TITLE 16. ECONOMIC REGULATION

PART 3. TEXAS ALCOHOLIC BEVERAGE COMMISSION

CHAPTER 39. PORT OF ENTRY

16 TAC §§39.1 - 39.5

The Texas Alcoholic Beverage Commission (TABC, agency, or commission) proposes amendments to rule §39.1 and new rules §§39.2 - 39.5, related to Ports of Entry.

Background and Summary

The amended and new rules result from review of chapter 39 of the commission's rules pursuant to the regular four-year review cycle prescribed by Government Code §2001.039. Amendments to rule §39.1 bring the rule in line with modern agency protocols for providing receipts for taxes and fees collected at ports of entry. The proposed new rules reflect current statutory requirements and agency practices, providing increased transparency.

Section by Section Discussion

§39.1 Personal Importation

The commission proposes an amendment to §39.1 to enable the commission to issue receipts for collection of taxes at ports of entry in any written manner, rather than requiring the use of tax stamps. This section is also amended to make clear that nothing in the chapter abrogates personal importation limits set by statute.

§39.2 Calculation of Taxes Due

The commission proposes new §39.2 to provide the tax rates and method of calculation of taxes due, as well as references to the underlying statutory authority.

§39.3 Assessment of Administrative Fee

The commission proposes new §39.3 to contain the existing $3.00 per-container administrative fee associated with personal importation of beverages and to detail how commission agents at ports of entry count containers for purposes of the fee.

§39.4 Table of Taxes Due for Liquor

The commission proposes new §39.4 reinforcing its statutory duty to post a table of taxes due at each port of entry. This is done for the sake of completeness of the rules.

§39.5 Alcoholic Beverages not Permitted for Personal Importation

The commission proposes new §39.5 to provide a list of the types of alcoholic beverages that are not allowed for personal importation as well as a menu of options for their disposition.

Fiscal Note: Costs to State and Local Government

Shana Horton, Rules Attorney, has determined that for each year of the first five years that the proposed new rules will be in effect, they are not expected to have a significant fiscal impact upon the agency. Implementation will be performed using existing agency resources, as the rules reflect current statutory requirements and agency practice. There are no foreseeable economic implications anticipated for other units of state or local government due to the proposed new and amended rules. The rules do not impact fees or fines that can be collected by another state or local government nor do they impose additional regulatory obligations on other units of government.

Rural Communities Impact Assessment

The proposed rules will not have any material adverse fiscal or regulatory impacts on rural communities. Likewise, the proposed rules will not adversely affect a local economy in a material way. The new rules apply statewide and do not impact rural communities in any manner different from urban ones or any local economy in a manner different from other local economies or the state's economy.

Small Business and Micro-Business Assessment/Flexibility Analysis

No material fiscal implications are anticipated for small or micro-businesses due to the proposed rules. Therefore, no Small Business and Micro-Business Assessment/Flexibility Analysis is required.

Takings Impact Assessment

The proposed rules and amendments do not affect a taking of private real property, as described by Attorney General Paxton's Private Real Property Rights Preservation Act Guidelines. The rulemaking would impose no burdens on private real property because it neither relates to, nor has any impact on, the use or enjoyment of private real property and there is no reduction in value of property as a result of this rulemaking.

Public Benefits and Costs

Shana Horton, Rules Attorney, has determined that for each year of the first five years that the rules would be in effect, the public would benefit from greater transparency and ease of access to legal requirements related to importation of alcoholic beverages for personal use. There is no increase in costs to the public.

Government Growth Impact Statement

This paragraph constitutes the commission's government growth impact statement for the proposed new and amended rules. The analysis addresses the first five years the proposed rules would be in effect. The proposed rules neither create nor eliminate a government program. They do not require the creation of new employee positions or the elimination of existing employee positions. Implementation of the proposed rules requires neither an increase nor a decrease in future legislative appropriations to the commission.

Comments on the proposed rules may be submitted in writing to Shana Horton, Rules Attorney, Texas Alcoholic Beverage Commission, at P.O. Box 13127, Austin, Texas 78711-3127, or by email to rules@tabc.texas.gov. Written comments will be accepted for 30 days following publication in the Texas Register.

The staff of the commission will hold a public hearing to receive oral comments on the proposed rules on February 21, 2022, at 10:00 a.m. The commission has designated this hearing as the appropriate forum to make oral comments under Government Code §2001.029. DUE TO PUBLIC HEALTH CONCERNS RELATED TO COVID-19, THIS HEARING WILL BE HELD BY VIDEOCONFERENCE ONLY. Interested persons should visit the TABC's public website prior to the meeting date to receive further instructions or call Shana Horton, Rules Attorney, at (512) 206-3451.

