TITLE 7. BANKING AND SECURITIES

PART 1. FINANCE COMMISSION OF TEXAS

CHAPTER 3. STATE BANK REGULATION

SUBCHAPTER B. GENERAL

7 TAC §3.37

The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), adopts the amendment to §3.37, concerning the calculation of annual assessment for banks, without changes to the proposed text as published in the November 4, 2016 issue of the Texas Register (41 TexReg 8697). The amended rule will not be republished.

The amendment corrects an error in the text of the bank assessment calculation table incorporated into §3.37(a) and adds a cross-reference to applicable definitions in §3.36(b).

Effective November 5, 2015, §3.37 was amended to adjust the manner in which assessments applicable to state banks are calculated, see the October 30, 2015 issue of the Texas Register (40 TexReg 7620). The annual assessment for a state bank is calculated as described in §3.37, based on the values in the incorporated bank assessment calculation table.

As reflected in the table, a state bank's assessment is calculated on the basis of its assessable assets using two factors: the base assessment amount and the marginal assessment rate applicable to the bank's assessable asset group, subject to a potential surcharge or discount based on the bank's size and condition. A bank is entitled to a discount if it has total assets of $500 million or less and a CAMELS composite rating of 1 or 2. The discount reflects the reduced examination frequency applicable to a qualifying bank.

However, Step 6 of the bank assessment calculation table formerly described a bank entitled to the discount as one that "has assessable assets of $500 million or less and a CAMELS composite rating of 1 or 2." The reference to "assessable assets," a term defined in §3.36(b)(1), was incorrect and, if applied literally, could deprive some eligible banks of the discount. The size limitation should refer to "on-book assets" as defined in §3.36(b)(6), because examination frequency is determined based on the total of on-book assets as so defined.

Accordingly, §3.37(a) now incorporates a cross-reference to defined terms in §3.36(b), and the bank assessment calculation table incorporated into §3.37(a) is amended to replace the term "assessable assets" in Step 6 with the correct term, "on-book assets."

The department received no comments regarding the proposed amendment.

The amendment is adopted pursuant to Finance Code, §31.003(a)(4) and §31.106, which authorize the commission to adopt rules necessary or reasonable to recover the cost of supervision and regulation by imposing and collecting ratable and equitable fees. As required by Finance Code §31.003(b), the commission considered the need to promote a stable banking environment, provide the public with convenient, safe, and competitive banking services, preserve and promote the competitive position of state banks with regard to national banks and other depository institutions in this state consistent with the safety and soundness of state banks and the state bank system, and allow for economic development in this state.

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 December 16, 2016.

TRD-201606648

Catherine Reyer

General Counsel

Finance Commission of Texas

Effective date: January 5, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-1301


PART 2. TEXAS DEPARTMENT OF BANKING

CHAPTER 12. LOANS AND INVESTMENTS

SUBCHAPTER D. INVESTMENTS

7 TAC §12.91

The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), adopts the amendment to §12.91, concerning other real estate owned (OREO), without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8698). The amended rule will not be republished.

The amendment corrects a structural error and clarifies the authority of a bank to invest in real property for the purpose of providing temporary housing for employees under certain circumstances.

"Other real estate owned" (OREO) is generally defined by §12.91(a)(11) as real property interests not used or intended to be used as banking facilities. A state bank is not empowered to own real estate, other than for use in its own business, except in specified circumstances, such as acquisition of real estate through foreclosure of collateral securing debt previously contracted. The general prohibition on ownership of real property interests and the permissible means of acquiring OREO are set forth in §12.91(b) and (c). The bank must dispose of OREO within a specified period of time, or holding period, as set forth in §12.91(f), and §12.91(h) establishes those methods of disposition that will satisfy the statutory requirement.

