CHAPTER 306. COMMERCIAL TRANSACTIONS - Texas Statutes

FINANCE CODE

TITLE 4. REGULATION OF INTEREST, LOANS, AND FINANCED TRANSACTIONS

SUBTITLE A. INTEREST

CHAPTER 306. COMMERCIAL TRANSACTIONS

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 306.001. DEFINITIONS. In this chapter:

(1) "Account purchase transaction" means an agreement under

which a person engaged in a commercial enterprise sells accounts,

instruments, documents, or chattel paper subject to this subtitle

at a discount, regardless of whether the person has a repurchase

obligation related to the transaction.

(2) "Affiliate of an obligor" means a person who directly or

indirectly, or through one or more intermediaries or other

entities, owns an interest in, controls, is controlled by, or is

under common control with the obligor, or a person in which the

obligor directly or indirectly, or through one or more

intermediaries or other entities, owns an interest. In this

subdivision "control" means the possession, directly or

indirectly, or with one or more other persons, of the power to

direct or cause the direction of the management and policies of a

person, whether through the ownership of voting securities, by

contract, or otherwise.

(3) "Asset-backed securities" means debt obligations or

certificates of beneficial ownership that:

(A) are a part of a single issue or single series of securities

in an aggregate of $1 million or more and issuable in one or more

classes;

(B) are secured by a pledge of, or represent an undivided

ownership interest in:

(i) one or more fixed or revolving financial assets that by

their terms convert into cash within a definite period; and

(ii) rights or other assets designed to assure the servicing or

timely distribution of proceeds to security holders; and

(C) are issued for a business, commercial, agricultural,

investment, or similar purpose by a pass-through entity.

(4) "Business entity" means a partnership, corporation, joint

venture, limited liability company, or other business

organization or business association, however organized.

(5) "Commercial loan" means a loan that is made primarily for

business, commercial, investment, agricultural, or similar

purposes. The term does not include a loan made primarily for

personal, family, or household use.

(6) "Guaranty" means an agreement under which a person:

(A) assumes, guarantees, or otherwise becomes primarily or

contingently liable for the payment or performance of an

obligation of another person;

(B) provides security, by creation of a lien or security

interest or otherwise, for the payment or performance of an

obligation of another person; or

(C) agrees to purchase or to advance consideration to purchase

an obligation of another person or property that is security for

the payment or performance of the obligation.

(7) "Pass-through entity" means a business entity, association,

grantor or common-law trust under state law, or segregated pool

of assets under federal tax law that, on the date of original

issuance of asset-backed securities, does not have significant

assets other than:

(A) assets pledged to or held for the benefit of holders of the

asset-backed securities; or

(B) assets pledged to or held for the benefit of holders of

other asset-backed securities previously issued.

(8) "Prepayment premium" means compensation paid by or that is

or will become due from an obligor to a creditor solely as a

result or condition of the payment or maturity of all or a

portion of the principal amount of a loan before its stated

maturity or a regularly scheduled date of payment, as a result of

the obligor's election to pay all or a portion of the principal

amount before its stated maturity or a regularly scheduled date

of payment.

(9) "Qualified commercial loan":

(A) means:

(i) a commercial loan in which one or more persons as part of

the same transaction lends, advances, borrows, or receives, or is

obligated to lend or advance or entitled to borrow or receive,

money or credit with an aggregate value of:

(a) $3 million or more if the commercial loan is secured by real

property; or

(b) $250,000 or more if the commercial loan is not secured by

real property and, if the aggregate value of the commercial loan

is less than $500,000, the loan documents contain a written

certification from the borrower that:

(1) the borrower has been advised by the lender to seek the

advice of an attorney and an accountant in connection with the

commercial loan; and

(2) the borrower has had the opportunity to seek the advice of

an attorney and accountant of the borrower's choice in connection

with the commercial loan; and

(ii) a renewal or extension of a commercial loan described by

Paragraph (A), regardless of the principal amount of the loan at

the time of the renewal or extension; and

(B) does not include a commercial loan made for the purpose of

financing a business licensed by the Motor Vehicle Board of the

Texas Department of Motor Vehicles under Section 2301.251(a),

Occupations Code.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept.

1, 1999. Amended by Acts 1999, 76th Leg., ch. 531, Sec. 2, eff.

Sept. 1, 1999; Acts 1999, 76th Leg., ch. 994, Sec. 2, eff. Sept.

1, 1999; Acts 2003, 78th Leg., ch. 1276, Sec. 14A.772, eff. Sept.

1, 2003.

Amended by:

Acts 2005, 79th Leg., Ch.

1018, Sec. 2.08, eff. September 1, 2005.

Acts 2009, 81st Leg., R.S., Ch.

933, Sec. 3D.01, eff. September 1, 2009.

Sec. 306.002. INTEREST; APPLICATION OF OTHER PROVISIONS OF

SUBTITLE. (a) A creditor may contract for, charge, and receive

from an obligor on a commercial loan a rate or amount of interest

that does not exceed the applicable ceilings computed in

accordance with Chapter 303.

(b) All other applicable provisions, remedies, and penalties of

this subtitle apply to a commercial loan unless this chapter

expressly provides otherwise.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept.

1, 1999.