The rules are proposed pursuant to the agency's authority under §5.31 of the Alcoholic Beverage Code by which it may prescribe and publish rules necessary to carry out the provisions of the code.

The proposed new and amended rules do not impact any other current rules or statutes.

§39.1.Personal Importation.

(a) This chapter [section] applies to alcoholic beverages imported into this state for personal use under the authority of Alcoholic Beverage Code §§107.07, 201.71 and 201.81.

(b) All alcoholic beverage containers imported into Texas for personal consumption are subject to the applicable state tax and [a $3.00] administrative fees [fee]. These [This] administrative fees [fee] shall be included in the posted tax rates.

(c) Payment of the fees and taxes must be documented by a tax stamp. For purposes of this rule, "tax stamp" means a written acknowledgement, which may be an electronic notification, documenting that the State of Texas has received payment of fees and taxes.

(d) Nothing in this Chapter shall be construed to alter the personal importation limits set in Code §107.07(a).

§39.2.Calculation of Taxes Due.

(a) Alcoholic beverages may be imported for personal use are subject to the following tax rates set in the Code:

(1) Distilled spirits: $2.40 per gallon;

(2) Vinous Liquor containing less than 14 percent alcohol by volume: $0.204 per gallon;

(3) Vinous Liquor containing 14 percent or more of alcohol by volume: $0.0408 per gallon;

(4) Malt Beverages: $6.00 per 31-gallon barrel, ($0.194 per gallon); and

(5) Artificially carbonated and natural sparkling vinous liquor: $0.516 per gallon.

(b) If the alcoholic beverage is in metric containers, the amount of tax due is determined by converting the metric amount into the equivalent amount in gallons and applying the appropriate tax rate, then rounding up to the nearest quarter of a dollar, as authorized by Code §107.07(g).

§39.3.Assessment of Administrative Fee.

(a) The commission shall assess a $3.00 administrative fee for each alcoholic beverage container imported into the State of Texas for personal consumption.

(b) For purposes of this chapter, each of the following is counted as one "container":

(1) For wine: 750ml or one gallon;

(2) For distilled spirits: 1 to 4 containers each containing less than 50mL; Half Pint/200ml, Pint/500ml, Fifth/750ml, Quart/1 liter, Half Gallon/1.75 liters, 1 Gallon/3.79 liters; and

(3) For malt beverages: 1 to 24 twelve oz. containers or up to 288 oz. regardless of container size.

(c) A commission regulatory compliance officer may assess a reasonable fee on a container not listed in subsection (b) of this section. The officer shall base the fee upon the officer's estimation of the volume of the container.

§39.4.Table of Taxes Due for Liquor.

A table showing the amount of tax due on various types of liquor in metric containers shall be prominently displayed at each port of entry and made available on the commission's website.

§39.5.Alcoholic Beverages Not Permitted for Personal Importation.

(a) The following alcoholic beverages are not permitted to be imported into the State of Texas for personal consumption:

(1) Any amount of alcoholic beverages in excess of the statutory limitations of Code §107.07;

(2) Illicit beverages, as defined by Code §1.04;

(3) Any alcoholic beverage that the commission's regulatory compliance officer determines may be injurious to public health or not meet sanitary conditions, as authorized under §5.38; and

(4) Any alcoholic beverage in the possession of a minor, defined in Code §106.01 as a person under the age of 21.

(b) A person presenting for importation alcoholic beverages not permitted to be brought into the State of Texas at a port of entry shall:

(1) prior to entering the state, destroy the alcoholic beverages in such a manner that they are unrecoverable;

(2) voluntarily surrender the alcoholic beverages to authorized personnel at the port of entry, who shall subsequently destroy the alcoholic beverages in a manner that they are unrecoverable; or

(3) not enter the State of Texas.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on January 25, 2022.

TRD-202200276

Shana Horton

Rules Attorney

Texas Alcoholic Beverage Commission

Earliest possible date of adoption: March 13, 2022

For further information, please call: (512) 206-3451


PART 4. TEXAS DEPARTMENT OF LICENSING AND REGULATION

CHAPTER 77. SERVICE CONTRACT PROVIDERS AND ADMINISTRATORS

The Texas Department of Licensing and Regulation (Department) proposes amendments to existing rules at 16 Texas Administrative Code (TAC), Chapter 77, §§77.10, 77.20, 77.22, 77.41, 77.42, and 77.70; and the proposed repeal of existing rules at §§77.92 - 77.110, regarding the Service Contract Providers and Administrators Program. These proposed changes are referred to as "proposed rules."

