) notify the applicant of the denial;

(2) return the license fee to the applicant; and

(3) retain the investigation fee to cover the costs of

investigating the applicant.

(f) A license issued under this subchapter remains in effect

until the license expires, is surrendered by the license holder, or

is revoked or suspended by the commissioner.

Sec. 398.053. LICENSE PROVISIONS AND POSTING. (a) A

license under this subchapter must state:

(1) the name and address of the license holder;

(2) if the license holder is a partnership or

association, the names of each member of the partnership or

association; and

(3) if the license holder is a corporation, the date of

the license holder's incorporation or formation and the state or

country of formation or incorporation.

(b) A license holder shall post the license in a conspicuous

place at the location of the license holder's principal office and

on the mobile application or Internet website of the license

holder.

Sec. 398.054. TRANSFER OR ASSIGNMENT OF LICENSE. A license

may not be transferred or assigned.

Sec. 398.055. GROUNDS FOR SUSPENSION OR REVOCATION OF

LICENSE; PROCEDURE. (a) The commissioner shall revoke, suspend,

or refuse to renew a license issued under this subchapter, after

notice and opportunity for a hearing, if the commissioner

determines that:

(1) the license holder has violated or failed to

comply with:

(A) this chapter;

(B) a rule adopted under this chapter; or

(C) an order issued by the commissioner under

this chapter;

(2) the license holder has been convicted of a crime

for an offense involving moral turpitude, including forgery,

embezzlement, obtaining money under false pretenses, larceny,

extortion, conspiracy to defraud, or any other similar offense;

(3) a fact or condition exists that, if it had existed

when the license holder applied for a license, would have been

grounds for denying the license; or

(4) a fact or condition exists that the commissioner

was not aware of when the license holder applied for a license and

would have been grounds for denying the license.

(b) If the commissioner revokes or suspends a license issued

under this subchapter, the commissioner shall execute in triplicate

a written order to that effect. The commissioner shall:

(1) file a copy of the order with the Office of the

Consumer Credit Commissioner;

(2) file a copy of the order with the office of the

county clerk of the county in which the principal office of the

license holder is located; and

(3) provide a copy of the order to the license holder.

(c) A hearing under this section must be held not later than

the 30th day after the date the commissioner issues the order of

suspension or revocation.

(d) If there is a substantial risk of public harm, the

commissioner may, on good cause shown and without notice and a

hearing, suspend a license issued under this subchapter for a

period not to exceed 30 days pending investigation. For purposes of

this subsection, "good cause" exists only if the license holder:

(1) has engaged in or is likely to engage in a practice

prohibited by this chapter; or

(2) engages in a dishonest or inequitable practice

that may cause substantial harm to persons afforded the protections

of this chapter.

Sec. 398.056. SURRENDER OF LICENSE. (a) A license holder

may surrender the holder's license by delivering the original

license to the commissioner along with a written or electronic

notice of surrender.

(b) The surrender of a license does not affect any civil or

criminal liability of the license holder arising from any acts or

omissions before the surrender of the license.

Sec. 398.057. REINSTATEMENT OF SUSPENDED LICENSE; ISSUANCE

OF NEW LICENSE AFTER REVOCATION. The commissioner may reinstate a

suspended license or issue a new license on application to a person

whose license has been revoked if at the time of the reinstatement

or issuance no fact or condition exists that clearly would have

justified the commissioner's denial of an original application for

the license.

Sec. 398.058. INVESTIGATION AND EXAMINATION. (a) The

commissioner may conduct an investigation as the commissioner

considers necessary to determine whether:

(1) a provider or another person has violated this

chapter; or

(2) a license holder has engaged in conduct in a manner

that would justify the revocation of the holder's license.

(b) Notwithstanding any other law, the investigation and

examination authority of the commissioner under Subchapter E,

Chapter 14, applies to an investigation conducted under this

section.

SUBCHAPTER C. DUTIES AND PROHIBITED ACTIVITIES

Sec. 398.101. COMPLIANCE REQUIREMENTS. An earned income

access provider shall:

(1) if the provider takes custody of a consumer's

earned but unpaid income before paying proceeds to the consumer,

ensure the proceeds are insured by the Federal Deposit Insurance

Corporation at the consumer's individual account level;

(2) comply with National Automated Clearing House

Association rules and ensure that when a debit is initiated to a

consumer's account for a payment and the debit is returned for

insufficient or uncollected funds, that the debit can be

reinitiated only in accordance with Section 398.103(a)(5); and

(3) comply with applicable privacy and information

security laws of this state.

Sec. 398.102. NOTICE REQUIREMENTS. (a) An earned income

access provider shall provide notice to the consumer of the costs of

earned income access transactions in accordance with rules adopted

by the finance commission. The notice must be displayed in a clear

and conspicuous manner.