Sec. 306.003. COMPUTATION OF TERM. A creditor and an obligor

may agree to compute the term and rate of a commercial loan based

on a 360-day year consisting of 12 30-day months. For purposes of

this chapter, each rate ceiling expressed as a rate per year may

mean a rate per year consisting of 360 days and of 12 30-day

months.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept.

1, 1999.

Sec. 306.004. DETERMINING RATES OF INTEREST BY SPREADING. (a)

To determine whether a commercial loan is usurious, the interest

rate is computed by amortizing or spreading, using the actuarial

method during the stated term of the loan, all interest at any

time contracted for, charged, or received in connection with the

loan.

(b) If a commercial loan is paid in full before the end of the

stated term of the loan and the amount of interest received for

the period that the loan exists exceeds the amount that produces

the maximum rate authorized by law for that period, the lender

shall:

(1) refund the amount of the excess to the borrower; or

(2) credit the amount of the excess against amounts owing under

the loan.

(c) A lender who complies with Subsection (b) is not subject to

any of the penalties provided by law for contracting for,

charging, or receiving interest in excess of the maximum rate

authorized.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept.

1, 1999.

Sec. 306.005. PREPAYMENT PREMIUMS AND SIMILAR AMOUNTS. With

respect to a loan subject to this chapter, a creditor and an

obligor may agree to a prepayment premium, make-whole premium, or

similar fee or charge, whether payable in the event of voluntary

prepayment, involuntary prepayment, acceleration of maturity, or

other cause that involves premature termination of the loan, and

those amounts do not constitute interest.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept.

1, 1999.

Amended by:

Acts 2005, 79th Leg., Ch.

1018, Sec. 2.12, eff. September 1, 2005.

Sec. 306.006. CERTAIN AUTHORIZED CHARGES ON COMMERCIAL LOANS.

In addition to the interest authorized by this chapter, the

parties to a commercial loan may agree and stipulate for:

(1) a delinquency charge on the amount of any installment or

other amount in default for a period of not less than 10 days in

an amount not to exceed five percent of the total amount of the

installment; and

(2) a returned check fee in an amount that does not exceed the

maximum fee authorized in Section 3.506, Business & Commerce

Code, on any check, draft, order, or other instrument or form of

remittance that is returned unpaid or dishonored for any reason.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept.

1, 1999.

Amended by:

Acts 2005, 79th Leg., Ch.

1018, Sec. 2.13, eff. September 1, 2005.

Sec. 306.007. GUARANTY, ASSUMPTION, PAYMENT, OR OTHER AGREEMENT.

With respect to a commercial loan, an obligor may be required to

assume, pay, or provide a guaranty of another person's existing

or future obligation as a condition of the obligor's own use,

forbearance, or detention of money. The amount of the other

person's obligation required to be assumed, paid, or guaranteed

does not constitute interest with respect to any obligation of

the obligor.

Added by Acts 2005, 79th Leg., Ch.

1018, Sec. 2.14, eff. September 1, 2005.

SUBCHAPTER B. PROVISIONS RELATING TO SPECIFIC TYPES OF COMMERCIAL

LOANS OR TRANSACTIONS

Sec. 306.101. QUALIFIED COMMERCIAL LOAN. (a) The parties to a

qualified commercial loan agreement may contract for a rate or

amount of interest that does not exceed the applicable rate

ceiling.

(b) The parties to a qualified commercial loan agreement may

contract for the following charges:

(1) a discount or commission that an obligor has paid or agreed

to pay to one or more underwriters of securities issued by the

obligor;

(2) an option or right to exchange, redeem, or convert all or a

portion of the principal amount of the loan, or interest on the

principal amount, for or into capital stock or other equity

securities of an obligor or of an affiliate of an obligor;

(3) an option or right to purchase capital stock or other equity

securities of an obligor or of an affiliate of an obligor;

(4) an option or other right created by contract, conveyance, or

otherwise, to participate in or own a share of the income,

revenues, production, or profits:

(A) of an obligor or of an affiliate of an obligor;

(B) of any segment of the business or operations of an obligor

or of an affiliate of an obligor; or

(C) derived or to be derived from ownership rights of an obligor

or of an affiliate of an obligor in property, including any

proceeds of the sale or other disposition of ownership rights; or

(5) compensation realized as a result of the receipt, exercise,

sale, or other disposition of an option or other right described

by this subsection.

(c) A charge under Subsection (b) is not interest.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept.

1, 1999.

Sec. 306.102. ASSET-BACKED SECURITIES TRANSACTION. An amount

that is paid, passed through, or obligated to be paid or to be

passed through in connection with asset-backed securities or that

is not paid as a result of a discounted sale price to the holders

of asset-backed securities by a pass-through entity is not

interest. This section does not affect interest that is agreed on

and fixed by the parties to a written contract and paid, charged,

or received on the ultimate underlying assets pledged to or held

for the benefit of holders of asset-backed securities.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept.

1, 1999.

Sec. 306.103. ACCOUNT PURCHASE TRANSACTION. (a) An amount of a

discount in, or charged under, an account purchase transaction is

not interest.

(b) For the purposes of this chapter, the parties'

characterization of an account purchase transaction as a purchase

is conclusive that the account purchase transaction is not a

transaction for the use, forbearance, or detention of money.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.18(a), eff. Sept.

1, 1999.