PART 5. OFFICE OF CONSUMER CREDIT COMMISSIONER
CHAPTER 82. ADMINISTRATION
The Finance Commission of Texas (commission) adopts amendments to §82.1 (relating to Custody of Criminal History Record Information) and §82.2 (relating to Public Information Requests; Charges) in 7 TAC, Chapter 82, concerning Administration.
The commission adopts the amendments to §82.1 without changes to the proposed text as published in the September 4, 2020, issue of the Texas Register (45 TexReg 6199). The rule will not be republished.
The commission adopts amendments to §82.2 with changes to the proposed text as published in the September 4, 2020, issue of the Texas Register (45 TexReg 6199). The rule will be republished.
The commission received no written comments on the proposal.
In general, the purpose of the amendments in 7 TAC Chapter 82 is to implement changes resulting from the commission's review of the chapter under Texas Government Code, §2001.039. Notice of the review of 7 TAC Chapter 82 was published in the May 29, 2020, issue of the Texas Register (45 TexReg 3643). The commission received no comments in response to that notice.
The OCCC distributed an early precomment draft of the proposed amendments to interested stakeholders for review, and then held a stakeholder webinar regarding the amendments. The OCCC received no informal precomments on the rule text draft.
The adopted amendments are intended to specify employees with access to criminal history information, to specify methods of sending public information request, and to use consistent terminology to refer to charges collected for public information requests.
In §82.1, the amendments remove the director of strategic communications, administration and planning from the list of employees authorized to access criminal history record information.
In §82.2, the amendments clarify language on submitting public information requests and make terminology more consistent. Throughout §82.2, the amendments would replace current terminology such as "fee" and "cost" with "charge." These changes make the rule more internally consistent, and more consistent with the term "charge" as used in the Texas Public Information Act, Texas Government Code, Chapter 552, as well as rules adopted by the Office of the Attorney General, such as 1 TAC §70.3 (relating to Charges for Providing Copies of Public Information). An amendment removes §82.2(b)(3)(B), which describes requests submitted by fax and includes the OCCC's general fax number. By specifying that requests may be sent to a specified mailing address or to an email address designated by the OCCC, the rule will help ensure that any requests are promptly forwarded to the OCCC's public information officer. The amendments to §82.2(e), regarding inspections of records, clarify situations where the OCCC charges for labor or personnel time and does not charge for overhead.
In adopted §82.2, changes were made to correct an error to the text of the proposal as it was published in the Texas Register. Specifically, in §82.2(b)(3), the published version of the proposal mistakenly struck through the text "Public Information Officer, Office of Consumer Credit Commissioner, 2601 N. Lamar Blvd., Austin, TX 78705". The rules will not be republished for comment on this change.
The amendments are adopted under Texas Finance Code, §11.304, which authorizes the commission to adopt rules to enforce Chapter 14 and Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §14.157 authorizes the commission to adopt rules governing the custody of criminal history record information obtained under Texas Finance Code, Chapter 14, Subchapter D. Texas Government Code, §552.230 authorizes governmental bodies to adopt reasonable rules of procedure under which public information may be inspected and copied.
The statutory provisions affected by the adoption are contained in Texas Finance Code, Chapter 14.
§82.2.Public Information Requests; Charges.
(a) Definitions. The following words and terms, when used in this section, will have the following meanings, unless the context clearly indicates otherwise.
(1) Agency or OCCC--The Office of Consumer Credit Commissioner of the State of Texas.
(2) Commissioner--The Consumer Credit Commissioner of the State of Texas.
(3) Public information request--A written request made for public information pursuant to Texas Government Code, Chapter 552 (the Texas Public Information Act). Another name for a "public information request" is an "open records request," and these terms may be used synonymously.
(4) Readily available information--Public information that already exists in printed form, or information that is stored electronically, and is ready to be printed or copied without requiring any programming, but not information that is located in two or more separate buildings that are not physically connected with each other or information that is located in a remote storage facility as per Texas Government Code, §552.261.
(5) Standard paper copy--A printed impression on one side of a piece of paper that measures up to 8 1/2 inches by 14 inches. A piece of paper that is printed on both sides will be counted as two copies.
(b) Receipt of public information request.
(1) Generally. Upon receipt of a written public information request that clearly identifies the public information requested to be copied or examined pursuant to Texas Government Code, Chapter 552 (the Texas Public Information Act), the agency will make every reasonable effort to provide the information in the manner requested as quickly as possible without disruption of normal business activities. All requests will be processed in accordance with the Texas Public Information Act, and all requests will be treated equally.
(2) Requests by email directed to OCCC public information officer or designee. Public information requests submitted via email must be sent to the OCCC's public information officer at an email address designated by the OCCC.
(3) Requests sent by mail or hand delivery. Public information requests, other than email requests, may be submitted to the OCCC by mail or hand delivery to Public Information Officer, Office of Consumer Credit Commissioner, 2601 N. Lamar Blvd., Austin, TX 78705.
(4) Confidential information. Information that is confidential by law will not be provided except under court order, attorney general directive, or other legal process.
(5) Charge waiver or reduction. Charges imposed by this section may be waived or reduced at the discretion of the commissioner as per Texas Government Code, §552.267.
(c) Copy and service charges. The cost to any person requesting copies of public information from the OCCC will be the applicable charges established by the Office of the Attorney General under 1 TAC Chapter 70 (relating to Cost of Copies of Public Information). This subsection outlines the OCCC's most common charges to produce copies of public information. These charges may be supplemented or modified as authorized by 1 TAC Chapter 70.
(1) Charges not collected. No charge will be collected for requests resulting in charges of $5 or less.
(2) Application of charges. The following charges may apply to requests for public information:
(A) $0.10 copy charge per page if paper copies are requested;
(B) $15 per hour of labor or personnel time spent to locate (including pulling documentation from archives), compile, manipulate (including redacting mandated confidential information), reproduce, and prepare the information for delivery or inspection;
(C) 20% overhead charge, calculated by multiplying the total personnel cost under subparagraph (B) by 0.20.
(3) Certification. If certification of copies as true and accurate from the OCCC's records, or a certified statement verifying information on record with the OCCC is requested, an additional charge of $5 per certification will be added to the charges described by this subsection. The certification will include the signature of the commissioner, or a designated custodian of records for the information being certified, and the OCCC seal.
(4) Nonstandard copies. The charge for nonstandard copies will be determined by reference to any recommended standards promulgated by the Office of the Attorney General, 1 TAC Chapter 70 (relating to Cost of Copies of Public Information).
(5) Cost estimates.
(A) Over $40. If the anticipated charges under this subsection plus anticipated charges under subsection (d) of this section exceed $40, the agency will send an estimate outlining the estimated cost to fulfill the request as per Texas Government Code, §552.2615.
(B) Over $100. If the anticipated charges under this subsection plus anticipated charges under subsection (d) of this section exceed $100, the agency will send a cost estimate as provided in subparagraph (A) of this paragraph. In addition, the agency may require cash prepayment or bond equal to the total anticipated charges prior to providing copies of the requested information, as per Texas Government Code, §552.263.
(d) Delivery charges.
(1) U.S. mail. When public information is required to be mailed, the cost of postage will be added to the charges described by subsection (c) of this section.
(2) Expedited delivery. When a requestor asks and the agency agrees to provide public information by overnight delivery service or other expedited delivery, the cost of the service will be added to the charges described by subsection (c) of this section, unless the requestor arranges to pay the delivery charges directly. The agency is not required to provide expedited delivery without payment for the service.
(e) Inspection of records.
(1) Generally. Records access for purposes of inspection will be by appointment only and will only be available during regular business hours of the agency. If the safety of any public record or the protection of confidential information is at issue, or when a request for inspection would be unduly disruptive to the ongoing business of the office, physical access may be denied and the option of receiving copies at the usual charges will be provided.