Section 12.91 was amended in 2003 for the express purpose of clarifying that bank facilities include real property acquired for the purpose of providing temporary housing for employees under certain circumstances, see the July 4, 2003, issue of the Texas Register (28 TexReg 5149). However, the authorization was erroneously placed in §12.91(c), which describes various means of acquiring OREO (which is subject to required disposition), instead of in §12.91(h), which describes permissible means of disposing of OREO, because one means of disposal is to convert the OREO into a bank facility. Therefore, the adopted amendment deleted the text of §12.91(c)(8) and incorporated the deleted language into §12.91(h)(3).

This recently discovered misclassification has not affected bank regulation. The Department and affected state banks have applied the section as if it had been correctly amended as intended in 2003, and as the section is amended to now read.

The department received no comments regarding the proposed amendment.

The amendment is adopted pursuant to Finance Code, §31.003(a)(1), which authorizes the commission to adopt such rules as are necessary or reasonable to implement and clarify Title 3, Subtitle B of the Finance Code, and Finance Code §34.001(4), which authorizes the commission to adopt rules specifying activities that may permissibly be conducted in a bank facility.

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 December 16, 2016.

TRD-201606646

Catherine Reyer

General Counsel

Texas Department of Banking

Effective date: January 5, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-1301


CHAPTER 33. MONEY SERVICES BUSINESSES

7 TAC §33.4

The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), adopts the amendment to §33.4, concerning payment processors, without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8700). The amended rule will not be republished.

The amended rule is proposed to clarify how money transmission licensure applies to certain payment processors.

Finance Code §151.003(10) authorizes the commission to adopt rules that exclude from licensing any person, transaction, or class of persons or transactions on a finding that licensing the person or transaction is not necessary to achieve the purposes of the Act. The purposes of the Act, as expressed in Finance Code §151.102, are to preserve and protect the safety and soundness of money services businesses, to protect the interests of purchasers of money services, and to protect against money laundering and similar financial crimes. The department found that regulation of certain types of payment processors is not necessary to achieve these aims. The commission then adopted new rule 7 TAC §33.4 to exclude from licensure two types of payment processors. Section 33.4 essentially codified existing Texas law in order to provide clarity and guidance to money transmitters and payment processors.

The amendment excludes from licensing payment processors that are functionally identical to processors already excluded by 7 TAC §33.4(d), but which do not qualify for exclusion under the rule as currently worded. Specifically, subsection (d) excludes point of sale processors that accept funds for payment of goods and services on behalf of merchants. But when a payment processor accepts donations on behalf of charitable organizations, because no goods or services are provided to donors, the rule does not apply. However, when a person processes payments on behalf of a charitable organization, the same legal liabilities, obligations, and risks exist as when a person processes payments made to merchants for goods and services. Moreover, the same principles of agency law apply to both types of transactions with the same result. Accordingly, the amended rule allows exclusion of processors that meet the necessary conditions when accepting payment of donations to charitable organizations.

The department received no comments regarding the proposed amendment.

The amendment is adopted pursuant to Finance Code §151.102, which authorizes the commission to adopt rules to administer and enforce Chapter 151, and under Finance Code §151.003(10) which authorizes the commission to adopt rules that exclude from licensing a person, transaction, or a class of persons or transactions.

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 December 16, 2016.

TRD-201606647

Catherine Reyer

General Counsel

Texas Department of Banking

Effective date: January 5, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 475-1301


PART 5. OFFICE OF CONSUMER CREDIT COMMISSIONER

CHAPTER 83. REGULATED LENDERS AND CREDIT ACCESS BUSINESSES

SUBCHAPTER B. RULES FOR CREDIT ACCESS BUSINESSES

The Finance Commission of Texas (commission) adopts amendments to §§83.1002, 83.3001 - 83.3004, 83.4003, and 83.5004 in 7 TAC, Chapter 83, Subchapter B, concerning Rules for Credit Access Businesses. The commission adopts the amendments without changes to the proposed text as published in the November 4, 2016, issue of the Texas Register (41 TexReg 8701).