EXPLANATION OF AND JUSTIFICATION FOR THE RULES

The proposed rules under 16 TAC Chapter 77 reflect the addition of residential service contracts as a fourth type of service contract under Tex. Occ. Code, Chapter 1304, Service Contract Providers and Administrators. The addition of residential service contracts to this chapter occurred during the 87th regular Legislative session in House Bill 1560, §§4.01-4.13. House Bill 1560 repealed Tex. Occ. Code, Chapter 1303 and transferred regulatory oversight of residential service contracts from the Texas Real Estate Commission to the Texas Department of Licensing and Regulation effective September 1, 2021.

HB 1560 directs the Department to enact rules related to residential service contacts by June 1, 2022. The rules relating to residential service contracts as they existed at the Texas Real Estate Commission were transferred without changes to 16 TAC Chapter 77 on September 1, 2021. These transferred rules served as placeholders while the Department determined what rule amendments or rule repeals were necessary to bring rules relating to residential service contracts into line with the previously existing service contract provider rules at 16 TAC, Chapter 77, §§77.1 - 77.91

The proposed rules repeal the entirety of the transferred rules at 16 TAC Chapter 77, §§77.92 - 77.110. The remaining proposed rules streamline and consolidate the transferred rules into the previously existing service contract provider rules at 16 TAC Chapter 77, §§77.1 - 77.91. The proposed rules also amend the previously existing service contract provider rules at 16 TAC, Chapter §§77.1-77.91 to reflect the addition of residential service contracts to Tex. Occ. Code, Chapter 1304 and 16 TAC Chapter 77.

The proposed rules are necessary to create similar requirements between the provision and administration of residential service contracts and the three other types of service contracts under 16 Tex. Occ. Code, Chapter 1304 and 16 TAC, Chapter 77, §§77.1 - 77.91.

The Department's Service Contract Providers and Administrators Program does not have an Advisory Board. This will be the first time that the proposed rules are publicly available for review and comment.

SECTION-BY-SECTION SUMMARY

The proposed rules amend §77.10(6)(C) by updating language and adding residential service contracts to the previously existing definition of "Service Contract" in §77.10(6)(D).

The proposed rules amend §77.20 by adding a requirement for all service contract providers to notify the Department of any changes to a controlling person within 30 days of the change occurring.

The proposed rules amend §77.22 by adding a requirement for all service contract administrators to notify the Department of any changes to a controlling person within 30 days of the change occurring.

The proposed rules amend §77.41 by adding a provision to allow residential service contract providers to use a reimbursement insurance policy as a form of financial security.

The proposed rules amend §77.42 by adding a minimum amount of financial security deposit for a residential service contract provider.

The proposed rules amend §77.70 by adding a requirement for all service contract providers to notify the Department of affiliations with other persons or entities within 30 days of the establishment of the affiliation and adjusting the lettering for the remaining section of the rule.

The proposed rules repeal §§77.92 - 77.110 because they are no longer necessary and are subsumed by the existing and proposed amended rules in §§77.1 - 77.91.

FISCAL IMPACT ON STATE AND LOCAL GOVERNMENT

Tony Couvillon, Policy Research and Budget Analyst, has determined that for each year of the first five years the proposed rules are in effect, there are no estimated additional costs or reductions in costs to state or local government as a result of enforcing or administering the proposed rules.

Tony Couvillon, Policy Research and Budget Analyst, has determined that for each year of the first five years the proposed rules are in effect, there will be an estimated loss in revenue to the State of $284,000 a year. This is because there are 68 residential service companies that were licensed at the Texas Real Estate Commission under the now repealed Tex. Occ. Code, Ch, 1303. These companies are no longer required to file an annual report and financial statements each year as required by rule and pay a filing fee of $3,500 each. This will result in a loss of revenue of $238,000 each year.

These companies will also no longer file an application for approval of a contract or changes to an approved contract, or an application for approval of a schedule of charges or changes to an approved schedule. Each application had a filing fee of $250, and last year approximately 184 applications were filed. Assuming approximately the same amount is filed each year, there would also be a loss of revenue of $46,000 each year.

The approximate total loss in revenue each year for the next five years is $284,000.

Tony Couvillon, Policy Research and Budget Analyst, has determined that for each year of the first five years the proposed rules are in effect, there will be an estimated increase in revenue of $12,750 during the first fiscal year and $38,500 during the fiscal years two through five.