(b) An earned income access provider shall provide, each

quarter, to each consumer to whom the provider has paid proceeds

during the preceding quarter written notice that contains the

following information:

(1) an itemization of transactions and costs;

(2) the total amount the consumer has paid in fees;

(3) the process for reporting complaints to the

provider and to the commissioner;

(4) definitions of terms used in the notice; and

(5) an explanation of the costs of the services

provided.

Sec. 398.103. EARNED INCOME ACCESS TRANSACTIONS. (a) An

earned income access provider may not conduct an earned income

access transaction unless:

(1) the consumer is 18 years of age or older;

(2) the transaction is a nonrecourse transaction;

(3) the provider has a reasonable basis to believe

that the total amount of the proceeds and mandatory fees associated

with the transaction does not exceed a percentage, to be set by the

commissioner, of the consumer's earned but unpaid income;

(4) the provider does not engage in debt collection

activity or retain the services of another person to engage in debt

collection activity in connection with the earned income access

transaction and does not convey the debt itself;

(5) if repayment is made by the provider through a

debit of a consumer's account, the debit is made in accordance with

rules of the finance commission;

(6) the provider charges or receives:

(A) a fee for the transaction that does not

exceed the earned income access rate cap; or

(B) no fee for the transaction;

(7) no portion of the earned but unpaid income to be

paid as part of the transaction is used before receipt by the

consumer to settle or pay down an obligation arising from a prior

earned income access transaction and no proceeds roll over or are

structured in any way to create a continuing obligation of the

consumer to the provider;

(8) the provider offers the consumer at least one

reasonable option to obtain proceeds at no additional charge to the

consumer and explains in a clear manner how to elect the no-charge

option;

(9) the provider initiates all payment of proceeds not

later than the next business day after the date on which a consumer

makes a request for funds;

(10) before a consumer enters into the transaction,

the provider gives the consumer written notice of all fees

associated with the transaction and the full potential cost of the

transaction, including any expediting fees, suggested tips, and

other potential charges a provider may impose on a consumer, and the

cost expressed as an annual percentage rate;

(11) if the provider offers a consumer the opportunity

to pay an additional amount for an earned income access transaction

voluntarily, such as a tip or donation:

(A) the provider gives written notice to the

consumer stating that payment of an additional amount is not

required in order for the consumer to receive the proceeds; and

(B) the provider offers no amount of money by:

(i) offering the consumer amount options

from which the consumer may select or pre-fill an amount in a form

used in the transaction process; or

(ii) otherwise using a transaction process

designed to require the consumer to take affirmative action to

avoid or opt out of paying the additional amount;

(12) the provider does not charge a late fee or

prepayment penalty on the transaction;

(13) the provider does not obtain a credit report or

otherwise assess credit risk of the consumer before, during, or

after the transaction, except that the provider may verify the

consumer's source of income as part of determining the amount of the

proceeds;

(14) the provider does not report on the transaction

to a consumer reporting agency at any time before, during, or after

the transaction;

(15) the provider does not require a consumer to waive

the right to class action proceedings for claims against the

provider to engage in an earned income access transaction;

(16) the provider gives a consumer written notice of

any amendment to the contract or terms of service for earned income

access transactions and the consumer agrees to the amendment before

proceeding with any earned income access transaction to which the

amendment would apply; and

(17) if the provider charges a subscription or

membership fee, the fee is optional and for a bona fide group of

services that include earned income access transactions.

(b) An earned income access transaction made in accordance

with this section is not subject to:

(1) Subtitles A and B, Title 4;

(2) Chapter 152; or

(3) the laws of this state governing:

(i) deductions from wages or payroll; or

(ii) the purchase, sale, or assignment of,

or an order for, earned but unpaid income.

Sec. 398.104. MANDATORY TRANSACTION FEES. Mandatory

transaction fees charged by a provider may not exceed the maximum

allowable amount as set by the commissioner.

Sec. 398.105. AVAILABLE LEGAL REMEDIES. Notwithstanding

any other law, a provider may avail itself of any available

contractual or other legal remedies to seek and collect payment of

any outstanding proceeds, charges, fees, or other amounts if a

consumer:

(1) provides materially false information during the

process of procuring an earned income access transaction; or

(2) received the amounts or proceeds through fraud or

other unlawful means.

Sec. 398.106. MISLEADING OR DECEPTIVE ADVERTISING. (a) An

advertisement for an earned income access transaction service may

not be misleading or deceptive.

(b) An advertisement for an earned income access

transaction service must clearly and accurately disclose the costs

of the service to consumers.

(c) The finance commission may adopt rules governing

advertising of earned income access transaction services

consistent with the purposes of this section.