(2) Redaction of confidential information from paper records. If confidential information must be redacted prior to a requestor's inspection of paper records, $0.10 per page may be charged to prepare the inspection copies containing the remaining public information.
(3) Labor charges. The agency may assess charges for labor or personnel time, as described by subsection (c)(2) of this section, if production of the information requires programming or manipulation of data (including redaction). The agency will not charge overhead for an inspection where the requestor does not receive copies of documents.
(4) Over $40. If a request for inspection would result in charges under Texas Government Code, §552.271 that exceed $40, the agency will send an estimate outlining the estimated cost to fulfill the request as per Texas Government Code, §552.2615.
(5) Over $100. If a request for inspection would result in charges of over $100, the agency may require a 50% cash prepayment or a bond equal to the total anticipated charges prior to providing access to the requested information, as per Texas Government Code, §552.263 and 1 TAC §70.7 (relating to Estimates and Waivers of Public Information Charges).
(f) Agency officer for public information. The commissioner or the commissioner's designee is the agency's officer for public information.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on October 16, 2020.
TRD-202004327
Audrey Spalding
Assistant General Counsel
Office of Consumer Credit Commissioner
Effective date: November 5, 2020
Proposal publication date: September 4, 2020
For further information, please call: (512) 936-7659
SUBCHAPTER B. RULES FOR CREDIT ACCESS BUSINESSES
The Finance Commission of Texas (commission) adopts amendments to §83.2003 (relating to Attempted Evasion of Applicability of Chapter), §83.4003 (relating to Denial, Suspension, or Revocation Based on Criminal History), §83.5001 (relating to Data Reporting Requirements), §83.5003 (relating to Examinations), §83.5004 (relating to Files and Records Required), and §83.6007 (relating to Consumer Disclosures); adopts new §83.5005 (relating to Separation Between Credit Access Business and Third-Party Lender); and adopts the repeal of §83.4007 (relating to License Reissuance) in 7 TAC, Chapter 83, Subchapter B, concerning Rules for Credit Access Businesses.
The commission adopts the amendments to §83.5001, §83.5003, and §83.5004, and adopts the repeal of §83.4007, without changes to the proposed text as published in the July 3, 2020, issue of the Texas Register (45 TexReg 4441). The rules will not be republished.
The commission adopts the amendments to §83.2003, §83.4003, and §83.6007, and adopts new §83.5005, with changes to the proposed text as published in the July 3, 2020, issue of the Texas Register (45 TexReg 4441). The rules will be republished.
The commission received two written comments on the proposal. The first comment was from the Texas Fair Lending Alliance and Faith Leaders 4 Fair Lending. This comment generally supports the amendments contained in the proposal, but recommends that the commission address further issues in the rules. The second comment was from the Online Lenders Alliance. This comment recommends changes to new §83.5005 as proposed. The commission's responses to these comments are included following the discussion of each applicable section.
The rules in 7 TAC Chapter 83, Subchapter B govern credit access businesses (CABs). In general, the purpose of the rule changes to 7 TAC Chapter 83, Subchapter B is to implement changes resulting from the commission's review of the subchapter under Texas Government Code, §2001.039. Notice of the review of 7 TAC Chapter 83, Subchapter B was published in the March 27, 2020, issue of the Texas Register (45 TexReg 2211). The commission received no comments in response to that notice.
The OCCC distributed an early precomment draft of proposed changes to interested stakeholders for review, and then held a stakeholder meeting and webinar regarding the rule changes. The OCCC received five informal precomments on the rule text draft. The OCCC appreciates the thoughtful input provided by stakeholders, and has incorporated changes suggested by stakeholders into the amendments and new rule.
Amendments to §83.2003 implement Texas Finance Code, §393.602(c), which prohibits a device, subterfuge, or pretense to evade the application of Texas Finance Code, Chapter 393, Subchapter G. In opinion no. KP-0277 (2019), the Texas attorney general addressed attempts to evade Chapter 393. The attorney general declined to determine whether a particular business practice was a device or subterfuge, stating: "Whether any specific extension of credit is substantially the same as that available to the public, or uses a device, subterfuge, or pretense to evade regulation as a credit access business, are fact questions that this office cannot decide through an attorney general opinion." In examinations, the OCCC has identified credit services organizations (CSOs) asserting that they provide non-CAB loans, and that their loans are not subject to the regulatory requirements for CABs. In some cases, the loans were not deferred presentment transactions or motor vehicle title loans, but the CSO notified consumers that it was a CAB licensed and examined by the OCCC, and that consumers could file complaints with the OCCC. To address these false and misleading representations, the OCCC published an advisory bulletin explaining that it intends to work with the Texas attorney general to address complaints that the OCCC receives about non-CAB loans. OCCC Advisory Bulletin B20-1, CSOs and Non-CAB Loans (Feb. 13, 2020).
The purpose of the amendments to §83.2003 is to make the rule's language more clear, and to specify practices that the OCCC has identified as a device, subterfuge, or pretense to evade Chapter 393. The list is not exclusive, because new attempts to evade Chapter 393 could arise from new facts. Based on a suggestion from stakeholder precomments, paragraphs (1) and (2) state that a device, subterfuge, or pretense includes a transaction that is not identified as a deferred presentment transaction or motor vehicle title loan, if the transaction is a deferred presentment transaction or motor vehicle title loan.
Since the proposal, a change has been made in the amendments to §83.2003. As originally proposed, §83.2003(3) - (6) included false or misleading representations made in connection with non-CAB loans, such as statements that a transaction is regulated by the OCCC if the transaction is not actually regulated by the OCCC. After further review, the OCCC believes that if it encounters these false and misleading statements, it would be more appropriate to address these statements by working with the Texas attorney general, rather than including these statements in a rule on a device, subterfuge, or pretense to evade Chapter 393. For this reason, the adoption does not include §83.2003(3) - (6) as originally proposed. As explained in advisory bulletin B20-1, all CSOs are subject to the general provisions of Chapter 393, including the enforcement authority of the Texas attorney general and the prohibition on false and misleading representations. The OCCC intends to work with the Texas attorney general to address that the OCCC receives about non-CAB loans. If a CSO makes false or misleading representations, or otherwise violates Chapter 393, this could result in civil liability and enforcement actions by the Texas attorney general.
The comment from the Texas Fair Lending Alliance and Faith Leaders 4 Fair Lending recommends including additional language in §83.2003 stating that a device, subterfuge, or pretense includes "any transaction that in form may appear on its face to be something other than a deferred presentment transaction or motor vehicle title loan, but in substance meets the definition of a deferred presentment transaction or motor vehicle title loan as defined in Texas Finance Code, §393.602." The commission declines to include this additional provision, because the commission believes that the adopted text in §83.2003(1) - (2) already describes these transactions in a clearer manner.
Amendments to §83.4003 relate to the OCCC's review of the criminal history of a CAB applicant or licensee. The OCCC is authorized to review criminal history of CAB applicants and licensees under Texas Occupations Code, Chapter 53; Texas Finance Code, §14.109; and Texas Government Code, §411.095. The amendments to §83.4003 ensure consistency with HB 1342, which the Texas Legislature enacted in 2019. HB 1342 included the following changes in Texas Occupations Code, Chapter 53: (1) the bill repealed a provision that generally allowed denial, suspension, or revocation for any offense occurring in the five years preceding the application, (2) the bill added provisions requiring an agency to consider correlation between elements of a crime and the duties and responsibilities of the licensed occupation, as well as compliance with conditions of community supervision, parole, or mandatory supervision, and (3) the bill removed previous language specifying who could provide a letter of recommendation on behalf of an applicant. Amendments throughout subsections (c) and (f) of §83.4003 implement these statutory changes from HB 1342. Other amendments to §83.4003 include technical corrections, clarifying changes, and updates to citations.
Since the proposal, a change has been made in §83.4003(d), to correct an internal reference that should refer to §83.4003(f)(1).