In general, the purpose of the rule changes in 7 TAC, Chapter 83, Subchapter B is to update rules regarding the licensing of credit access businesses and to make technical corrections. The proposed amendments primarily relate to conforming these licensing rules to clarifying changes recently adopted in other areas regulated by the agency. Additional changes provide clarification regarding criminal history and recordkeeping.

The commission received no written comments on the proposal. Additionally, the agency circulated an early draft of proposed changes to interested stakeholders. The agency also received no written precomments on the early draft.

The individual purposes of the adopted amendments to each section are provided in the following paragraphs.

In §83.1001, an adopted amendment will replace "chapter" with "subchapter" to provide the appropriate applicability of the listed definitions. Chapter 83 is divided into Subchapter A, Rules for Regulated Lenders, and Subchapter B, Rules for Credit Access Businesses. These definitions only apply to credit access businesses, and hence, should reference "subchapter" as opposed to "chapter." A similar correction has also been made in the licensing definitions section found in §83.3001.

Also in §83.3001, the adoption adds a definition of "parent entity," specifying that this term refers to a direct owner of a licensee or applicant. This definition is intended to clarify the provisions on mergers and license transfers in §83.3003 and §83.3004, discussed later in this adoption, and is consistent with other OCCC licensing rules. An amendment to former §83.3001(2) (adopted §83.3001(3)) amends the definition of "principal party" for sole proprietorships. The amendment deletes the phrase "holding a 100% ownership interest." The Internal Revenue Service allows a married couple that jointly owns and operates a business to classify the business as a proprietorship, by electing to file as a qualified joint venture. The amendment is intended to remove any language suggesting that this option is not available under federal income tax law. The adopted amendment conforms to an amendment that the commission recently adopted for regulated lenders at §83.301(2)(A), effective September 8, 2016. A corresponding amendment has also been made in §83.3002(1)(A)(iv).

In §83.3002(1)(E)(i) and (ii) regarding the signature on a new license application, the rule's former language required each owner of a proprietorship and each general partner of a partnership to sign the application. As part of an online process, the agency will only require one owner or one partner, respectively, to sign for these applicants. The adopted amendments reflect that "the owner" of a proprietorship and "one general partner" of a partnership must sign the application. Additionally, in §83.3002(2)(E), a technical correction has been made to provide a more accurate citation to Texas Finance Code, §393.604(a)(4), which requires an applicant to provide information concerning third-party lender organizations.

Adopted amendments to §83.3003(e)(5)(B) and §83.3003(h) clarify the responsibility of the transferor and transferee during the course of a license transfer or new license application on transfer of ownership. The amendments remove the phrase "joint and several" in order to avoid confusion between the responsibility described in the rule and joint and several liability in a tort context. The amendments to subsection (h) also describe the parties' responsibility at different points during the license transfer process. The amendments are intended to provide clarity and remove confusion that might result from overlapping provisions in the rule. An amendment to subsection (h)(3) explains that if a transferee receives a license transfer, then the transferee's responsibility includes activity performed by the transferor before the license transfer. The adopted amendments to §83.3003 conform to a rule that the commission recently adopted for regulated lenders at §83.303, effective September 8, 2016.

In §83.3004, adopted amendments in subsection (b) to clarify situations where a merger is a transfer of ownership. The amendments specify that if a licensee is a party to a merger that results in a new or different surviving entity other than the licensee, then the merger is a transfer of ownership, and the licensee must file a license transfer application or new license application. The amendments to subsection (b) are intended to clarify the rule text and are consistent with the OCCC's current policy. Additionally, in subsection (c), a reference to "a new license application on transfer of ownership" has been added to provide consistent terminology with a prior amendment.