The residential service companies licensed under repealed Tex. Occ. Code, Ch. 1303 will need to become registered as service contract providers to be able to offer residential service contracts under Tex. Occ. Code Ch. 1304, Occupations Code. Seventeen of those residential service companies were already previously registered as service contract providers offering other types of service contracts.

It is presumed the other 51 residential service companies will obtain an initial registration as service contract provider in the first year. The initial registration application fee for a provider is $250, and if all 51 residential service companies apply for registration, the increase in revenue will be $12,750.

Service contract providers pay a renewal application fee amount based on the number of service contracts sold or issued in the previous 12-month period preceding the date of the registration. A registrant that sells or issues 0 to 250 contracts pays a $250 renewal application fee, a registrant that sells or issues 251 to 499 contracts pays a $500 fee, and a registrant that sells or issues 500 or more contracts pays a $1,000 fee.

None of the 17 service contract providers that were also residential service companies and will need to renew their service contract provider registrations in the first year will have the number of contracts they had previously sold or issued changed by the addition of residential service contracts enough to cause them to pay a different fee amount. There will be no change in fee amounts paid by these renewing registrants and no change in revenue as a result.

Assuming all 51 new registrants renew in subsequent years and using the amounts of contracts each issued last year as a basis, it is estimated that each year of Years Two to Five revenue will increase by approximately $38,000 because of the increase in the number of registrants renewing.

It is unknown how many entities will choose to become registered as administrators for residential service contracts as a result of the proposed rules, and what, if any, might be the increase in revenue from more administrator registration fees.

Mr. Couvillon has determined that for each year of the first five years the proposed rules are in effect, enforcing or administering the proposed rules does not have foreseeable implications relating to costs or revenues of local governments.

LOCAL EMPLOYMENT IMPACT STATEMENT

Mr. Couvillon has determined that the proposed rules will not affect the local economy, so the agency is not required to prepare a local employment impact statement under Government Code §2001.022.

PUBLIC BENEFITS

Mr. Couvillon also has determined that for each year of the first five-year period the proposed rules are in effect, the public benefit will be that the proposed rules authorize residential service companies to register and offer residential service contracts in the existing service contract providers program. This consolidation provides a public benefit by streamlining residential service contracts into a like regulatory scheme, reducing redundancies and reducing any regulatory burdens for service contract providers who wish to offer additional services, and the consumers who purchase those services. The transfer allows a single point of contact for consumers who wish to inquire on license status or file complaints.

PROBABLE ECONOMIC COSTS TO PERSONS REQUIRED TO COMPLY WITH PROPOSAL

Mr. Couvillon has determined that for each year of the first five-year period the proposed rules are in effect, there will be a reduction in costs (savings) to persons who are required to comply with the proposed rules. The proposed rules will reduce the costs to those residential service companies that become registered as service contract providers. The residential service companies previously paid $3,500 in report filing fees each year, plus a $250 filing fee for each application for approval of a contract, schedule of charge, or any changes to a previously approved contract or schedule. Each entity will pay only $250 for the initial registration then a maximum of only $1,000 in subsequent years.

There might be a slight increase in the fee amounts charged by issuers of financial securities if a registrant needs to increase the security amounts to meet the requirements for service contract providers instead of the previous requirements for residential service companies, but these amounts cannot estimate as the numbers and types of financial securities held by different providers, and the fees charged by issuers, vary greatly. However, any increase is expected to de minimis.

FISCAL IMPACT ON SMALL BUSINESSES, MICRO-BUSINESSES, AND RURAL COMMUNITIES

There will be no adverse economic effect on small businesses, micro-businesses, or rural communities as a result of the proposed rules. Since the agency has determined that the proposed rule will have no adverse economic effect on small businesses, micro-businesses, or rural communities, preparation of an Economic Impact Statement and a Regulatory Flexibility Analysis, as detailed under Texas Government Code §2006.002, are not required.

Any residential service company that registers as a service contract provider and is a small or micro-business will pay less amounts in fees each year than were previously paid, which cannot have an adverse economic effect on those businesses. Any increase in fees paid by a small or micro-business to obtain higher financial security limits are expected to be minimal and will also not result in an adverse economic effect.

