Does Texas regulate a vehicle depreciation benefit product if you pay for it in cash instead of financing it?

Plain-English summary

A "depreciation benefit product" is an optional add-on sold in connection with vehicles. The idea is that if your car is totaled, the product pays you a credit, applied toward a replacement vehicle at a participating dealer, equal to the difference between what you paid for the car and its actual cash value at the time of the loss. Texas regulates one form of this product under Occupations Code chapter 1304, where it is called a "depreciation benefit optional member program."

A state senator asked the AG a narrow question: does chapter 1304 also reach a depreciation benefit product that a customer buys solely with cash, rather than through financing? The concern was that the program might only work as a financed transaction, not a cash or lease deal.

The AG answered no. The definition in subsection 1304.003(a)(3) describes a "depreciation benefit optional member program" as "a service contract financed under Chapter 348 or 353, Finance Code." Those two Finance Code chapters govern installment sales of motor vehicles and commercial motor vehicles. Reading the statute by its plain words, the AG concluded that a product leased or purchased outright with cash, and not on an installment basis, is not "financed under chapter 348 or chapter 353." Because it does not fit the statutory definition, the cash-purchased product is distinct from the product chapter 1304 regulates.

The AG drew a clear boundary around the answer. The opinion decided only that the described product falls outside chapter 1304. It did not decide that selling the product is precluded by Texas law, and it did not address whether some other Texas law governs it.

Currency note

This opinion was issued in 2020. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

What the opinion meant for those who asked

For the senator and the regulators looking at these products, the opinion drew a line based entirely on how the product is paid for. Under the AG's reading, the chapter 1304 framework, with its registration, disclosure, and oversight requirements for "depreciation benefit optional member programs," attached only to products financed through a Finance Code chapter 348 or 353 installment sale. A version sold for cash, or leased, sat outside that definition. For sellers offering a cash-only depreciation benefit product, the opinion's significance was equally bounded: being outside chapter 1304 was not a ruling that the product was lawful, and the AG expressly left open whether any other Texas statute governed it. The opinion resolved one definitional question and nothing more.

Common questions

Q: What is a depreciation benefit product?
A: It is a vehicle add-on that, if the car is a total loss, pays the buyer a credit toward a replacement vehicle equal to the difference between the purchase price and the car's actual cash value.

Q: Why does paying cash change whether chapter 1304 applies?
A: Because the statutory definition only covers a service contract "financed under Chapter 348 or 353" of the Finance Code, which are the installment-sales chapters. A cash purchase is not financed under those chapters, so it falls outside the definition.

Q: Did the AG say the cash product is legal to sell?
A: No. The AG limited the opinion to whether chapter 1304 regulates the product. It did not decide whether selling the product is allowed under any other Texas law.

Background and statutory framework

Occupations Code chapter 1304 regulates "depreciation benefit optional member programs." Subsection 1304.003(a)(3) defines that term as "a service contract financed under Chapter 348 or 353, Finance Code, that pays to the buyer, as a credit toward the purchase of a replacement vehicle at a participating dealer, an amount less than or equal to the difference between the purchase price and actual cash value for a total constructive loss." Finance Code chapters 348 and 353 govern, respectively, motor-vehicle installment sales (sections 348.001-.518) and commercial-motor-vehicle installment sales (sections 353.001-.515). The AG applied standard plain-meaning statutory construction, looking to the enacted text as the best indicator of legislative intent, citing Brazos Elec. Power Coop., Inc. v. Tex. Comm'n on Envtl. Quality, 576 S.W.3d 374 (Tex. 2019), Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433 (Tex. 2009), Sullivan v. Abraham, 488 S.W.3d 294 (Tex. 2016), and Centerpoint Builders GP, LLC v. Trussway, Ltd., 496 S.W.3d 33 (Tex. 2016). The opinion took its working definition of a "cash" sale from Allstate Ins. Co. v. Dykes, 461 S.W.2d 519 (Tex. App.-Tyler 1970, writ ref'd n.r.e.), a sale in which the contract calls for payment of the price in cash when the contract is made or the goods are delivered.