The comment from the Texas Fair Lending Alliance and Faith Leaders 4 Fair Lending recommends "adding a pattern of wrongfully using the criminal justice system to collect on civil debt as a ground for revoking a CAB license under 7 TAC §83.4003(f)." The commission believes that this additional language is unnecessary and goes beyond the intended scope of §83.4003. This section is intended to describe guidelines for how the OCCC reviews the criminal history of the principal parties of a CAB applicant or licensee, in accordance with Texas Occupations Code, Chapter 53. It is not intended to address every situation where a CAB interacts with criminal law enforcement. The issue of how CABs refer matters for criminal prosecution is addressed elsewhere in this adoption and in Texas Finance Code, §393.201(c)(3), which prohibits a CAB from threatening or pursuing criminal charges in the absence of criminal conduct. If a CAB violates Texas Finance Code, §393.201(c)(3), the OCCC could initiate an appropriate enforcement action under its authority in Texas Finance Code, Chapters 14 and 393, and would not have to rely on §83.4003. If a CAB or its principal party commits a criminal violation of a statute governing credit transactions, and is convicted of the offense, then the OCCC could consider this criminal history under the existing language at §83.4003(c)(1)(E). For these reasons, the commission believes that the additional text is unnecessary.
The adoption would repeal §83.4007. Currently, §83.4007 requires a licensee to return its license certificate in the event of reissuance of a license. When this section was adopted, it was based on the assumption that the OCCC would issue a paper license certificate. Because the OCCC now issues licenses through an online system, ALECS, this section is no longer necessary.
Amendments to §83.5001 relate to reporting violations. This section describes the requirement for CABs to provide quarterly and annual reports, implementing Texas Finance Code, §393.627. Currently, §83.5001(e)(2)(A) describes a $100 administrative penalty for a CAB's first violation. Based on a review of its enforcement guidelines, the OCCC believes that a better practice is to issue an injunction for the first reporting violation, not to impose an administrative penalty. For this reason, amendments to §83.5001(e) explain that the OCCC will issue an injunction for the first reporting violation. Amendments also specify that that the OCCC may revoke the license of a CAB that fails to pay an administrative penalty resulting from a final order, as provided by Texas Finance Code, §393.614. This situation is rare, and typically occurs when a CAB has ceased doing business without telling the OCCC.
Amendments to §83.5003 specify the content of witness declarations and records declarations that OCCC examiners obtain from CABs during examinations. The amendments explain that these declarations must substantially comply with Texas Civil Practice and Remedies Code, Chapter 132, which governs unsworn declarations that may be used in lieu of a sworn declaration or affidavit. The amendments also replace the term "statement" with "declaration," and remove provisions that are not necessary to include in a declaration under Chapter 132.
The comment from the Texas Fair Lending Alliance and Faith Leaders 4 Fair Lending recommends including a statement in §83.5003 that the declarations must include an "acknowledgement that the statement and the accompanying records may be introduced in an enforcement action in which the licensee is a party," as well as a statement of truthfulness "under penalty of perjury." The commission believes that this text is unnecessary. The amendments are intended to simplify §83.5003, and to ensure that it is not necessary to amend the rule again if the Texas Legislature amends Texas Civil Practice and Remedies Code, Chapter 132. To the extent that Chapter 132 requires language to be included in the declaration in order for the declaration to be valid and admissible in a hearing, the adopted rule addresses these requirements by requiring the declarations to comply with Chapter 132.
Amendments to §83.5004(2)(B)(vi) provide recordkeeping requirements for threats or referrals for criminal prosecution. Currently, this provision requires a CAB to maintain a "criminal charge or complaint filed by" the CAB. In Henry v. Cash Biz, LP, 551 S.W.3d 111, 117-18 (Tex. 2018), the Texas Supreme Court found that a CSO did not file a criminal complaint when it forwarded information to a district attorney about checks returned for insufficient funds. The amendments to §83.5004 add text to specify that a CAB must maintain referrals, written statements threatening criminal prosecution, a written summary of any oral statement threatening criminal prosecution, and any information submitted to law enforcement relating to alleged criminal conduct by a consumer. This information will document the CAB's compliance with Texas Finance Code, §393.201(c)(3), which provides that a CAB may not threaten or pursue criminal charges against a consumer in the absence of criminal conduct.
An amendment to §83.5004(3) states that a CAB must maintain documentation and records of transfers of money between itself and any third-party lender, for the same time period that the CAB must maintain other documentation of its agreements with third-party lenders. This amendment is intended document a CAB's compliance with new §83.5005, described later in this adoption.
The comment from the Texas Fair Lending Alliance and Faith Leaders 4 Fair Lending recommends adding requirements to §83.5004 "regarding the number of declined ACH or debit transactions for accounts where such transactions are authorized by the customer." The comment states: "This information is important to ensure compliance with the recently ratified payment provisions of the Consumer Financial Protection Bureau payday and auto title loan rule, which applies to CAB transaction." The OCCC will monitor this issue to determine whether a future rule amendment is appropriate. The federal rule described by the comment is currently in litigation in a federal district court. Community Financial Services Association of America and Consumer Services Alliance of Texas v. Consumer Financial Protection Bureau, case no. 1:19-cv-00295-LY (W.D. Tex.) Existing text in §83.5004 already requires a CAB to maintain "all legally required disclosures provided in connection with the transaction," "complete documentation of all payments made by or to the licensee during the transaction," "any other documentation created or obtained by the licensee in connection with the transaction," and for payday loans, "documentation relating to the personal check or authorization to debit a deposit account accepted in connection with the loan."
New §83.5005 describes requirements for separation between a CAB and a third-party lender. Under Chapter 393, CABs are a type of CSO, and a CSO is defined as a person who obtains for consumers, or assists consumers in obtaining, extensions of credit "by others." Tex. Fin. Code, §393.001(3). In this provision, the phrase "by others" means that a CAB must operate independently from any third-party lender. The OCCC is aware of two published decisions analyzing this separation requirement. First, the Fifth Circuit found that a CSO was sufficiently separate from a third-party lender where the CSO and lender were not the same entity, the CSO applied underwriting criteria selected by the lender (the CSO did not select the underwriting criteria), the CSO fee was not passed on to the lender, and the CSO fee did not directly benefit the lender. Lovick v. Ritemoney Ltd., 378 F.3d 433, 438-42 (5th Cir. 2004). Second, a Texas bankruptcy court found that even though a CSO was a separate entity from a lender, the CSO violated Chapter 393 by falsely stating that it would issue a letter of credit if required by the lender. In re Grayson, 488 B.R. 579, 589-92 (Bankr. S.D. Tex. 2012).
New §83.5005 would implement the CAB-lender separation requirement. The rule is intended to provide clear standards to ensure that CABs operate independently from third-party lenders as required by Chapter 393, and to document a CAB's compliance with this requirement. Subsection (b) would specify requirements that must be satisfied, including a requirement that the CAB and lender be separate legal entities. In response to precomments that the OCCC received, paragraph (3) specifies that a CAB may not perform the functions of a third-party lender except by written agreement, paragraph (7) specifies that a CAB may not act as a general agent of a third-party lender but may act as a special limited agent, and paragraph (8) specifies that a licensee may not directly or indirectly share fees for CAB services with the lender. Subsection (c) describes additional factors that the OCCC may consider in determining whether a CAB operates independently, and subsection (d) explains that a CAB may not make a false or misleading representation regarding its relationship with a third-party lender.
The comment from the Texas Fair Lending Alliance and Faith Leaders 4 Fair Lending expresses concern about the following language in §83.5005(b)(3): "A licensee may not perform the functions of a third party lender, except by written agreement." The comment explains: "If a written agreement could legitimate cooperation that otherwise would be not allowable under statute, that would defeat the purpose of the TFC §393.001(3) that requires independent operation. Additionally, while recognizing that special limited agents are confined in their authority to act in ways that general agent agents are not, that still defeats the purpose of the separation and independent operation requirement if a CAB and a third-party lender could simply invest or designate certain persons to perform particular, limited tasks -- tasks that would otherwise violate the separation requirement but for the agency's allowance in this rule."