Sec. 398.107. APPROVAL OF CHANGES IN CONTROL. (a) An

action that would result in a change of control of the business of a

license holder may not be taken without the prior approval of the

commissioner as specified by this section.

(b) Before a proposed change of control, the person desiring

to acquire control of the business of a license holder must file a

written application with the commissioner and pay an investigation

fee.

(c) The application must contain information the

commissioner prescribes as necessary or appropriate for the purpose

of making the determination required by Subsection (d).

(d) On receipt of an application and payment of the fee

under Subsection (b), the commissioner shall approve the change of

control, unless the commissioner determines the change of control

to be against the public interest.

(e) For a six-month period beginning on the date of

qualification and for an additional period the commissioner may

prescribe, Subsections (b), (c), and (d) do not apply to a transfer

of control by operation of law to the legal representative of a

person who has control of a license holder. After the expiration of

the period prescribed by this subsection, the legal representative

must file an application with the commissioner that complies with

the requirements of this section.

(f) On application of a license holder or a person who may

exercise control over the license holder, the commissioner may, in

the commissioner's discretion, determine whether the ownership,

control, or holding of the voting stock constitutes or would

constitute control of the license holder for purposes of this

section.

Sec. 398.108. BOOKS, ACCOUNTS, AND RECORDS. (a) A license

holder shall maintain books, accounts, and records in sufficient

detail to enable the commissioner to determine whether the license

holder is in compliance with this chapter and rules adopted by the

finance commission.

(b) A license holder shall maintain for inspection the

license holder's books, accounts, and records for at least six

years after the date the final entry of an earned income access

transaction is recorded in those books, accounts, and records.

(c) The preservation of a photographic reproduction or

records in photographic form constitute compliance with the

requirements of this section.

Sec. 398.109. ANNUAL AND OTHER REPORTS. (a) Not later than

January 1 of each year, an earned income access provider shall file

a report with the commissioner containing, for the preceding

calendar year:

(1) any information the commissioner requires

concerning the provider's earned income access business;

(2) any information the commissioner requires

concerning any business entity with which the earned income access

business is operationally or financially consolidated; and

(3) the provider's earned income access business

operations in this state.

(b) In addition to the report required under Subsection (a),

the commissioner may require a provider to submit a regular or

special report if the commissioner considers the report necessary

for the proper supervision of providers under this chapter.

(c) A report under Subsection (a) or (b) must:

(1) be in the form prescribed by the commissioner; and

(2) be subscribed and affirmed by the provider as true

under penalty of perjury.

Sec. 398.110. REPRESENTATION REGARDING LICENSURE. (a) A

provider may not, directly or indirectly, make a representation

that the provider is licensed under Subtitle A, Title 3.

(b) A provider licensed under Subchapter B may make a

representation that the provider is licensed as an earned income

access provider under this chapter.

SUBCHAPTER D. ENFORCEMENT

Sec. 398.151. CRIMINAL OFFENSE. (a) In this section,

"person" includes a member, officer, director, or employee of an

earned income access provider.

(b) A person commits an offense if the person:

(1) violates or knowingly participates in a violation

of this chapter;

(2) knowingly makes an incorrect statement of a

material fact in an application, report, or statement filed under

this chapter;

(3) knowingly fails to state a material fact necessary

to give the commissioner information lawfully required by the

commissioner under this chapter; or

(4) refuses to permit an investigation or examination

authorized under this chapter.

(c) An offense under this section is a Class B misdemeanor.

SECTION 6. Section 411.095(a), Government Code, is amended

to read as follows:

(a) The consumer credit commissioner is entitled to obtain

criminal history record information as provided by Subsection (a-1)

that relates to a person who is:

(1) an applicant for or holder of a license or

registration under Chapter 180, 342, 347, 348, 351, 353, 371, 393,

[ or ] 394, or 398, Finance Code;

(2) an employee of or volunteer with the Office of

Consumer Credit Commissioner;

(3) an applicant for employment with the Office of

Consumer Credit Commissioner;

(4) a contractor or subcontractor of the Office of

Consumer Credit Commissioner; or

(5) an officer, director, owner, or employee of a

person described by Subdivision (1) or another person having a

substantial relationship with that person under Chapter 180, 342,

347, 348, 351, 353, 371, 393, [ or ] 394, or 398, Finance Code.

SECTION 7. A person engaging in business as an earned income

access provider on the effective date of this Act must obtain a

license in accordance with Chapter 398, Finance Code, as added by

this Act, not later than January 1, 2026.

SECTION 8. Sections 398.102 and 398.103, Finance Code, as

added by this Act, apply only to an earned income access transaction

made on or after the effective date of this Act.

SECTION 9. (a) Except as provided by Subsection (b) of this

section, this Act takes effect September 1, 2025.

(b) Section 398.151, Finance Code, as added by this Act,

takes effect January 1, 2026.