Premium finance is a specialized financial service, and like all financial services in Texas, it's regulated. If you're financing an insurance premium with a company like NatPrem, the protections you receive are guaranteed by Texas law. Here's what you need to know about premium finance compliance and the regulations that keep both lenders and borrowers protected.

What Is Premium Finance Regulation?

Premium finance is governed by Chapter 651 of the Texas Insurance Code — formally titled "Financing of Insurance Premiums." This chapter establishes rules for:

  • Who can lend money for insurance premiums (licensed premium finance companies only)
  • What terms can be offered (maximum rates, allowed fees, payment structures)
  • How loans must be documented (disclosure, transparency, written agreements)
  • What happens if borrowers default (notice requirements, collection procedures)
  • Consumer protections and borrower rights

The law exists to prevent predatory lending and ensure that premium finance agreements are fair, transparent, and protective of the borrower's interests.

NatPrem's License: What It Means

NatPrem is licensed by the Texas Department of Insurance (TDI) as an Insurance Premium Finance Company under License No. 3036548. Here's what that license means:

License Holder: National Premium Finance Company, LLC License Type: Insurance Premium Finance Company License Number: 3036548 Jurisdiction: State of Texas Licensed Location: 6855 Communications Pkwy, Suite 220, Plano, TX 75024 Status: Active (subject to annual renewal)

What the License Authorizes:

  • NatPrem is authorized to lend money to borrowers for the purpose of paying insurance premiums to carriers
  • NatPrem can finance premiums for commercial auto, trucking, workers' compensation, liability, and other business insurance
  • NatPrem can work directly with borrowers or through insurance agents and brokers
  • NatPrem can charge finance charges (interest) subject to regulated limits
  • NatPrem can collect payments and enforce collection procedures under the law

What the License Requires:

  • Maintain a surety bond (financial guarantee to protect borrowers)
  • Keep detailed loan records and transaction documentation
  • Submit to annual financial audits by the TDI
  • Comply with all disclosure and documentation requirements
  • Resolve borrower complaints promptly
  • Renew the license annually with the Texas Department of Insurance

Chapter 651: The Core Regulations

Here are the key requirements of Texas Insurance Code Chapter 651 that protect you:

1. Premium Finance Agreement (Required Disclosure)

Every premium finance transaction must be documented in a written agreement that clearly discloses:

  • Amount Financed: The total premium to be paid to the carrier
  • Down Payment: The amount you must pay upfront
  • Finance Charge: The total dollar amount of interest/fees you will pay
  • Annual Percentage Rate (APR): The yearly interest rate (to make rates comparable across lenders)
  • Payment Schedule: Due date, payment amount, and number of payments
  • Finance Charge Calculation Method: Usually the Rule of 78s (front-loaded interest)
  • Default Terms: What happens if you miss a payment (grace periods, penalties, notice requirements)
  • Prepayment Rights: Your right to pay off early without penalty
  • Borrower Rights: Your rights under the law

You must receive a copy of this agreement before or at the time you sign — not later. No surprises, no hidden terms.

2. Maximum Finance Charges (Interest Rate Caps)

Texas law does not allow unlimited finance charges. Premium finance companies are subject to the following:

  • Statutory Limits: Texas Insurance Code Chapter 651 limits premium finance charges by applying the consumer-loan charge limits of Texas Finance Code Chapter 342
  • No Prepayment Penalty: You can pay off your loan early without paying extra fees
  • No Late Fees (Exception): Only if expressly permitted in the agreement and reasonable
  • No Other Hidden Fees: Origination fees, documentation fees, etc. must be disclosed upfront

NatPrem’s finance charge is set when the agreement is originated and stays within the limits Texas law allows. Your exact APR, finance charge, amount financed and payment schedule are disclosed on your premium finance agreement before you sign — compare those, not just the monthly payment.