In response to this comment, the commission has made a change since the proposal to include the phrase "in accordance with this section" at the end of §83.5005(b)(3) and (4). With this change, adopted §83.5005(b)(3), (4), and (7) describe certain actions that are prohibited unless the CAB has entered a "written agreement" that is "in accordance with this section." In these provisions, the phrase "in accordance with this section" is intended to clarify that a CAB and lender may not use a written agreement to evade requirements described elsewhere in the section.
The comment from the Texas Fair Lending Alliance and Faith Leaders 4 Fair Lending includes three additional suggestions regarding §83.5005. First, the comment recommends revising the rule to include "any estate planning or other documentation necessary to determine independent operation and that there is no direct or indirect fee sharing." The commission believes that this change is unnecessary, and that the provisions in amended §83.5004 and new §83.5005 should be sufficient to specify that CABs must maintain documentation of their agreements with third-party lenders and any transfers of money. Second, the comment explains that "we are concerned about the second provision under §83.5005 (8) that requires a third-party lender who receives any portion of a fee for CAB services charged by a licensee to promptly remit that to the licensee. This language appears to offer a 'get out of jail free card', allowing parties to share funds until caught and then remedy the situation with no penalty by returning ill-gotten funds." The commission disagrees with the suggestion that the rule creates a "get out of jail free card" in this situation. A CAB that fails to promptly remit money or fails to maintain documentation would be in violation of the rule. Third, the comment states: "We recommend that the regulator include as part of its periodic review and examination processes such contracts and performance under them to ensure that they do not, in substance, violate the proposed rules requiring separation and statutory requirement on extension of credit 'by others.'" The OCCC agrees that compliance with §83.5005 and the CAB-lender separation requirement is appropriately a part of the examination review process.
The comment from the Online Lenders Alliance expresses three concerns regarding §83.5005. First, the comment states that the rule goes beyond the statutory phrase "by others" by including requirements relating to separation and independence. "At a minimum it appears that Proposed § 83.5005 imposes additional burdens, conditions or restrictions that are in excess of the relevant statutory provisions. For example, the words 'separation' and 'independent' are not found anywhere within the relevant portions of the underlying statute. These concepts are only found in the relevant case law." Second, the comment suggests that the proposal's citations to case law are inappropriate, stating that "the cited cases in support of portions of Proposed § 83.5005 is common law and not statutory law. If the legislature wanted to codify this case law it could have done so through the legislative process, but the legislature has chosen not to codify the issues discussed in the cited case law. Instead, it appears that by adding § 83.5005 to the proposed rules, the Commission is attempting to codify the cited case law, which the Commission may lack the legal authority to do through its rulemaking authority." Third, the comment suggests that if §83.5005 is adopted at all, it should include the following sentence: "A licensee may select the underwriting criteria used in determining whether the licensee will provide a credit enhancement to the third-party lender, and the licensee's underwriting criteria may include the underwriting criteria selected by the third-party lender."
The commission and the OCCC disagree with this comment. The requirement of separation and independence results from a plain-language reading of the phrase "by others" in Texas Finance Code, §393.001(3), and is within the commission's rulemaking authority under Texas Finance Code, §393.622. Courts have analyzed §393.001 and the separation requirement, and it is entirely appropriate for the commission to consider this analysis in adopting a rule that interprets the same section and requirement. In addition, allowing a CAB to decide underwriting criteria would erode an important part of the separation requirement, and would enable a CAB to evade this requirement and act as a lender.
The adoption includes amendments to the figures accompanying §83.6007, which are the model forms for the consumer cost disclosure used by CABs. The amendments implement Texas Finance Code, §393.223(a), which authorizes the commission to adopt rules including the disclosure. The amendments include updated information regarding the cost of comparable forms of consumer credit, as well as updated information on patterns of repayment based on 2019 quarterly and annual reports provided by CABs to the OCCC. Since the proposal, minor formatting changes have been made to the disclosures contained in the figures accompanying §83.6007, to improve how the information is displayed.
The comment from the Texas Fair Lending Alliance and Faith Leaders 4 Fair Lending expresses concerns about the accuracy of the reporting data used in the amended disclosures, stating: "Given the limitations on currently aggregated data, we continue to urge the regulator to work on improving the accuracy and consistency of data to ensure accurate consumer disclosures. Some of these practices include requiring the regulator to update these model disclosures as they receive amended or corrected data and requesting verification from the licensee of any data that is found to be questionable or unreasonable to ensure that the data in aggregate is as complete, accurate, and thorough as possible." The commission believes that the OCCC has made appropriate efforts in periodically updating the disclosures, using information that is as accurate as possible. At the same time, the OCCC has accounted for the costs for CABs to update forms, as well as the confidentiality of reporting information under §83.5001(c).
The commission and the OCCC will allow a delayed implementation date of March 1, 2021, for all licensees to provide the amended versions of the disclosures under §83.6007. From the rule's effective date through February 28, 2021, licensees may provide consumers with either the previous versions of the disclosures or the amended versions. Starting on March 1, 2021, licensees must provide the amended versions. Regardless of which version of the forms they use, licensees must ensure that their disclosures comply with all requirements in Texas Finance Code, §393.223 and the rule text of §83.6007 and §83.6008 (relating to Permissible Changes). In particular, licensees must ensure that they: (1) use the disclosure corresponding to the correct product (e.g., multiple payment payday loan), (2) provide the disclosure at a time that is both before a credit application is provided and before a financial evaluation occurs, and (3) ensure that the disclosure is completed with all required information.
DIVISION 2. AUTHORIZED ACTIVITIES
The rule changes are adopted under Texas Finance Code, §393.622, which authorizes the commission to: (1) adopt rules necessary to enforce and administer Texas Finance Code, Chapter 393, Subchapter G (governing CABs), (2) adopt rules with respect to quarterly reporting by CABs, and (3) adopt rules with respect to the OCCC's examinations of CABs (including review of contracts between CABs and third-party lenders). In addition, Texas Finance Code, §393.223 authorizes the commission to adopt rules regarding the cost disclosure used by CABs.
The statutory provisions affected by the adoption are contained in Texas Finance Code, Chapter 393.
§83.2003.Attempted Evasion of Applicability of Subchapter.
A "device, subterfuge, or pretense to evade the application of this subchapter," as used in Texas Finance Code, §393.602(c), includes:
(1) a transaction that is not identified as a deferred presentment transaction or payday loan, if the transaction is a deferred presentment transaction; and
(2) a transaction that is not identified as a motor vehicle title loan, if the transaction is a motor vehicle title loan.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on October 16, 2020.
TRD-202004323
Matthew Nance
Deputy General Counsel
Office of Consumer Credit Commissioner
Effective date: November 5, 2020
Proposal publication date: July 3, 2020
For further information, please call: (512) 936-7660
The rule changes are adopted under Texas Finance Code, §393.622, which authorizes the commission to: (1) adopt rules necessary to enforce and administer Texas Finance Code, Chapter 393, Subchapter G (governing CABs), (2) adopt rules with respect to quarterly reporting by CABs, and (3) adopt rules with respect to the OCCC's examinations of CABs (including review of contracts between CABs and third-party lenders). In addition, Texas Finance Code, §393.223 authorizes the commission to adopt rules regarding the cost disclosure used by CABs.
The statutory provisions affected by the adoption are contained in Texas Finance Code, Chapter 393.
§83.4003.Denial, Suspension, or Revocation Based on Criminal History.
