Proposed Administrative Rules

Chapter 57. For-Profit Legal Service Contract Companies
Proposal Filed:  May 23, 2019 – Published in the Texas Register:  June 7, 2019
Deadline for Public Comment:  July 8, 2019

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The Texas Department of Licensing and Regulation (Department) proposes the repeal of existing rules at 16 Texas Administrative Code (TAC) Chapter 57, §§57.1, 57.10, 57.21, 57.22, 57.23, 57.25, 57.70, 57.71, 57.72, 57.80, and 57.90, regarding For-Profit Legal Service Contract Companies.

EXPLANATION OF AND JUSTIFICATION FOR THE REPEAL

This proposed rulemaking proposes the repeal of the For-Profit Legal Service Contract Companies rules under 16 TAC, Chapter 57, regarding the registration and regulation of for-profit legal service contract companies, administrators, and sales representatives by the Department. The rules under 16 TAC, Chapter 57 implement Texas Occupations Code, Chapter 953, Regulation of For-Profit Legal Service Contract Companies.

The proposed repeal is necessary to implement Senate Bill (S.B.) 2065 and House Bill (H.B.) 2113, 85th Legislature, Regular Session, 2017. These two bills eliminated the statewide registration requirements and regulation by the Department of for-profit legal service contract companies, administrators, and sales representatives under Occupations Code, Chapter 953. The two bills also eliminated requirements on for-profit legal service contract companies to submit financial security and other financial information to the Department and to maintain certain company records. These two bills, however, preserved other requirements under Chapter 953 regarding for-profit legal service contracts and for-profit legal service contract companies, administrators, and sales representatives. A violation of the remaining chapter is a deceptive trade practice actionable under Subchapter E, Chapter 17, Business and Commerce Code (Deceptive Trade Practices-Consumer Protection Act). These statutory changes will be effective September 1, 2019.

This proposed rulemaking proposes the repeal of 16 TAC Chapter 57 and is being published so that the effective date of the repeal corresponds with the effective date of the statutory changes. As of September 1, 2019, the Department will no longer register or regulate for-profit legal service contract companies, administrators, and sales representatives.

SECTION-BY-SECTION SUMMARY

This proposal repeals §57.1, Authority. This section states that the rules are promulgated under the authority of Texas Occupations Code, Chapters 51 and 953.

This proposal repeals §57.10, Definitions. This section defines group legal service contract, group legal service contract manager, administrator, company, and sales representative.

This proposal repeals §57.21, Registration Requirements—Company. This section sets out the registration requirements, the registration term, and the requirements regarding financial security and other financial information for legal service contract companies.

This proposal repeals §57.22, Registration Requirements—Sales Representative. This section sets out the registration requirements and the registration term for legal service contract sales representatives.

This proposal repeals §57.23, Registration Requirements—Administrator. This section sets out the registration requirements and the registration term for legal service contract administrators.

This proposal repeals §57.25, Registration Requirements—Renewal. The section sets out the registration renewal requirements for companies, sales representatives, and administrators.

This proposal repeals §57.70, Responsibilities of Registrants—General. The section requires a registrant to notify the Department in writing within 30 days of any change in the registrant’s information.

This proposal repeals §57.71, Responsibilities of Registrants—Company. This section establishes the responsibilities of a legal service contract company, including: providing a receipt and a copy of the legal service contract to a contract holder; providing notice that the Department regulates legal service contract companies and sale representatives; and providing the Department’s contact information.

This proposal repeals §57.72, Responsibilities of Registrants—Sales Representative. This section provides that a sales representative may only sell legal service contracts under Texas Occupations Code, Chapter 953 and this chapter on behalf of a registered company.

This proposal repeals §57.80, Fees. This section sets out the initial and renewal registration fees for companies, administrators, and sales representatives; fees for revised or duplicate registrations; late renewal fees; and the annual premium tax replacement fee for companies.

This proposal repeals §57.90, Administrative Penalties and Sanctions. This section sets out the administrative penalties and sanctions for violations of the Department’s statutes and rules.

FISCAL IMPACT ON STATE AND LOCAL GOVERNMENT

State Government

Tony Couvillon, Policy Research and Budget Analyst, has determined that for each year of the first five years the proposed repeal is in effect, there will be a reduction in costs to the State as a result of enforcing or administering the proposed repeal.

