| (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). 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.
(f) In accordance with Occupations Code §1304.1025(b)(2),
if the department determines that the amount of security deposit and
funded reserve balance are insufficient to evidence that the provider
can meet its obligations under service contracts and Occupations Code,
Chapter 1304, the department may deny or refuse to renew a registration,
or may require another of the authorized forms of financial security.
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| Source Note: The provisions of this §77.42 adopted to be effective November 16, 2009, 34 TexReg 7791; amended to be effective October 15, 2010, 35 TexReg 9083; amended to be effective March 1, 2012, 37 TexReg 1319; amended to be effective December 1, 2019, 44 TexReg 7185; amended to be effective June 15, 2022, 47 TexReg 3455; amended to be effective June 13, 2024, 49 TexReg 4035 |