The proposed rules have no anticipated adverse economic effect on rural communities because the rule will not decrease the availability of residential service contracts in rural communities, nor will the rules increase the cost of residential service contracts in rural communities

ONE-FOR-ONE REQUIREMENT FOR RULES WITH A FISCAL IMPACT

The proposed rules do not have a fiscal note that imposes a cost on regulated persons, including another state agency, a special district, or a local government. Therefore, the agency is not required to take any further action under Government Code §2001.0045.

GOVERNMENT GROWTH IMPACT STATEMENT

Pursuant to Government Code §2001.0221, the agency provides the following Government Growth Impact Statement for the proposed rules. For each year of the first five years the proposed rules will be in effect, the agency has determined the following:

1. The proposed rules do not create or eliminate a government program.

2. Implementation of the proposed rules does not require the creation of new employee positions or the elimination of existing employee positions.

3. Implementation of the proposed rules does not require an increase or decrease in future legislative appropriations to the agency.

4. The proposed rules do require a decrease in fees paid to the agency by eliminating the fees paid for filing annual reports and filing applications for approval of contracts and fee schedules, none of which will be required any longer.

5. The proposed rules do not create a new regulation.

6. The proposed rules do expand an existing regulation by authorizing service contract providers to now offer and sell residential service contracts in addition to other types of contracts. Registrants are also now required to report changes in controlling persons and the establishment of affiliates within certain timeframes.

7. The proposed rules do increase the number of individuals subject to the rule's applicability through the regulation of the sale of residential service contracts, thereby making those who will now offer and sell residential service contracts subject to the rule.

8. The proposed rules do not positively or adversely affect this state's economy.

TAKINGS IMPACT ASSESSMENT

The Department has determined that no private real property interests are affected by the proposed rules and the proposed rules do not restrict, limit, or impose a burden on an owner's rights to his or her private real property that would otherwise exist in the absence of government action. As a result, the proposed rules do not constitute a taking or require a takings impact assessment under Government Code §2007.043.

PUBLIC COMMENTS

Comments on the proposed rules may be submitted electronically on the Department's website at https://ga.tdlr.texas.gov:1443/form/gcerules; by facsimile to (512) 475-3032; or by mail to Monica Nuñez, Legal Assistant, Texas Department of Licensing and Regulation, P.O. Box 12157, Austin, Texas 78711. The deadline for comments is 30 days after publication in the Texas Register.

16 TAC §§77.10, 77.20, 77.22, 77.41, 77.42, 77.70

STATUTORY AUTHORITY

The proposed rules are proposed under Texas Occupations Code, Chapters 51 and Tex. Occ. Code, Chapter 1304, as amended by HB 1560 during the 87th Legislative session, which authorize the Texas Commission of Licensing and Regulation, the Department's governing body, to adopt rules as necessary to implement these chapters and any other law establishing a program regulated by the Department.

The statutory provisions affected by the proposed rules are those set forth in Texas Occupations Code, Chapters 51 and Tex. Occ. Code, Chapter 1304, as amended by HB 1560 during the 87th regular Legislative session. No other statutes, articles, or codes are affected by the proposed rules.

§77.10.Definitions.

The following words and terms, as used in this chapter and Texas Occupations Code, Chapter 1304, have the following meanings:

(1) "Buyer" means a "service contract holder" as it relates to a "depreciation benefit optional member program."

(2) "Dealer" means a motor vehicle dealer licensed under Texas Occupations Code, Chapter 2301.

(3) "Depreciation benefit optional member program" means a service contract financed under Chapter 348 or 353, Finance Code, that pays to the buyer, as a credit toward the purchase of a replacement vehicle at a participating dealer, an amount less than or equal to the difference between the purchase price and actual cash value for a total constructive loss.

(4) "Identity recovery" means a process, through a limited power of attorney and the assistance of an identity recovery expert, that returns the identity of an identity theft victim to pre-identity theft event status.

(5) "Qualified financial institution" means a financial institution organized and licensed under the laws of the United States, a state of the United States, or the District of Columbia.

(6) "Service contract" means an agreement that is entered into for a separately stated consideration and for a specified term under which a provider agrees to:

(A) repair, replace, or maintain a product, or provide indemnification for the repair, replacement, or maintenance of a product, for operational or structural failure or damage caused by a defect in materials or workmanship or by normal wear;

(B) provide identity recovery, if the service contract is financed under Chapter 348 or 353, Finance Code; [or]

(C) provide compensation to the lessee or buyer of a vehicle on the total constructive loss under a depreciation benefit optional member program; or[.]

(D) provide a service, reimbursement, or payment under a residential service contact as defined in Texas Occupation Code §1304.003(4)(A)-(C) and (b)(1)-(4).