3. Rule of 78s (Interest Calculation Method)

The Rule of 78s is the method used to determine how much of the finance charge has been earned at any point, and it is the method disclosed in your premium finance agreement. Here's how it works:

What the Rule of 78s Does

The Rule of 78s front-loads the finance charge: more of the charge is earned in the early months and less in the later months. What that means for you:

  • For Borrowers (You): If you pay off your agreement early, you receive a refund credit of the unearned finance charge. Because the charge is front-loaded, that refund is smaller than it would be if the charge were spread evenly across the term.
  • For Lenders: The lender earns more of the charge in the early months, when its costs and risk are highest.

How It's Calculated:

The method uses a formula where months are weighted: a 12-month loan has weights of 12, 11, 10...down to 1 (totaling 78). Your first month's interest gets weight 12/78 of total finance charge; the last month gets 1/78.

In practice: because more of the charge is earned in the early months, paying off early always earns you a refund of the unearned part of the finance charge, and the earlier you pay off, the larger that refund. It is a little less than an even month-by-month split would give. For an exact payoff figure on any date, call us at (214) 586-3155.

4. Required Disclosures

Every premium finance agreement in Texas must be on a form approved by the Texas Department of Insurance and must disclose the key terms of the agreement, including:

  • The amount financed
  • The finance charge
  • The payment schedule

Because the form is approved by TDI, you can review these terms in writing before you sign.

5. Cancellation Rights

You may have rights to cancel a premium finance agreement under Texas law and under the terms of your agreement, and you can pay off your account at any time and receive a refund of the unearned finance charge. If you are thinking about cancelling, ask us. Call (214) 586-3155 and we will explain your options.

Borrower Protections Under Chapter 651

Texas law explicitly protects your rights as a borrower:

Right to Clear Information

  • You must receive a clear, written explanation of all terms before signing
  • You can ask questions, and the lender must answer honestly
  • You receive a copy of the signed agreement

Right to Accuracy

  • All math must be correct (and verified)
  • Your payment statement must show exactly how much you've paid and how much you owe
  • If there's an error, the lender must correct it within 30 days

Right to Prepayment

  • You can pay your loan off at any time without penalty
  • You're entitled to a rebate of unearned finance charges (using Rule of 78s)

Right to Notice and Cure

  • If you miss a payment, the lender must mail you a notice of intent to cancel, with a copy to your agent
  • The notice gives you at least 10 days to catch up before the policy can be cancelled
  • The lender must explain what happens next if you don't cure the default

Right to Dispute and Complain

  • You can dispute charges or errors in writing
  • The lender must respond within 30 days
  • You have the right to file a complaint with the Texas Department of Insurance if the lender doesn't resolve your dispute

Default and Collection Procedures

What Constitutes Default?

You're in default if:

  • Your payment is more than 10 days late (depending on the agreement)
  • The insurance policy is cancelled (for non-payment of the underlying premium, not the financed premium)
  • You breach any material term of the agreement (e.g., materially misrepresent information)

Collection Process

If you default, here's what happens:

  1. Notice of Intent to Cancel: Before cancelling the policy for non-payment, the premium finance company must mail you a notice of intent to cancel giving you at least 10 days to cure, with a copy to your agent
  2. If Cured: The agreement continues normally
  3. If Not Cured: The premium finance company may cancel the policy under the power of attorney in the agreement
  4. Unearned Premium Applied: The insurer must return the unearned premium to the premium finance company within 60 days of cancellation, and it is applied to your balance
  5. Surplus Refunded: If the returned premium is more than you owe, the excess is refunded to you (unless it is less than $5)
  6. Remaining Balance: If the returned premium is less than you owe, you still owe the remaining balance

NatPrem contacts customers directly and respectfully about past-due balances, and we never use abusive or harassing practices.