Citations and references

Statutory provisions:

• Tex. Occ. Code § 1304.003; chapter 1304
• Tex. Fin. Code ch. 348; ch. 353

Cases:

• Brazos Elec. Power Coop., Inc. v. Tex. Comm'n on Envtl. Quality, 576 S.W.3d 374, 383-84 (Tex. 2019)
• Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 437 (Tex. 2009)
• Sullivan v. Abraham, 488 S.W.3d 294, 299 (Tex. 2016)
• Centerpoint Builders GP, LLC v. Trussway, Ltd., 496 S.W.3d 33, 43 (Tex. 2016)
• Allstate Ins. Co. v. Dykes, 461 S.W.2d 519, 521 (Tex. App.-Tyler 1970, writ ref'd n.r.e.)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/ken-paxton/kp-0289
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/2020/kp-0289.pdf

Original opinion text

KEN PAXTON
ATTORNEY GENERAL OF TEXAS

March 3, 2020

The Honorable Donna Campbell, M.D.
Chair, Committee on Veteran Affairs & Border Security
Texas State Senate
Post Office Box 12068
Austin, Texas 78711-2068

Opinion No. KP-0289

Re: Whether a depreciation benefit product purchased solely with cash is regulated by Occupations Code chapter 1304 (RQ-0302-KP)

Dear Senator Campbell:

You ask about a depreciation benefit optional member program under Occupations Code chapter 1304.[1] You tell us that you seek clarification because of a "concern that a depreciation benefit optional program can only be purchased through a financed transaction, and not on a cash or lease transaction." Request Letter at 1. We understand your request to relate to a particular depreciation benefit product that is purchased solely with cash.

Occupations Code subsection 1304.003(a)(3) defines a "depreciation benefit optional member program" as

a service contract financed under Chapter 348 or 353, Finance Code, that pays to the buyer, as a credit toward the purchase of a replacement vehicle at a participating dealer, an amount less than or equal to the difference between the purchase price and actual cash value for a total constructive loss.

TEX. OCC. CODE § 1304.003(a)(3). In considering subsection 1304.003(a)(3), we look to the rules of statutory construction. The primary "objective in statutory construction is to give effect to the Legislature's intent, which [is ascertained] from the plain meaning of the words used in the statute because the best indicator of what the Legislature intended is what it enacted." Brazos Elec. Power Coop., Inc. v. Tex. Comm'n on Envtl. Quality, 576 S.W.3d 374, 383-84 (Tex. 2019) (quotation marks omitted). Where the text is clear, it is "determinative of that intent." Entergy Gulf States, Inc. v. Summers, 282 S.W.3d 433, 437 (Tex. 2009).

By the express terms of subsection 1304.003(a)(3), a depreciation benefit optional member program is one that is "financed under chapters 348 or 353 of the Finance Code."[2] TEX. OCC. CODE § 1304.003(a)(3); see Sullivan v. Abraham, 488 S.W.3d 294, 299 (Tex. 2016) ("[T]he statute's plain language is the surest guide to the Legislature's intent." (quotation marks omitted)). A depreciation benefit product that is leased or purchased solely with cash[3] and not on an installment basis, is not "financed under chapter 348 or chapter 353" and does not satisfy the definition of a depreciation benefit optional member program in subsection 1304.003(a)(3). TEX. OCC. CODE § 1304.003(a)(3); see Centerpoint Builders GP, LLC v. Trussway, Ltd., 496 S.W.3d 33, 43 (Tex. 2016) ("We may not ignore the Legislature's prudently selected words . . . ."). Thus, the product you describe is distinct from the product regulated by chapter 1304.[4]

SUMMARY

Occupations Code chapter 1304 defines a depreciation benefit optional member program, in part, as a service contract financed under Chapters 348 and 353, Finance Code. A depreciation benefit product that is leased or purchased solely with cash and not on an installment basis is not "financed under chapter 348 or chapter 353" and does not satisfy the definition in subsection 1304.003(a)(3). The product you describe, therefore, is distinct from the one regulated by chapter 1304.

Very truly yours,

KEN PAXTON
Attorney General of Texas

JEFFREY C. MATEER
First Assistant Attorney General

RYAN L. BANGERT
Deputy Attorney General for Legal Counsel

VIRGINIA K. HOELSCHER
Chair, Opinion Committee

CHARLOTTE M. HARPER
Assistant Attorney General, Opinion Committee

[1] See Letter from Honorable Donna Campbell, M.D., Chair, Senate Comm. on Veteran Affairs & Border Sec., to Honorable Ken Paxton, Tex. Att'y Gen. at 1 (rec'd Sept. 3, 2019), https://www2.texasattorneygeneral.gov/opinion/requests-for-opinion-rqs ("Request Letter").

[2] Finance Code chapters 348 and 353, respectively, govern installment sales of motor vehicles and commercial motor vehicles. See generally TEX. FIN. CODE §§ 348.001-.518 ("Motor Vehicle Installment Sales"), 353.001-.515 ("Commercial Motor Vehicle Installment Sales").

[3] A "cash" sale "is one in which the contract calls for payment of the price in cash when the contract is made or the goods delivered." Allstate Ins. Co. v. Dykes, 461 S.W.2d 519, 521 (Tex. App.-Tyler 1970, writ ref'd n.r.e.).

[4] The scope of this opinion is limited to whether the product described is regulated by chapter 1304. This opinion does not determine that sale of the product is precluded by Texas law, nor does it address whether the product is governed by other Texas law.