(a) Criminal history record information. After an applicant submits a complete license application, including all required fingerprints, and pays the fees required by §83.3010 of this title (relating to Fees), the OCCC will investigate the applicant and its principal parties. The OCCC will obtain criminal history record information from the Texas Department of Public Safety and the Federal Bureau of Investigation based on the applicant's fingerprint submission. The OCCC will continue to receive information on new criminal activity reported after the fingerprints have been initially processed.
(b) Disclosure of criminal history. The applicant must disclose all criminal history information required to file a complete application with the OCCC. Failure to provide any information required as part of the application or requested by the OCCC reflects negatively on the belief that the business will be operated lawfully and fairly. The OCCC may request additional criminal history information from the applicant, including the following:
(1) information about arrests, charges, indictments, and convictions of the applicant and its principal parties;
(2) reliable documents or testimony necessary to make a determination under subsection (c) of this section, including letters of recommendation from prosecution, law enforcement, and correctional authorities;
(3) proof that the applicant has maintained a record of steady employment, has supported the applicant's dependents, and has otherwise maintained a record of good conduct; and
(4) proof that all outstanding court costs, supervision fees, fines, and restitution as may have been ordered have been paid or are current.
(c) Crimes directly related to licensed occupation. The OCCC may deny a license application, or suspend or revoke a license, if the applicant or licensee has been convicted of an offense that directly relates to the duties and responsibilities of a credit access business, as provided by Texas Occupations Code, §53.021(a)(1).
(1) Providing credit access business services involves or may involve making representations to consumers regarding the terms of the contract, receiving money from consumers, remitting money to third parties, maintaining accounts, repossessing property without a breach of the peace, maintaining goods that have been repossessed, collecting due amounts in a legal manner, and compliance with reporting requirements to government agencies. Consequently, the following crimes are directly related to the duties and responsibilities of a licensee and may be grounds for denial, suspension, or revocation:
(A) theft;
(B) assault;
(C) any offense that involves misrepresentation, deceptive practices, or making a false or misleading statement (including fraud or forgery);
(D) any offense that involves breach of trust or other fiduciary duty;
(E) any criminal violation of a statute governing credit transactions or debt collection;
(F) failure to file a government report, filing a false government report, or tampering with a government record;
(G) any greater offense that includes an offense described in subparagraphs (A) - (F) of this paragraph as a lesser included offense;
(H) any offense that involves intent, attempt, aiding, solicitation, or conspiracy to commit an offense described in subparagraphs (A) - (G) of this paragraph.
(2) In determining whether a criminal offense directly relates to the duties and responsibilities of holding a license, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.022:
(A) the nature and seriousness of the crime;
(B) the relationship of the crime to the purposes for requiring a license to engage in the occupation;
(C) the extent to which a license might offer an opportunity to engage in further criminal activity of the same type as that in which the person previously had been involved; and
(D) the relationship of the crime to the ability, capacity, or fitness required to perform the duties and discharge the responsibilities of a licensee.
(3) In determining whether a conviction for a crime renders an applicant or a licensee unfit to be a licensee, the OCCC will consider the following factors, as specified in Texas Occupations Code, §53.023:
(A) the extent and nature of the person's past criminal activity;
(B) the age of the person when the crime was committed;
(C) the amount of time that has elapsed since the person's last criminal activity;
(D) the conduct and work activity of the person before and after the criminal activity;
(E) evidence of the person's rehabilitation or rehabilitative effort while incarcerated or after release, or following the criminal activity if no time was served;
(F) evidence of the person's compliance with any conditions of community supervision, parole, or mandatory supervision; and
(G) evidence of the person's current circumstances relating to fitness to hold a license, which may include letters of recommendation.
(d) Crimes related to character and fitness. The OCCC may deny a license application if the OCCC does not find that the financial responsibility, experience, character, and general fitness of the applicant are sufficient to command the confidence of the public and warrant the belief that the business will be operated lawfully and fairly, as provided by Texas Finance Code, §393.607(a). In conducting its review of character and fitness, the OCCC will consider the criminal history of the applicant and its principal parties. If the applicant or a principal party has been convicted of an offense described by subsections (c)(1) or (f)(2) of this section, this reflects negatively on an applicant's character and fitness. The OCCC may deny a license application based on other criminal history of the applicant or its principal parties if, when the application is considered as a whole, the agency does not find that the financial responsibility, experience, character, and general fitness of the applicant are sufficient to command the confidence of the public and warrant the belief that the business will be operated lawfully and fairly. The OCCC will, however, consider the factors identified in subsection (c)(2) - (3) of this section in its review of character and fitness.
(e) Revocation on imprisonment. A license will be revoked on the licensee's imprisonment following a felony conviction, felony community supervision revocation, revocation of parole, or revocation of mandatory supervision, as provided by Texas Occupations Code, §53.021(b).
(f) Other grounds for denial, suspension, or revocation. The OCCC may deny a license application, or suspend or revoke a license, based on any other ground authorized by statute, including the following:
(1) a conviction for an offense listed in Texas Code of Criminal Procedure, art. 42A.054, or art. 62.001(6), as provided by Texas Occupations Code, §53.021(a)(2) - (3);
(2) errors or incomplete information in the license application;
(3) a fact or condition that would have been grounds for denying the license application, and that either did not exist at the time of the application or the OCCC was unaware of at the time of application, as provided by Texas Finance Code, §393.614(a)(3); and
(4) any other information warranting the belief that the business will not be operated lawfully and fairly, as provided by Texas Finance Code, §393.607(a) and §393.614(a).
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on October 16, 2020.
TRD-202004324
Matthew Nance
Deputy General Counsel
Office of Consumer Credit Commissioner
Effective date: November 5, 2020
Proposal publication date: July 3, 2020
For further information, please call: (512) 936-7660
The rule changes are adopted under Texas Finance Code, §393.622, which authorizes the commission to: (1) adopt rules necessary to enforce and administer Texas Finance Code, Chapter 393, Subchapter G (governing CABs), (2) adopt rules with respect to quarterly reporting by CABs, and (3) adopt rules with respect to the OCCC's examinations of CABs (including review of contracts between CABs and third-party lenders). In addition, Texas Finance Code, §393.223 authorizes the commission to adopt rules regarding the cost disclosure used by CABs.
The statutory provisions affected by the adoption are contained in Texas Finance Code, Chapter 393.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on October 16, 2020.
TRD-202004322
Matthew Nance
Deputy General Counsel
Office of Consumer Credit Commissioner
Effective date: November 5, 2020
Proposal publication date: July 3, 2020
For further information, please call: (512) 936-7660
7 TAC §§83.5001, 83.5003 - 83.5005
The rule changes are adopted under Texas Finance Code, §393.622, which authorizes the commission to: (1) adopt rules necessary to enforce and administer Texas Finance Code, Chapter 393, Subchapter G (governing CABs), (2) adopt rules with respect to quarterly reporting by CABs, and (3) adopt rules with respect to the OCCC's examinations of CABs (including review of contracts between CABs and third-party lenders). In addition, Texas Finance Code, §393.223 authorizes the commission to adopt rules regarding the cost disclosure used by CABs.
The statutory provisions affected by the adoption are contained in Texas Finance Code, Chapter 393.
§83.5005.Separation Between Credit Access Business and Third-Party Lender.
(a) Generally. A licensee assists consumers in obtaining extensions of credit by others, as provided by Texas Finance Code, §393.001(3).
(b) Independent operation. A licensee must operate independently from any third-party lender that makes a loan in connection with a transaction under Texas Finance Code, Chapter 393. Independent operation includes the following requirements:
(1) A licensee must be a separate legal entity from any third-party lender that makes a loan in connection with a transaction under Texas Finance Code, Chapter 393.
(2) The individuals who make major operational decisions for a licensee must be different from the individuals who make major operational decisions for any third-party lender.
(3) A licensee may not perform the functions of a third-party lender, except by written agreement in accordance with this section.
(4) A licensee may not delegate functions to a third-party lender, except by written agreement in accordance with this section.