(7) "Service contract holder" means a person who purchases or otherwise holds a service contract.

(8) "Third-party administration of a service contract" includes any of the following activities performed on behalf of a service contract provider:

(A) performing or arranging the collection, maintenance, or disbursement of money to compensate any party for claims or repairs pursuant to a service contract;

(B) participating in the processing or adjustment of claims arising under a service contract;

(C) maintaining records required by Texas Occupations Code, Chapter 1304; or

(D) complying with provider requirements, other than financial security requirements, of Texas Occupations Code, Chapter 1304.

(9) The term "third party administration of a service contract" does not include the performance of repairs, or clerical functions ancillary to the performance of repairs, by a repair facility that performs no other activities with respect to a service contract.

(10) "Total constructive loss" means a loss of such significance that the cost of restoring damaged property would exceed its value after restoration.

§77.20.Registration Requirements--Provider.

(a) A person may not operate as a service contracts provider, or offer to be a provider unless the person is either registered with the department or the service contracts offered are specifically exempt from Texas Occupations Code, Chapter 1304.

(b) A registration expires one year from the date issued.

(c) An applicant for a provider registration must submit on department-approved forms:

(1) a completed application;

(2) a completed personal information form from each controlling person as defined in Texas Occupations Code §1304.0035;

(3) a completed criminal history questionnaire from each controlling person as defined in Texas Occupations Code §1304.0035, if applicable;

(4) the fee required under §77.80; and

(5) proof of financial security required under §77.40.

(d) Within 30 days of a provider's initial registration date, the provider must submit a list of the following information:

(1) website addresses where a consumer may purchase the provider's service contracts, as applicable;

(2) the provider's administrator(s) as applicable, including each administrator's name, assumed name, street address, telephone number, and department registration number; and

(3) the provider's service contracts sellers, except those excluded under Texas Occupations Code §1304.1025(c)(2), including each seller's name, assumed name, street address, and telephone number.

(e) A provider must report changes in its controlling person(s) within 30 days of the change on a department approved form, unless the change occurs within 30 days of the provider's renewal date. If the change occurs within 30 days of a provider's renewal, the provider may report it at the time of renewal on a department approved form(s).

§77.22.Registration Requirements--Administrator.

(a) A person may not operate as an administrator for a provider unless the person is registered with the department.

(b) A registration expires one year from the date issued.

(c) An applicant for an administrator registration must submit on department-approved forms:

(1) a completed application;

(2) the name and department registration number for each service contract provider(s) for which the person will act as an administrator;

(3) a list of the administrator's controlling persons as defined in Texas Occupations Code §1304.0035; and

(4) the fee required under §77.80.

(e) An administrator must report changes in its controlling person(s) within 30 days of the change on a department approved form, unless the change occurs within 30 days of the administrator's renewal date. If the change occurs within 30 days of an administrator's renewal, the administrator may report it at renewal on a department approved form.

§77.41.Financial Security--Reimbursement Insurance Policy.

(a) A provider that uses a reimbursement insurance policy to comply with the financial security requirements of Texas Occupations Code §1304.151 and §1304.152, will not be allowed to obtain or renew a registration unless the insurer issuing the policy has provided all of the information and met all of the requirements set forth in Texas Occupations Code §1304.152(a-1).

(b) A reimbursement insurance policy that is used to comply with the financial security requirements of Texas Occupations Code §1304.151 and §1304.152 must include:

(1) the "Service Contract Provider Texas Endorsement" prescribed by the executive director; and

(2) copy of the approval letter from the Texas Department of Insurance for using the endorsement.

(c) A provider of a residential service contract may use a reimbursement insurance policy as described in Texas Occupations Code §1304.157(c).

§77.42.Financial Security--Funded Reserve Account and Security Deposit.

(a) A provider that uses a funded reserve account and security deposit to comply with the financial security requirements of Texas Occupations Code §1304.151, will not be allowed to obtain or renew a registration unless the provider:

(1) maintains the funded reserve account and the security deposit at or above the financial levels required under Texas Occupations Code §1304.151(b) or §1304.151(b-1) - (b-4) [(b-3) ]. The amounts under §1304.151(b) are calculated using a form prescribed by the department. The amounts under §1304.151(b-1) - (b-3) for a motor vehicle dealer who is only selling service contracts for vehicles sold by the dealer are as follows:

(A) $25,000 for a motor vehicle dealer that generated $1,125,000 or less in annual gross revenue from the sale of in-state service contracts in the preceding calendar year; or

(B) $50,000 for a motor vehicle dealer that generated more than $1,125,000 but less than $2,500,000 in annual gross revenue from the sale of in-state service contracts in the preceding calendar year; or

(C) $75,000 for a motor vehicle dealer that generated more than $2,500,000 in annual gross revenue from the sale of in-state service contracts in the preceding calendar year.