S.B. 2065 and H.B. 2113 repealed the statewide registration requirements and regulation by the Department of for-profit legal service contract companies, administrators, and sales representatives from the statute, Occupations Code, Chapter 953. This proposal repeals the corresponding program rules. The Department will no longer have costs associated with the regulation of the industry including paying full time employees (FTEs) to administer and enforce the program. No FTEs worked on this program on a full-time basis so there is no loss of FTEs. The changes to the statute, and the resulting repeal of the rules, will result in a reduction in costs to the State of approximately $91,232 for each year of the first five years.

Mr. Couvillon has determined that for each year of the first five years the proposed repeal is in effect, there will be a loss in revenue to the State as a result of enforcing or administering the proposed repeal.

S.B. 2065 and H.B. 2113 repealed the registration and renewal requirements, including payment of fees, from the statute. This proposal repeals the specific registration and renewal fees for companies, administrators, and sales representatives from the existing rules. As of May 1, 2019, there were: 16 for-profit legal service contract companies; 9,685 for-profit legal service contract sales representatives; and 1 for-profit legal service contract administrator. The registration fees for the program have averaged $215,000 each year for the past five years.

S.B. 2065 and H.B. 2113 repealed the annual premium tax replacement fee, which must be paid by each company, and the formula for calculating the fee from the statute. This proposal repeals this fee from the corresponding program rules. The annual premium tax replacement fee has averaged $860,000 each year for the past five years.

The changes to the statute, and the resulting repeal of the fees set by rule, will result in a loss of revenue to the State of approximately $1,075,000 each year for the first five years.

Local Government

Mr. Couvillon has determined that for each year of the first five years the proposed repeal is in effect, there will be no estimated additional costs or estimated reduction in costs to local government as a result of enforcing or administering the proposed repeal.

Mr. Couvillon has determined that for each year of the first five years the proposed repeal is in effect, there is no estimated increase or loss in revenue to local government as a result of enforcing or administering the proposed repeal.

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

LOCAL EMPLOYMENT IMPACT STATEMENT

Mr. Couvillon has determined that the proposed repeal 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 has determined that for each year of the first five-year period the proposed repeal is in effect, the public benefit will be the repeal of unnecessary rules. The rules under 16 TAC Chapter 57 implement Texas Occupations Code, Chapter 953. S.B. 2065 and H.B. 2113 eliminate the statewide registration requirements and regulation by the Department under Chapter 953 effective September 1, 2019, so the rules will no longer be necessary.

The changes to the statute, and the repeal of the corresponding program rules, eliminate the cost of a regulatory program with a relatively small license population and little need for enforcement activity. As of May 1, 2019, there were: 16 for-profit legal service contract companies; 9,685 for-profit legal service contract sales representatives; and 1 for-profit legal service contract administrator.

Mr. Couvillon has determined that for each year of the first five-year period the proposed repeal is in effect, there will be a reduction in costs (savings) to persons who are required to comply with the proposed repeal. The Department estimates the collective savings to these persons to be approximately $1,075,000 for each year of the first five-year period.

For-profit legal service contract companies will no longer need to submit initial license or renewal applications, pay an initial application fee of $250, or pay a renewal fee which ranges from $250 to $1,000 depending on the number of legal service contracts sold in the 12 months preceding the renewal application. Companies will no longer be required to meet costly financial security requirements to sell legal service contracts, and no longer required to submit audit reports and audited financial statements, or a certified statement from an actuary describing the company’s reserves. Consequently, there will be less of a regulatory burden on the businesses in this industry, potentially enabling a reduction for consumers of the prices for legal service contracts.

For-profit legal service contract sales representatives will no longer need to pay a $20 initial application fee or a $20 annual renewal fee. For-profit legal service contract administrators will no longer be required to pay a $25 initial application fee or a $25 annual renewal fee.

The removal of Subchapter E from the statute will result in companies, sales representatives, and administrators no longer being subject to potential disciplinary action in the form of administrative penalties and sanctions by the Department. Consumers are still protected from violations of the statute through certain consumer protection provisions in the Deceptive Trade Practices-Consumer Protection Act.

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 repeal is effect, there are no anticipated economic costs to persons who are required to comply with the proposed repeal.

As explained under “Public Benefits”, the for-profit legal service contract companies will experience a reduction in costs from the elimination of initial application fees, annual renewal fees, and the annual premium tax replacement fee due to the changes made to the statute by S.B. 2065 and H.B. 2113 and the repeal of the corresponding program rules. The sales representatives and administrators will experience a reduction in costs from the elimination of initial application fees and annual renewal fees due to the changes made to the statute by S.B. 2065 and H.B. 2113 and the repeal of the corresponding program rules. The Department estimates the collective reduction in costs to these persons to be approximately $1,075,000 for each year of the first five-year period.

