2023 Texas Statutes › Finance Code › Title 4 - Regulation of Interest, Loans, and Financed Transactions › Subtitle A - Interest › Chapter 307 - Collateral Protection Insurance › Subchapter B. Requirements for Collateral Protection Insurance › Section 307.051. Collateral Protection Insurance

Sec. 307.051.  COLLATERAL PROTECTION INSURANCE.  (a)  Collateral protection insurance is insurance coverage that:
(1)  is purchased by a creditor after the date of a credit agreement;
(2)  provides monetary protection against loss of or damage to the collateral or against liability arising out of the ownership or use of the collateral;  and
(3)  is purchased according to the terms of a credit agreement as a result of a debtor's failure to provide evidence of insurance or failure to obtain or maintain insurance covering the collateral, with the costs of the collateral protection insurance, including interest and any other charges incurred by the creditor in connection with the placement of collateral protection insurance, payable by a debtor.
(b)  Collateral protection insurance includes insurance coverage that is purchased to protect:
(1)  only the interest of the creditor;  or
(2)  both the interest of the creditor and some or all of the interest of a debtor.
(c)  The term of a collateral protection insurance policy may be:
(1)  not greater than 12 months;  or
(2)  the remaining term of the credit transaction if the remaining term is less than or equal to 24 months.
(d)  The effective date of coverage for collateral protection insurance may be earlier than the date of issuance of the policy.  The effective date may not be earlier than the date the collateral became uninsured.
(e)  A premium for collateral protection insurance covering collateral other than real property may not be based on an amount that exceeds the actual amount of unpaid indebtedness of the debtor as of the effective date of the policy.  This condition applies without regard to whether the coverage under the policy limits the insurer's liability to:
(1)  the amount of unpaid debt;
(2)  the cash value of the collateral;  or
(3)  the cost of repair of the collateral.
(e-1)  With respect to collateral protection insurance covering real property, a creditor, at the creditor's option, may obtain insurance that will cover either the replacement cost of improvements or the amount of unpaid indebtedness, subject to policy limits.  The debtor shall be obligated to reimburse the creditor for the premium, finance charges, and any other charges incurred by the creditor in connection with the placement of the insurance.  The creditor may use the previous evidence of insurance coverage furnished by the debtor to determine the sufficient level of replacement cost coverage to be provided.
(f)  Collateral protection insurance does not include insurance coverage that:
(1)  is purchased by the creditor for which the debtor is not charged;
(2)  is purchased at the inception of a credit transaction in which the debtor is a party or to which the debtor agrees, whether or not costs are included in a payment plan under the credit transaction;
(3)  is maintained by the creditor for the protection of collateral that comes into the possession or control of the creditor through foreclosure, repossession, or a similar event;
(4)  is credit insurance, mortgage protection insurance, insurance issued to cover the life or health of the debtor, or any other insurance maintained to cover the inability or failure of the debtor to make payment under the credit agreement;
(5)  is title insurance;
(6)  is flood insurance required to be placed by creditors under Section 102, National Flood Insurance Act of 1968 (42 U.S.C. Section 4012a); or
(7)  is insurance on a commercial vehicle securing a retail installment contract under Chapter 353.
Added by Acts 2001, 77th Leg., ch. 726, Sec. 1, eff. Sept. 1, 2001.  Amended by Acts 2003, 78th Leg., ch. 1219, Sec. 1, eff. June 20, 2003.
Amended by:
Acts 2009, 81st Leg., R.S., Ch. 238 (S.B. 1965), Sec. 1, eff. September 1, 2009.
Acts 2011, 82nd Leg., R.S., Ch. 117 (H.B. 2559), Sec. 5, eff. September 1, 2011.