(D) If a motor vehicle dealer has no gross revenue from the in-state sale of service contracts in the preceding calendar year, the security deposit shall be $25,000.

(2) meets the requirements under this section; and

(3) submits the most recent audited financial statements as prescribed under Texas Occupations Code §1304.151(b).

(b) The funded reserve account maintained by the provider must:

(1) be kept separate from the provider's operating accounts;

(2) be clearly identified as the "{Provider's Name} Texas Service Contracts Funded Reserve Account"; and

(3) not be used for any purpose other than to cover the provider's obligations under its service contracts that are issued and outstanding in this state.

(c) In addition to maintaining the funded reserve account, the provider must submit one of the following forms of security deposit:

(1) A certificate of deposit that is issued by a qualified financial institution, assigned to the executive director, and for the benefit of the department;

(2) A deposit of cash; or

(3) An original letter of credit acceptable to the department that:

(A) is irrevocable;

(B) is issued by a qualified financial institution which is financially responsible in the amount of the letter of credit;

(C) does not require examination of the performance of the underlying transaction between the department and the provider;

(D) is payable to the department on demand or within a reasonably brief period of time after presentation of all required documents; and

(E) does not include any condition that makes payment to the department contingent upon the consent of or other action by the provider or other party.

(d) Funded reserve accounts that existed prior to September 1, 2019 and that involve in-state service contracts sold by motor vehicle dealers on their own inventory may be reduced to the new amounts required by Texas Occupations Code §1304.151(b-1) - (b-3) as follows:

(1) A deposit of cash in excess of the amounts in Texas Occupations Code §1304.151(b)(b-1) - (b-3) may be withdrawn by the provider, so that the balance meets the reduced minimum requirements. Proof that the balance meets the reduced minimum requirements must be provided to the department within thirty days of the withdrawal.

(2) A provider with a letter of credit issued by a qualified financial institution may withdraw and replace a letter that exceeds the amounts in Texas Occupations Code §1304.151(b-1) - (b-3) with a letter that meets the reduced minimum requirements. A provider may also opt to retain a current letter of credit that exceeds the reduced amounts or replace it the time of their next license renewal.

(3) A provider with a certificate of deposit issued by a qualified financial institution may choose to withdraw and replace a certificate that exceeds the amounts in Texas Occupations Code §1304.151(b-1) - (b-3) with a certificate that meets the reduced minimum requirements. A provider may also opt to wait until a current certificate reaches maturity to withdraw and replace.

(e) Upon request, the department may require the provider to submit the following additional financial reports:

(1) claims paid reports;

(2) account statements;

(3) monthly activity reports; or

(4) actuarial reports.

§77.70.Responsibilities of Providers and Administrators.

(a) The provider must clearly and conspicuously identify itself on all written service contracts and, on all written advertising materials that are used by the provider, its administrator(s), or its seller(s).

(b) The provider and/or any administrator appointed by the provider must provide service contract holders with a notification that meets all of the following requirements.

(1) The notification must provide the name, mailing address, and telephone number of the department.

(2) The notification must contain a statement that unresolved complaints concerning providers and administrators or questions concerning the regulation of service contract providers and administrators may be addressed to the department.

(3) The notification must be included on all written service contacts. The notification may be stamped on the contract or printed on a separate sheet and stapled to the contract.

(c) The provider and/or any administrator appointed by the provider must provide service contract holders with the provider's complaint resolution procedures.

(d) The provider and/or any administrator appointed by the provider must disclose the following information to service contract holders:

(1) the specific contract provisions and required disclosures in accordance with Texas Occupations Code §1304.156;

(2) the procedures and timeframes for a service contract holder to cancel a service contract in accordance with Texas Occupations Code §1304.1581;

(3) the procedures and timeframes for a provider to refund the purchase price of the service contract and pay any applicable penalty to the service contract holder in accordance with Texas Occupations Code §1304.1581; and

(4) the conditions in which the provider may cancel a service contract and issue a refund in accordance with Texas Occupations Code §1304.159.