(5) A licensee may not select the underwriting criteria used in determining whether the lender will make a loan to the consumer, but a licensee may apply underwriting criteria selected by the third-party lender.
(6) A licensee may not lend money to a consumer in connection with a transaction under Texas Finance Code, Chapter 393. In particular, a licensee may not borrow money from another person and then lend that money to a consumer.
(7) A licensee may not act as a general agent of a third-party lender, but may act as a special limited agent under a written agreement with a third-party lender in accordance with this section.
(8) A licensee may not directly or indirectly share fees for credit access business services with a third-party lender. If a third-party lender receives any portion of a fee for credit access business services charged by a licensee, it must be promptly remitted to the licensee.
(9) A licensee must document each transfer of money between itself and a third-party lender, in a manner sufficient to show each amount that was remitted in connection with each transfer. A licensee must maintain sufficient and complete records to show the exact amounts that were earned by the licensee and the third-party lender in connection with a deferred presentment transaction or motor vehicle title loan.
(c) The OCCC may consider the following factors in determining whether a licensee operates independently from a third-party lender in compliance with this section:
(1) the extent of common ownership or control between the licensee and any third-party lender, including common ownership or control resulting from familial relationships between owners and directors of the licensee and any third-party lender;
(2) whether a licensee shares common officers, directors, or employees with a third-party lender;
(3) the sufficiency of documentation of transfers of money between the licensee and a third-party lender; and
(4) whether the licensee's course of performance is consistent with its written agreements with third-party lenders and its agreements with consumers, including agreements that specify a time within which the licensee will act on a guarantee.
(d) Representations regarding relationship with third-party lender. Under Texas Finance Code, §393.304, a licensee may not make a false or misleading representation in the offer or sale of services. In particular, a licensee may not make a false or misleading representation regarding its relationship with a third-party lender or any guarantee that the licensee provides to a third-party lender on the consumer's behalf. For example, a licensee may not represent that it will enter a letter of credit with the third-party lender if, in its course of performance, it does not actually enter a letter of credit as that term is defined in Texas Business & Commerce Code, §5.102(a)(10). A licensee may not represent that it guarantees repayment to a third-party lender on the consumer's behalf if it does not act on that guarantee as described in its representations.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on October 16, 2020.
TRD-202004325
Matthew Nance
Deputy General Counsel
Office of Consumer Credit Commissioner
Effective date: November 5, 2020
Proposal publication date: July 3, 2020
For further information, please call: (512) 936-7660
The rule changes are adopted under Texas Finance Code, §393.622, which authorizes the commission to: (1) adopt rules necessary to enforce and administer Texas Finance Code, Chapter 393, Subchapter G (governing CABs), (2) adopt rules with respect to quarterly reporting by CABs, and (3) adopt rules with respect to the OCCC's examinations of CABs (including review of contracts between CABs and third-party lenders). In addition, Texas Finance Code, §393.223 authorizes the commission to adopt rules regarding the cost disclosure used by CABs.
The statutory provisions affected by the adoption are contained in Texas Finance Code, Chapter 393.
§83.6007.Consumer Disclosures.
(a) Consumer disclosure for single payment payday loan. The required disclosure under Texas Finance Code, §393.223 to be provided to a consumer before a credit application is provided and before a financial evaluation occurs in conjunction with a single payment payday loan is presented in the following figure.
Figure: 7 TAC §83.6007(a) (.pdf)
(b) Consumer disclosure for multiple payment payday loan. The required disclosure under Texas Finance Code, §393.223 to be provided to a consumer before a credit application is provided and before a financial evaluation occurs in conjunction with a multiple payment payday loan is presented in the following figure.
Figure: 7 TAC §83.6007(b) (.pdf)
(c) Consumer disclosure for single payment auto title loan. The required disclosure under Texas Finance Code, §393.223 to be provided to a consumer before a credit application is provided and before a financial evaluation occurs in conjunction with a single payment auto title loan is presented in the following figure.
Figure: 7 TAC §83.6007(c) (.pdf)
(d) Consumer disclosure for multiple payment auto title loan. The required disclosure under Texas Finance Code, §393.223 to be provided to a consumer before a credit application is provided and before a financial evaluation occurs in conjunction with a multiple payment auto title loan is presented in the following figure.
Figure: 7 TAC §83.6007(d) (.pdf)
(e) Consumer disclosures required for three to five common examples. For the three to five examples of the most common loans transacted by a credit access business as utilized under §83.6004 of this title (relating to Fee Schedule Content), the business must develop a consumer disclosure for those loan amounts, including appropriate fee information. Three to five examples must be developed for each payday or auto title product sold by the business (e.g., three single payment payday examples of $300, $500, and $700; three multiple payment auto title examples of $1,000, $1,500, and $2,500). The credit access business should provide the consumer with the example form for the product and amount that most closely relates to the consumer's loan request.
(f) Internet sales. A credit access business must provide the required disclosure to a consumer immediately upon the consumer's arrival at the credit access business's website that includes information about a payday or auto title loan as defined by Texas Finance Code, §393.221. Access to the required disclosure must be clearly visible upon the consumer's arrival at the website. If a consumer is directed to a credit access business's website by another commercial entity that is not required to be licensed as a credit access business, then the credit access business's website to which the consumer is first directed must contain a direct link to the appropriate consumer disclosure as outlined in subsections (a) - (d) of this section. The direct link to the consumer disclosure must be provided before the consumer is required to verify previously provided information, and before the consumer is required to provide additional information.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on October 16, 2020.
TRD-202004326
Matthew Nance
Deputy General Counsel
Office of Consumer Credit Commissioner
Effective date: November 5, 2020
Proposal publication date: July 3, 2020
For further information, please call: (512) 936-7660
The Finance Commission of Texas (commission) adopts amendments to §89.701 (relating to Sworn Document Authorizing Transfer of Tax Lien), and adopts new §89.805 (relating to Payoff for Property Tax Loan Secured by Multiple Properties) in 7 TAC, Chapter 89, concerning Property Tax Lenders.
The commission adopts the amendments to §89.701 without changes to the proposed text as published in the July 3, 2020, issue of the Texas Register (45 TexReg 4450). Amended §89.701 will not be republished.
The commission adopts new §89.805 with changes to the proposed text as published in the July 3, 2020, issue of the Texas Register (45 TexReg 4450). New §89.805 will be republished.
The commission received one written comment on the proposal from the Independent Bankers Association of Texas, Texas Bankers Association, Texas Mortgage Bankers Association, Cornerstone Credit Union League, and Credit Union Coalition of Texas. The comment generally supports proposed new §89.805, but includes suggested changes regarding the effective date of the rule. The commission's response to this comment is included following the discussion of §89.805.
In general, the purpose of the amendments and new rule in 7 TAC Chapter 89 is to remove language suggesting that the sworn document must be recorded, and to specify requirements for payoff of a tax lien for an individual property (in the case of a property tax loan secured by multiple properties).
The OCCC distributed an early precomment draft of proposed changes to interested stakeholders for review, and then held a stakeholder meeting and webinar regarding the rule changes. Stakeholders provided feedback during the webinar, and the OCCC received nine informal precomments on the rule text draft. Based on this feedback, the OCCC distributed a revised precomment draft and received three additional precomments. The OCCC appreciates the thoughtful input provided by stakeholders.
Amendments to §89.701 would remove language suggesting that the sworn document must be recorded. Under Texas Tax Code, §32.06(a-1), in order to authorize a tax lien transfer from a taxing unit to a property tax lender, a property owner must execute a sworn document containing an authorization for payment of taxes, contact information for the property tax lender, and a description of the property, among other information. Before 2013, Texas Tax Code, §32.065(b)(4) required the sworn document to be recorded in the county's real property records. In 2013, the Texas Legislature passed SB 247, which removed this requirement. Currently, §89.701(a)(2) requires the sworn document to state "that after the document is recorded, it is to be returned to the transferee." Amendments to §89.701(a)(2) and the accompanying figure at §89.701(c) would amend this statement to remove the reference to recording. However, an amendment at §89.701(d)(4) would allow property tax lenders to include this reference if the sworn document will be recorded.