Multi-State Licensing

NatPrem's license is issued by the State of Texas, so it authorizes financing within Texas. For borrowers in other states, different rules apply:

  • Interstate Financing: If you're a Texas-based carrier with policies in other states, those may be financed under Texas law (the jurisdiction where the lender is licensed)
  • Cross-State Carriers: If you operate in multiple states, some states have their own premium finance requirements; NatPrem can advise on compliance
  • Multi-State Coordination: We track state-specific caps on rates, disclosure requirements, and cancellation rights

Always verify state-specific requirements if you operate across multiple states.

Regulatory Oversight and Compliance Audits

How Does TDI Monitor Compliance?

The Texas Department of Insurance maintains oversight through:

  • Annual Licensing Review: Each premium finance company renews its license annually and must certify compliance with all requirements
  • Financial Audits: TDI can audit the lender's books, accounts, and transaction records
  • Complaint Investigation: If a borrower files a complaint with TDI, the agency investigates and requires a response
  • Enforcement Action: If a lender violates regulations, TDI can impose fines, require corrective action, or revoke the license

NatPrem's Compliance Posture

NatPrem maintains strict compliance by:

  • Maintaining detailed records of every loan, payment, and customer interaction
  • Using premium finance agreement forms approved by the Texas Department of Insurance
  • Calculating finance charges and refund credits using the Rule of 78s method disclosed in the agreement
  • Monitoring state regulatory changes and updating policies accordingly
  • Conducting internal audits and maintaining compliance training for staff

Filing a Complaint with the Texas Department of Insurance

If You Have a Complaint About NatPrem

You have the right to file a formal complaint with the Texas Department of Insurance. Here's how:

Contact Information: Texas Department of Insurance Consumer Protection Bureau Phone: 1-800-252-3439 Website: www.tdi.texas.gov Mail: 333 Guadalupe, Austin, TX 78701

What to Include in Your Complaint:

  • Your name, address, and phone number
  • NatPrem's name and business address
  • Your loan number or account number
  • Description of the issue (in as much detail as possible)
  • Copies of documents (agreement, payment statements, correspondence)
  • What resolution you're seeking

Timeline: TDI investigates and requires a response from NatPrem within 10 business days. Most complaints are resolved within 30–60 days.

Common Compliance Misconceptions

Myth: "Premium Finance Companies Can Charge Any Rate They Want" Fact: Texas limits premium finance charges by statute (Texas Insurance Code Chapter 651, which applies the consumer-loan charge limits of Texas Finance Code Chapter 342). Your exact APR and finance charge are disclosed in your agreement before you sign.

Myth: "I Have to Pay Off the Entire Loan If I Miss One Payment" Fact: Before the policy can be cancelled for non-payment, you must be mailed a notice of intent to cancel giving you at least 10 days to catch up. If you cure in time, the agreement continues normally.

Myth: "Premium Finance Companies Can Charge Hidden Fees" Fact: All fees must be disclosed in the written agreement before you sign. No surprise fees are allowed.

Myth: "I Can't Pay Off Early Without Penalty" Fact: You can pay off at any time. Under Rule of 78s, you get a rebate of unearned interest.

Myth: "Premium Finance Is Unregulated" Fact: It's heavily regulated by Texas law (Chapter 651). The TDI licenses lenders, conducts audits, and enforces compliance.

Why Compliance Matters

Compliance protects both borrowers and lenders:

  • For You: You know exactly what you're paying, you have clear rights, and you can appeal to the state if something goes wrong
  • For Lenders: Clear rules mean fair competition, predictable operations, and borrower confidence
  • For the Market: Regulations prevent predatory practices and keep premium finance affordable and accessible

Bottom Line

Premium finance is a regulated service, and NatPrem operates under strict compliance with Texas law. Your finance agreement is transparent, your finance charges are limited by statute, your rights are protected, and you have recourse if anything goes wrong.

If you have questions about your agreement, NatPrem's compliance, or your rights under Texas law, contact us at (214) 586-3155 or Oscar@NatPrem.com. You can also contact the Texas Department of Insurance at 1-800-252-3439 for questions about your borrower rights.