(e) As part of the disclosures required under subsection (d), a provider and/or any administrator appointed by the provider who sells or issues service contracts described under Texas Occupations Code §1304.003(a)(2)(B) (referred herein as "identity recovery service contracts") must disclose the following information:

(1) the person or persons who are covered under the identity recovery service contract;

(2) the price of the identity recovery service contract separate from the purchase price of the automobile and any other products or services that are financed with the vehicle;

(3) the term of the identity recovery service contract; and

(4) any conditions that may change the stated term of the identity recovery service contract, including if the identity recovery service contract holder:

(A) pays off the automobile early;

(B) makes late payments or defaults on the payments on the automobile;

(C) refinances the automobile; or

(D) sells or transfers title to the automobile.

(f) As part of the disclosures required under subsection (d), a provider and/or any administrator appointed by the provider who sells or issues service contracts described under Texas Occupations Code §1304.003(a)(2)(C) (referred herein as "depreciation benefit service contracts") must disclose the following information:

(1) the names and locations of the participating dealers who are part of the depreciation benefit optional member program;

(2) the amount of the credit that will be paid or the method of calculation that will be used to pay the credit toward the purchase of a replacement vehicle;

(3) a statement that purchase of the service contract is not required as a condition of approval of a loan for the purchase of a vehicle;

(4) a statement that a service contract may not be offered by a dealer who requires a loan for the purchase of a vehicle to be financed exclusively with the dealer; and

(5) a statement that the service contract may be cancelled by the service contract holder and the procedures and timeframes for a service contract holder to cancel the service contract and obtain a refund as specified under subsections (d)(2) and (d)(3).

(g) If not provided by the seller at the time of sale, the provider and/or any administrator appointed by the provider must provide a copy of the service contract to the service contract holder within a reasonable amount of time after the date of purchase that still allows the service contract holder the opportunity to cancel the contract and receive a full refund.

(h) If not provided by the seller at the time of sale, the provider and/or any administrator appointed by the provider must provide a receipt for or other written evidence of the purchase of a service contract to the service contract holder within a reasonable amount of time after the date of purchase that still allows the service contract holder the opportunity to cancel the contract and receive a full refund.

(i) A provider shall report to the department within 30 days any change in information required by §77.20 and §77.21 on a department approved form.

(j) An administrator shall report to the department within 30 days any change in information required by §77.22 and §77.23.

(k) A provider or administrator that issues or administers service contracts in affiliation with another person or entity must report it at the time of registration or within 30 days of establishing the affiliation in a manner acceptable to the Department. If the affiliation is established within 30 days of a renewal, the provider or administrator may report it at the time of renewal in a manner acceptable to the Department.

(l) [(k)] Upon notification by the department, the provider and/or any administrator appointed by the provider shall allow the department to audit records required to be maintained by Texas Occupations Code Chapter 1304. These records include copies of the service contracts marketed, sold, administered or issued in this state.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on January 31, 2022.

TRD-202200333

Brad Bowman

General Counsel

Texas Department of Licensing and Regulation

Earliest possible date of adoption: March 13, 2022

For further information, please call: (512) 475-4879


16 TAC §§77.92, 77.94 - 77.110

STATUTORY AUTHORITY

The proposed repeals are proposed under Texas Occupations Code, Chapters 51 and Tex. Occ. Code, Chapter 1304, as amended by HB 1560 during the 87th Legislative session, which authorize the Texas Commission of Licensing and Regulation, the Department's governing body, to adopt rules as necessary to implement these chapters and any other law establishing a program regulated by the Department.

The statutory provisions affected by the proposed repeals are those set forth in Texas Occupations Code, Chapters 51 and Tex. Occ. Code, Chapter 1304, as amended by HB 1560 during the 87th regular Legislative session. No other statutes, articles, or codes are affected by the proposed repeals.

§77.92.Definitions.

§77.94."Employed By" Defined.

§77.95.Application for Residential Service Company License.

§77.96.Application to Approve Schedule of Charges.

§77.97.Application to Approve Contract.

§77.98.Mailing Address and Other Contact Information.

§77.99.Change in Company Ownership or Officers.

§77.100.Change in Operation.

§77.101.Miscellaneous Forms.

§77.102.Funded Reserves.

§77.103.Security.

§77.104.Reports.

§77.105.Examinations.

§77.106.Schedule of Administrative Penalties.

§77.107.Complaints.

§77.108.Advertising.

§77.109.Contract Requirements.

§77.110.Fees.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on January 31, 2022.

TRD-202200334

Brad Bowman

General Counsel

Texas Department of Licensing and Regulation

Earliest possible date of adoption: March 13, 2022

For further information, please call: (512) 475-4879