Adopted new §89.805 provides a method for calculating the amount for a lienholder or mortgage servicer to pay off an individual property, in the case of a property tax loan that is secured by more than one property. In other words, if a property tax loan is secured by properties A, B, and C, and another lienholder holds a lien on property A, the new rule describes how to calculate the amount that the lienholder will pay to release the tax lien on property A. This rule is intended to implement Texas Tax Code, §§32.06(f), 32.06(f-1), and 32.065(b-1), which describe situations where a lienholder or mortgage servicer can obtain a release of a transferred tax lien.
Texas Tax Code, §32.06(f) states: "The holder of a loan secured by a transferred tax lien that is delinquent for 90 consecutive days must send a notice of the delinquency by certified mail on or before the 120th day of delinquency or, if the 120th day is not a business day, on the next business day after the 120th day of delinquency, to any holder of a recorded preexisting lien on the property. The holder or mortgage servicer of a recorded preexisting lien on property encumbered by a tax lien transferred as provided by Subsection (b) is entitled, within six months after the date on which the notice is sent, to obtain a release of the transferred tax lien by paying the transferee of the tax lien the amount owed under the contract between the property owner and the transferee."
Texas Tax Code, §32.06(f-1) states in part: "If an obligation secured by a preexisting first lien on the property is delinquent for at least 90 consecutive days and the obligation has been referred to a collection specialist, the mortgage servicer or the holder of the first lien may send a notice of the delinquency to the transferee of a tax lien. The mortgage servicer or the first lienholder is entitled, within six months after the date on which that notice is sent, to obtain a release of the transferred tax lien by paying the transferee of the tax lien the amount owed under the contract between the property owner and the transferee."
Texas Tax Code, §32.065(b-1) states: "On an event of default and notice of acceleration, the mortgage servicer of a recorded lien encumbering real property may obtain a release of a transferred tax lien on the property by paying the transferee of the tax lien or the holder of the tax lien the amount owed by the property owner to that transferee or holder."
In new §89.805, subsection (a) describes the scope of the rule, with citations to the three Texas Tax Code provisions containing rights of other lienholders to pay off tax liens. Subsection (c) explains that if a property tax loan is secured by more than one property, a property tax lender must allow a holder or mortgage servicer to obtain a release for an individual property, by paying the amount owed for the individual property. Subsection (d) describes the method for calculating the amount owed for the individual property. The method is based on the individual property's attributable percentage in relation to the total amount paid to taxing units or governmental entities in connection with the property tax loan. Subsection (d)(4) describes how to calculate post-closing costs that may be included in the payoff amount. Subsection (d)(5) describes the requirement to maintain records, and subsection (d)(6) explains that a property tax lender may charge a lien release fee for each individual property for which a lien is released.
New §89.805 is being adopted in response to complaints that the OCCC received from banks, alleging that property tax lenders overcharged them in connection with payoffs under the Texas Tax Code. Many of these disputes have involved overcharges by the property tax lender and failure to maintain documentation that adequately supports the payoff amount. In some cases, the complaint involved an assertion by the property tax lender that the bank had no right to pay off the tax lien for an individual property. The OCCC has expended significant staff resources to review records spanning multiple years and multiple properties, identify and remove unauthorized charges, and calculate appropriate payoff amounts. The OCCC hopes that the new rule will provide a standard calculation method to avoid these disputes.
As discussed earlier, the commission received one written comment on the proposal from the Independent Bankers Association of Texas, Texas Bankers Association, Texas Mortgage Bankers Association, Cornerstone Credit Union League, and Credit Union Coalition of Texas. The comment generally supports new §89.805, stating that the rule's methodology is a "practical solution" to the "dilemma" of "property tax loan payoffs in which a consensual lender with a lien on a single property was required to pay off liens on multiple properties in order to protect itself and obtain a release." However, the comment includes suggested changes regarding the effective date of §89.805. The comment states: "We strongly believe that this rule should apply to all payoffs requested after the effective date, not to property tax loans entered into after that date. This would impair existing, statutory property rights. The effective date language is in the preamble rather than the rule. Because of that--and because we believe that it flies in the face of existing statutory rights--we urge you to clarify this point and add it the rule when published."
In response to this comment, the adoption includes new §89.805(b) describing the effective date of the rule. Subsection (b) explains that §89.805 applies only to property tax loans entered on or after December 1, 2020. The commission believes that with this change, the rule will appropriately specify that the rule's calculation methodology applies to future property tax loans, without affecting statutory rights for existing property tax loans.
In informal precomments, stakeholders were mixed in whether they supported or opposed new §89.805. Some stakeholders, including an association of banks and a property tax lender, supported the new rule. Some property tax lenders suggested changes to the new rule, and some opposed the new rule. The adopted text includes several changes responding to suggestions from stakeholders in informal precomments. The stakeholders who suggested changes or opposed the rule focused mainly on seven issues.
First, stakeholders emphasized that §89.805 should apply only to payoffs by lienholders or mortgage servicers under Texas Tax Code, §§32.06(f), 32.06(f-1), and 32.065(b-1). In response to these precomments, §89.805(a) specifies that the rule applies only to these three situations.
Second, stakeholders requested confirmation that §89.805 would apply only to property tax loans entered on or after the rule's effective date. One stakeholder requested confirmation of this in the rule text itself. As discussed earlier, in response to these precomments and the official comment, new §89.805(b) specifies that the rule applies only to property tax loans entered on or after December 1, 2020, and that the rule does not affect any statutory rights for property tax loans entered before that date.
Third, the precomment drafts included a requirement to disclose the specific dollar amount paid for each property to the property owner before closing. Stakeholders responded that it would be difficult to calculate specific dollar amounts paid for each property, and to list these amounts on a pre-closing disclosure. One stakeholder suggested that this amount could be identified later if needed. In response to these precomments, the adoption does not include this disclosure requirement.
Fourth, stakeholders requested that the rule specify that the lien release fee applies to each property. In response to this comment, §89.805(d)(6) specifies that the lien release fee applies to each individual property for which a lien is released.
Fifth, stakeholders requested that the rule allow property tax lenders to charge additional types of fees in connection with a payoff, such as attorney fees in bankruptcy to amend pleadings, update court documents, and restart cases, as well as attorney fees to complete a foreclosure. The OCCC believes that this issue is addressed by language in §89.805(d)(4) that allows a portion of post-closing costs described by Texas Finance Code, §351.0021. Any post-closing costs that are not expressly authorized by statute may not be included in the payoff amount.
Sixth, a stakeholder requested that refinances (i.e., new property tax loans that satisfy and replace previous property tax loans) be exempted from new §89.805. The commission declines to put this exemption into the rule. Texas Tax Code, §32.06 and §32.065 do not contain any exemption for refinances. In addition, some of the complaints from banks, as described earlier, resulted from property tax loans that were refinances. Exempting refinances would not achieve the rule's intended purposes.
Seventh, some property tax lenders objected to the rule's core concept that a lienholder can pay off the tax lien for an individual property by paying the amounts associated with the individual property. These property tax lenders argued that the proposed rules would cause property tax lenders to enter fewer loans secured by multiple properties, and would cause property tax lenders to charge higher closing costs. One of these property tax lenders proposed an alternative interpretation of the payoff rights in Texas Tax Code, §§32.06(f), 32.06(f-1), and 32.065(b-1). This property tax lender noted that the Tax Code provisions require the lienholder to pay the "amount owed" for the property tax loan, and interpreted the phrase "amount owed" to mean the full amount owed for all properties under the property tax loan. Under this alternative interpretation, if a property tax loan is secured by properties A, B, and C, and another lienholder holds a lien on property A, the lienholder would have to pay off the full amount owed for properties A, B, and C in order to obtain a release of the tax lien for property A. This property tax lender argued that a lienholder is not entitled to a "partial release."
