The statute, in its current form, provides:

"(a) A contract for a loan under Chapter 342, a retail installment transaction under Chapter 348, or a home equity loan regulated by the Office of Consumer Credit Commissioner, whether in English or Spanish, must be written in plain language designed to be easily understood by the average consumer. The contract must be printed in an easily readable font and type size." (Texas Finance Code Section 341.502(a).)

The Texas Office of Consumer Credit Commissioner ("OCCC") has practically eliminated the burden of writing a loan contract in plain language. The OCCC has published on its website model "plain language" contracts that are deemed to comply with the above statute and which lenders may use to comply with Section 341.502. (Click here for adopted model contracts- adopted)

In February, 2005, Texas Representative Joseph Pickett introduced to the Texas Legislature House Bill 1547 (HB 1547), an amendment to Texas Finance Code Section 341.502 that is proposed to become effective on September 1, 2005. The language of the amendment to Section 341.502(a), Finance Code, as introduced, reads as follows:

"(a) A contract for a loan under Chapter 342, a retail installment transaction under Chapter 348, or a home equity loan regulated by the Office of Consumer Credit Commissioner, and all documents related to the contract that include terms of repayment [whether in English or Spanish], must be:

1. written in plain language designed to be easily understood by the average consumer;
2. written in the language in which the terms of the loan were negotiated; and
3. [. The contract must be] printed in an easily readable font and type size."

According to this amendment, contracts and all loan-related documents that include the terms of repayment must be written in the language in which the terms of the loan were negotiated. This amendment would not be limited to translations in the Spanish language. If loan terms were negotiated in Japanese or Farsi, for example, loan contracts and related documents would have to be written in these languages, in plain language.

When HB 1547 passed through the Financial Institutions Committee on April 18, 2005, the Committee revised the amendment to read as follows:

(a) A contract for a loan under Chapter 342, a retail installment transaction under Chapter 348, or a home equity loan regulated by the Office of Consumer Credit Commissioner [, whether in English or Spanish,] must be:

1. written in plain language designed to be easily understood by the average consumer; and
2. [. The contract must be] printed in an easily readable font and type size.

(a-1) If the terms of the agreement for a loan under Subsection (a) were negotiated in Spanish, a copy of a summary of those terms and other pertinent information shall be provided to the debtor in Spanish in a form identical to disclosures required for a closed-end transaction under 12 C.F.R. Section 226.18.

The above substituted language modifies the original amendment by requiring a copy of a summary of the terms and other pertinent information of a consumer loan, a retail installment transaction or home equity loan that were negotiated in Spanish to be provided to the borrower in the Spanish language. Pursuant to the substituted amendment, the form of the summary would have to be in the same form as the disclosure requirements under Regulation Z Section 226.18 of the federal Truth In Lending Act.

One perspective on the challenges with implementing a "plain language" statute, such as the proposed amendment to the Texas plain language statute, is provided in the commentary, Out of Texas: Writing Loan Contracts In Plain Language.1

Melanie A. Feliciano is Assistant General Counsel of Document Systems, Inc. and a member of its Compliance Department.

1 The views expressed in this article do not necessarily reflect the views of Document Systems, Inc., and are those solely of the author.