There could be a negligible economic cost to for-profit legal service contract companies that have pre-printed legal service contracts and that would need to update their contracts to remove the Department’s contact information. This cost, however, would be a result of changes made to the statute by S.B. 2065 and H.B. 2113, not by the proposed repeal.

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

There will be no adverse effect on small businesses, micro-businesses, or rural communities as a result of the proposed repeal. Since the agency has determined that the proposed repeal 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, is not required.

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

The proposed repeal does 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 repeal. For each year of the first five years the proposed repeal will be in effect, the agency has determined the following:

1. The proposed repeal does not create or eliminate a government program. S.B. 2065 and H.B. 2113 repealed the statewide registration requirements and regulation by the Department from the statute, resulting in the elimination of the government program. The proposal repeals the corresponding program rules.

2. Implementation of the proposed repeal does not require the creation of new employee positions or the elimination of existing employee positions. The legislature creates and eliminates employee positions through the General Appropriations Act.

3. Implementation of the proposed repeal does not require an increase or decrease in future legislative appropriations to the agency. The creation of, repeal of, and changes to a statute result in increases and decreases in future appropriations to an agency.

4. The proposed repeal does not require an increase in fees, but it requires a decrease in fees paid to the agency. S.B. 2065 and H.B. 2113 repealed the registration and renewal requirements, including payment of fees, from the statute. The proposed repeal decreases the fees paid to the agency by repealing the specific registration and renewal fees for companies, administrators, and sales representatives set out in the existing rules. S.B. 2065 and H.B. 2113 also repealed the required annual premium tax replacement fee and the prescribed formula from the statute. This statutory change decreases the annual fee paid by each company to the agency. This proposal just repeals this fee from the corresponding program rules.

5. The proposed repeal does not create a new regulation. This proposal repeals the existing regulations under 16 TAC Chapter 57. The proposed repeal is a result of the statutory changes made by S.B. 2065 and H.B. 2113.

6. The proposed repeal does not expand or limit an existing regulation, but it repeals an existing regulation. This proposal repeals the existing regulations under 16 TAC Chapter 57. The proposed repeal is a result of the statutory changes made by S.B. 2065 and H.B. 2113.

7. The proposed repeal does not increase the number of individuals, but it decreases the number of individuals subject to the rule's applicability. This proposal repeals the existing rules under 16 TAC Chapter 57, which results in a decrease in the number of companies, administrators, and sales representatives subject to the rule’s applicability. The proposed repeal is a result of the statutory changes made by S.B. 2065 and H.B. 2113.

8. The proposed repeal does not positively or adversely affect this state's economy. S.B. 2065 and H.B. 2113 eliminated the statewide registration requirements and regulation by the Department from the statute; however, the sale and administration of for-profit legal service contracts will continue. There should be no effect to the state’s economy.

TAKINGS IMPACT ASSESSMENT

The Department has determined that no private real property interests are affected by the proposed repeal and the proposed repeal does 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 repeal does not constitute a taking or require a takings impact assessment under Government Code §2007.043.

PUBLIC COMMENTS

Comments on the proposal may be submitted to Dalma Sotero, Legal Assistant, Texas Department of Licensing and Regulation, P.O. Box 12157, Austin, Texas 78711, or facsimile (512) 475-3032, or electronically: erule.comments@tdlr.texas.gov. The deadline for comments is 30 days after publication in the Texas Register.

STATUTORY AUTHORITY

The repeal is proposed under Texas Occupations Code, Chapter 51, which authorizes the Texas Commission of Licensing and Regulation, the Department’s governing body, to adopt rules as necessary to implement this chapter and any other law establishing a program regulated by the Department.

The statutory provisions affected by the proposal are those set forth in Texas Occupations Code, Chapters 51 and 953, and Texas Business and Commerce Code, Chapter 17, Subchapter E. No other statutes, articles, or codes are affected by the proposal.

[§57.1. Authority.]
[§57.10 Definitions.]
[§57.21 Registration Requirements--Company.]
[§57.22 Registration Requirements--Sales Representative.]
[§57.23 Registration Requirements--Administrator.]
[§57.25 Registration Requirements--Renewal.]
[§57.70 Responsibilities of Registrants--General.]
[§57.71 Responsibilities of Registrants--Company.]
[§57.72 Responsibilities of Registrant--Sales Representative.]
[§57.80 Fees.]
[§57.90 Administrative Penalties and Sanctions.]

REVIEW BY AGENCY COUNSEL

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be a valid exercise of the agency’s legal authority.

Filed with the Office of the Secretary of State, on May 23, 2019.

Brad Bowman
General Counsel
Texas Department of Licensing and Regulation