(a) Purpose and scope. The Texas Finance Code allows a debt cancellation agreement to be included in a motor vehicle retail installment sales contract involving an ordinary vehicle subject to Texas Finance Code, Chapter 348 as an itemized charge. This section outlines the parameters under which a retail seller or holder may provide a debt cancellation agreement for total loss or theft of an ordinary vehicle in connection with a Chapter 348 retail installment sales contract. This section applies only to debt cancellation agreements that do not require insurance coverage. This section does not apply to a debt cancellation agreement under Texas Finance Code, Chapter 354.
(b) Disclosure under Texas Finance Code, §348.124.
  (1) Delivery. A retail seller must provide the retail buyer with a notice that a debt cancellation agreement for total loss or theft of an ordinary vehicle is not required in order to purchase the motor vehicle if a retail seller offers to sell a debt cancellation agreement for total loss or theft to a retail buyer. This notice can be provided to the retail buyer either in a debt cancellation agreement for total loss or theft of an ordinary vehicle or in a separate disclosure. The notice under this section must be provided separately from the retail installment sales contract. A retail seller may request that the retail buyer authenticate the debt cancellation agreement for total loss or theft of an ordinary vehicle disclosure acknowledging the applicant's receipt of the disclosure or notice. A retail seller may rely upon a verifiable procedure to show that a debt cancellation agreement for total loss or theft of an ordinary vehicle notice was provided to an applicant.
  (2) Multiple applicants. In the case of multiple applicants, it is only necessary for the retail seller to deliver the debt cancellation agreement for total loss or theft of an ordinary vehicle notice to one applicant.
(c) Authorized debt cancellation agreement for total loss or theft of an ordinary vehicle provisions. A debt cancellation agreement under this section may only contain provisions or exclusions from either paragraph (1) or (2) of this subsection, language to implement any of the provisions or exclusions of either paragraph (1) or (2) of this subsection, and language to identify and obligate the parties to the debt cancellation agreement under Texas law if that language does not conflict with this subsection.
  (1) Debt cancellation agreement for total loss or theft of ordinary vehicle in which holder bears complete responsibility for canceling the debt after total loss or theft must:
    (A) contain a statement that the holder will cancel the amount currently owed by the retail buyer on the date of total loss or theft of the motor vehicle;
    (B) permit the exclusion of loss or damage only as a result of one or more of the following:
      (i) an act occurring after the original maturity date or date of holder's acceleration of the retail installment sales contract;
      (ii) any dishonest, fraudulent, criminal, illegal or intentional act of any authorized driver that directly results in the total loss;
      (iii) conversion, embezzlement, or secretion by any person in lawful possession of the motor vehicle;
      (iv) lawful confiscation by an authorized public official;
      (v) the operation, use, or maintenance of the motor vehicle in any race or speed contest;
      (vi) war, whether or not declared, invasion, civil war, insurrection, rebellion, revolution, or act of terrorism;
      (vii) normal wear and tear, freezing, mechanical or electrical breakdown or failure;
      (viii) use of the motor vehicle for primarily commercial purposes;
      (ix) loss that occurs after the motor vehicle has been repossessed;
      (x) damage to the motor vehicle prior to the purchase of the debt cancellation agreement for total loss or theft of an ordinary vehicle;
      (xi) damage related to any personal property attached to or within the vehicle;
      (xii) damages associated with falsification of documents by any person not associated with the retail seller or the debt cancellation provider;
      (xiii) abandonment of the motor vehicle by the retail buyer only if the retail buyer voluntarily discards, or leaves behind, or otherwise relinquishes possession of the motor vehicle to the extent that the relinquishment shows intent to forsake and desert the motor vehicle so that the motor vehicle may be appropriated by any other person;
      (xiv) any loss occurring outside the continental United States of America, Alaska, or Hawaii (holder may opt to cover losses in Canada);
      (xv) any exclusion or limitation approved in writing by the commissioner;
    (C) contain a statement that the retail buyer is required to notify the holder within 75 days, or a longer period as agreed to in the debt cancellation agreement, of any potential loss under the debt cancellation agreement for total loss or theft of an ordinary vehicle;
    (D) contain a statement that requests the retail buyer to provide or complete a debt cancellation request form and a copy of the police report, if any, filed in connection with the total loss or theft of the motor vehicle and provide those documents to the holder;
    (E) contain a statement that the holder will cancel amounts as provided under the debt cancellation agreement for total loss or theft of an ordinary vehicle;
    (F) contain a statement naming the refunding method to be used to calculate refunds under subsection (f) of this section;
    (G) contain a statement that the holder may not be named as loss payee on any insurance policy covering the motor vehicle or receive any of the proceeds from an insurance policy on the motor vehicle;
    (H) contain a statement that the holder may not require property insurance on the motor vehicle;
    (I) contain a statement that the debt cancellation agreement is not required to obtain credit and will not be a factor in the credit approval process;
    (J) contain a statement that a partial loss of the motor vehicle is not subject to relief under the debt cancellation agreement;
    (K) contain a statement that upon request of the commissioner, the administrator will make its records relating to the creation, processing, and resolution of the debt cancellation agreement available to the commissioner;
    (L) contain a statement that the retail buyer should consider contacting a tax advisor regarding possible tax consequences; and
    (M) contain, at the election of the drafter, contract provisions pertaining to the following issues, so long as the provisions comply with state and federal law and implementing regulations:
      (i) a notice provision regarding how notice may be given or delivered by either party under the debt cancellation agreement;
      (ii) a severability provision;
      (iii) an arbitration provision;
      (iv) any contract provision approved in writing by the commissioner.
  (2) Debt cancellation agreement for total loss or theft of used ordinary vehicle with a cash price of $15,000 or less in which the retail seller does not assign the retail installment sales contract to any party other than a related finance company as defined by Texas Tax Code, §152.0475(a), and in which the retail seller bears complete responsibility for canceling the debt after total loss or theft whether the retail buyer elects to obtain property insurance, must:
    (A) contain a statement that:
      (i) if the retail buyer does not have property insurance for the motor vehicle that is in force and effect at the time of the total loss or theft of the motor vehicle, the retail seller will cancel the amount currently owed by the retail buyer on the date of total loss or theft of the motor vehicle; or
      (ii) if the retail buyer has property insurance for the motor vehicle that is in force and effect at the time of the total loss or theft of the motor vehicle or the motor vehicle is involved in a total loss involving another responsible party's liability insurance policy, the retail seller will apply any settlement payment from the retail buyer's primary comprehensive, collision, or uninsured/underinsured motorist policy or other parties' liability insurance policy to the retail buyer's account and cancel the remaining balance;
    (B) permit the exclusion of loss or damage only as a result of one or more of the following:
      (i) an act occurring after the original maturity date or date of retail seller's acceleration of the retail installment sales contract;
      (ii) any dishonest, fraudulent, criminal, illegal or intentional act of any authorized driver that directly results in the total loss;
      (iii) conversion, embezzlement, or secretion by any person in lawful possession of the motor vehicle;
Cont'd...