The Texas Alcoholic Beverage Commission is proposing major changes to how it punishes Retailers for violations of Credit Law, i.e. delinquent payments, and late payments made outside of statutory credit terms.
A Retailer is prohibited from purchasing liquor on credit outside the terms provided under Tex. Alco. Bev. Code § 102.32(c). Liquor means any alcoholic beverage other than a malt beverage (which falls under Cash Law). A Seller is prohibited from selling to any Retailer who is delinquent to any Seller. Tex. Alco. Bev. Code § 102.32(d). Retailer becomes delinquent if they fail to make a payment four business days after payment becomes due. Purchases made by a Retailer between the 1st through the 15th of the month are due four business days after the 25th of the month. Purchases made by a Retailer between the 16th through the last day of the month are due four business days after the 10th of the next month. Purchased means the delivery date for purposes of computing deadlines. See MPA065. Sellers are required to inform the Commission of any delinquent accounts. Tex. Alco. Bev. Code § 102.32(d). The Commission in turn publishes a Delinquent List which puts Sellers and Retailers on notice of the delinquencies.
The purpose of Credit Law statute is to maintain independence between the distribution and retail tiers, as opposed to a debt collection mechanism for the distribution tier. Specifically, “prevent[ing] parties in the wholesale distribution system from controlling their retail customers through the leveraging of debt to accomplish[ing] other illicit gains” and “preventing those engaged in the distribution of alcoholic beverages from exerting undue influence over any level of the industry selling or service alcoholic beverages to the ultimate consumer”. See Tex. Alco. Bev. Code § 6.03(e) and (h). Credit Law also reinforces the Code’s prohibition against consignment sales, i.e. using extended credit as a subterfuge to sell on consignment, see generally Tex. Alco. Bev. Code §§ 1.04(2), 61.71(a)(8), 101.68, 102.01(i), 102.04(b)(3), 102.07(a)(4), 104.05(f).
Under the current guidance, the Commission affords a Retailer six (6) credit law violations per outlet in a rolling 12 month period. The seventh violation in the rolling 12 month period results in disciplinary action. The Commission proposes to change that in two material respects. First, the number of rolling violations is reduced from six (6) to three (3). Second, that all of the Retailer’s outlets are considered for purposes of counting violations. If a Retailer has one hundred outlets, and three different outlets each receive one violation in the rolling 12 month period, a fourth violation will result in disciplinary action.
Disciplinary action is generally meted out on an individual permit basis. See Tex. Alco. Bev. Code § 11.61(b) and 61.71. While the Code does allow the punishment of a Retailer on a wholesale basis, see Tex. Alco. Bev. Code § 11.66 and 61.72, depriving individual outlets of three warnings results in disparate and unequal treatment. Furthermore, it fails to take into consideration attendant circumstances, such as decentralized operations, separate books, different payment systems, different staff, etc.
We recommend that the Commission consider taking the above into consideration, and also use the rulemaking process to update existing portions of the existing rule, so it is conformance with other law. The current and proposed rules as written, give the Commission unfettered discretion to collect debt that is not enforceable due to limited liability protections under the Business Organizations Code, statute of limitations under the Texas Practice and Remedies Code, and the automatic stay and discharge provisions of the Bankruptcy Code.
Our public comments which go into more specific details, including revisions to the proposed rule are available below.
If you disagree with the direction the Commission is going with the proposed changes to the rules, make your opinion heard by submitting public comments to email@example.com, participating online at the next Stakeholder Meeting on August 12, 2022 at 10:00a, and following the progress of the same by signing up for Industry Briefs and Industry Notifications. Also, keep track of stakeholder meetings and commission meetings on the Commission’s website.