The commission and the OCCC disagree with this alternative interpretation, because it would frustrate the statutory rights of lienholders and servicers to pay off transferred tax liens. The payoff described in the rule is not a "partial release," but is a full release of the tax lien for an individual property. Texas Tax Code, §§32.06(f), 32.06(f-1), and 32.065(b-1) each refer to the "property" for which the lienholder holds the lien, and refer to the "amount owed" that must be paid in order to exercise the right to pay off the tax lien. The commission and the OCCC understand the phrase "amount owed" to refer to the amount owed for the individual property, and the new rule provides a way to calculate that amount. This reading appropriately enables lienholders to exercise the rights described by the Tax Code, so that they can consolidate amounts owed for the property, reduce costs associated with servicing obligations on the property, and potentially avoid foreclosure.
The proposed alternative interpretation would inappropriately shift costs and risks associated with the property tax loan onto other lienholders. If "amount owed" refers to the amount owed for all properties, this suggests that lienholders must pay amounts for properties with no connection to their liens, and that the property tax lender can receive the same amount multiple times by requiring multiple lienholders to pay the same amounts. The property tax lenders that object to the rule's core concept seem to be stating that, when they make property tax loans secured by multiple properties, they depend on their ability to restrain other lienholders from paying off individual properties, and depend on the extra revenue that results from lienholders having to pay off multiple properties. To the extent that these practices depend on holding property A captive to a payoff for properties B and C, these practices are not consistent with a lienholder's payoff rights under the Tax Code, and it is entirely appropriate for the rule to specify that these practices are prohibited.
SUBCHAPTER G. TRANSFER OF TAX LIEN
The rule changes are adopted under Texas Finance Code, §351.007, which authorizes the commission to adopt rules to ensure compliance with Texas Tax Code, §32.06 and §32.065, and Texas Finance Code, Chapter 351. In addition, Texas Tax Code, §32.06(a-4) authorizes the commission to adopt rules relating to the reasonableness of closing costs, fees, and other charges permitted under that section, and to prescribe the form and content of the sworn document by rule. Texas Finance Code, §351.0021 authorizes the commission to adopt rules implementing and interpreting that section, which describes limitations on post-closing costs. Texas Finance Code, §11.304 authorizes the commission to adopt rules to ensure compliance with Texas Finance Code, Title 4.
The statutory provisions affected by the adoption are contained in Texas Tax Code, Chapter 32 and Texas Finance Code, Chapter 351.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on October 16, 2020.
TRD-202004328
Matthew Nance
Deputy General Counsel
Office of Consumer Credit Commissioner
Effective date: November 5, 2020
Proposal publication date: July 3, 2020
For further information, please call: (512) 936-7660
The rule changes are adopted under Texas Finance Code, §351.007, which authorizes the commission to adopt rules to ensure compliance with Texas Tax Code, §32.06 and §32.065, and Texas Finance Code, Chapter 351. In addition, Texas Tax Code, §32.06(a-4) authorizes the commission to adopt rules relating to the reasonableness of closing costs, fees, and other charges permitted under that section, and to prescribe the form and content of the sworn document by rule. Texas Finance Code, §351.0021 authorizes the commission to adopt rules implementing and interpreting that section, which describes limitations on post-closing costs. Texas Finance Code, §11.304 authorizes the commission to adopt rules to ensure compliance with Texas Finance Code, Title 4.
The statutory provisions affected by the adoption are contained in Texas Tax Code, Chapter 32 and Texas Finance Code, Chapter 351.
§89.805.Payoff for Property Tax Loan Secured by Multiple Properties.
(a) Purpose and scope. Under Texas Tax Code, §§32.06(f), 32.06(f-1), and §32.065(b-1), in certain situations where a property tax loan or preexisting mortgage is delinquent or in default, a holder or mortgage servicer of a preexisting lien on a property is entitled to obtain a release of a transferred tax lien, by paying the amount owed under the contract between the property owner and the property tax lender. This section describes how to calculate the amount owed for an individual property where a property tax loan is secured by more than one property. This section applies only to:
(1) a payoff by the mortgage servicer or holder of a recorded preexisting lien due to the delinquency of a property tax loan under Texas Tax Code, §32.06(f);
(2) a payoff by the mortgage servicer or holder of a preexisting first lien due to the delinquency of the obligation secured by a preexisting first lien under Texas Tax Code, §32.06(f-1); and
(3) a payoff by the mortgage servicer of a recorded lien due to default and notice of acceleration of a property tax loan under Texas Tax Code, §32.065(b-1).
(b) Effective date. This section applies only to a property tax loan entered on or after December 1, 2020. This section does not affect any statutory rights of a lienholder for a property tax loan entered before December 1, 2020.
(c) Requirement to allow payoff. If a property tax loan is secured by more than one property, a property tax lender must allow a holder or mortgage servicer to obtain a release for an individual property in accordance with Texas Tax Code, §§32.06(f), 32.06(f-1), and §32.065(b-1), by paying the amount owed for the individual property.
(d) Amount owed for individual property.
(1) Calculation of amount owed. A property tax lender must calculate the amount owed for an individual property by adding:
(A) the outstanding principal balance of the loan, multiplied by the attributable percentage for the individual property;
(B) the outstanding interest for the loan, multiplied by the attributable percentage for the individual property;
(C) authorized post-closing costs that are not part of the principal balance, multiplied by the attributable percentage for the individual property, if the costs relate to the property tax loan generally; and
(D) authorized post-closing costs that are not part of the principal balance, if the costs relate specifically to the individual property.
(2) Attributable percentage. To calculate the attributable percentage for an individual property, a property tax lender must divide the total amount paid for the individual property by the total amount paid for all properties in connection with the property tax loan.
(A) A property tax lender must calculate the total amount paid for the individual property by adding:
(i) the total amount paid to taxing units or governmental entities for unpaid taxes, penalties, interest, and collection costs for the individual property in connection with the property tax loan, as shown on the tax receipt; and
(ii) in the case of a property tax loan that is a refinance, any amount paid for the individual property, as shown on the pre-closing disclosure statement.
(B) A property tax lender must calculate the total amount paid for all properties by adding:
(i) the total amount paid to taxing units or governmental entities for unpaid taxes, penalties, interest, and collection costs for all properties in connection with the property tax loan, as shown on the tax receipts; and
(ii) in the case of a property tax loan that is a refinance, the amounts paid for all properties as shown on the pre-closing disclosure statement.
(3) Lower payoff amount. A property tax lender may allow a property owner, holder, or servicer to obtain a release for an amount that is lower than the amount described by paragraphs (1) and (2) of this subsection.
(4) Post-closing costs. A property tax lender may include authorized post-closing costs related solely to the individual property in the amount owed for the individual property. Post-closing costs related to other individual properties may not be included. Post-closing costs related generally to the property tax loan may be included if multiplied by the attributable percentage. If the property tax lender has charged a post-closing cost that is not expressly authorized by Texas Finance Code, §351.0021, then the property tax lender may not include the cost in the amount owed, and must refund the cost to the property owner.
(5) Recordkeeping. A property tax lender must maintain documentation showing how it calculated the attributable percentage and the amount owed for the individual property. This documentation must be maintained in the property tax loan transaction file for the period described by §89.207 of this title (relating to Files and Records Required).
(6) Lien release fee. In addition to the amount owed for the individual property, a property tax lender may charge a lien release fee described by §89.602 (relating to Fee for Filing Release) for each individual property for which a lien is released.
The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on October 16, 2020.
TRD-202004330
Matthew Nance
Deputy General Counsel
Office of Consumer Credit Commissioner
Effective date: November 5, 2020
Proposal publication date: July 3, 2020
For further information, please call: (512) 936-7660