An adopted amendment to §83.4003(b)(4) clarifies the requirements for an applicant's disclosure of criminal history. Previously, §83.4003(b)(4) stated that the OCCC may request "proof that all outstanding court costs, supervision fees, fines, and restitution as may have been ordered have been paid." The adopted amendment adds the phrase "or are current" at the end of this provision, to account for cases where a court orders the applicant to pay an amount over time. The adopted amendment conforms to a rule that the commission recently adopted for motor vehicle sales finance licensees at §84.613(b)(4), effective May 5, 2016, and a rule that the commission recently adopted for regulated lenders at §83.404(b)(4), effective September 8, 2016.

Adopted amendments to §83.4003(c)(1) clarify the crimes that are directly related to the duties and responsibilities of a licensee that may be grounds for denial, suspension, or revocation. Under Texas Occupations Code, §53.025, state licensing authorities are required to issue guidelines relating to their use of criminal history in licensing decisions. These guidelines "must state the reasons a particular crime is considered to relate to a particular license and any other criterion that affects the decisions of the licensing authority." Texas Occupations Code, §53.025(a). Previously, the second sentence of §83.4003(c)(1) explained that crimes involving certain elements (e.g., the misrepresentation of costs or benefits of a product or service, the improper handling of money or property entrusted to the person) are grounds for denial, suspension, or revocation of a license. An amendment to §83.4003(c)(1) replaces this sentence with a more specific list of criminal offenses, in order to provide clearer guidelines to applicants. Another adopted amendment to §83.4003(c)(1) adds a statement that providing credit access business services involves compliance with reporting requirements to government agencies. This amendment is intended to describe the reason for including a criminal offense of "failure to file a government report, filing a false government report, or tampering with a government record" in the list of criminal offenses. The adopted list of criminal offenses conforms to a rule that the commission recently adopted for motor vehicle sales finance licensees at §84.613(c)(1), effective May 5, 2016, and a rule that the commission recently adopted for regulated lenders at §83.404(c)(1), effective September 8, 2016.

An adopted amendment to §83.4003(f)(2) updates a citation to the Texas Code of Criminal Procedure. Effective January 1, 2017, Texas Code of Criminal Procedure, article 42.12, §3g will be recodified to article 42A.054.

Adopted amendments to §83.5004(2)(A) update recordkeeping requirements relating to the Department of Defense's Military Lending Act (MLA) Rule, 32 C.F.R. pt. 232. The recently adopted amendments to the MLA Rule have a required compliance date of October 3, 2016. Under the amended MLA Rule, creditors are required to provide model disclosures to covered military borrowers. 32 C.F.R. §232.6. Adopted new §83.5004(2)(A)(iv)(VI) explains that a licensee must maintain any mandatory disclosure to a covered borrower under the MLA Rule. The amended MLA Rule also specifies documentation that creditors can obtain in order to determine whether a consumer is a covered military borrower. The previous version of the MLA Rule (before the recent amendments) prescribed a "covered borrower identification statement" to be signed by applicants, and creditors could use this statement to determine an applicant's covered borrower status. 32 C.F.R. §232.5 (2014 version). Under the amended MLA Rule, creditors can choose their method of determining covered borrower status, but the only ways to conclusively determine a borrower's status (and benefit from a safe harbor) are to check the borrower's status through the DOD's MLA website, or to obtain a consumer report that includes information from the DOD's MLA database. 32 C.F.R. §232.5. An adopted amendment to §83.5004(2)(A)(vii) replaces a statement that a licensee must maintain the identification of covered borrower (i.e., the statement required under the previous version of the MLA Rule) with a statement that the licensee must maintain any records obtained under 32 C.F.R. §232.5. The amendment is intended to clarify that licensees must maintain any documentation that they obtain regarding whether a consumer is a covered borrower under the MLA Rule.

DIVISION 1. GENERAL PROVISIONS

7 TAC §83.1002

These rule changes are adopted under Texas Finance Code, §393.622(a), which authorizes the Finance Commission to adopt rules to necessary to enforce and administer Chapter 393, Subchapter G. Ensuring compliance with Chapter 393 is necessary to the enforcement and administration of Chapter 393, Subchapter G. In addition, the amendments to §83.5004 are adopted under Texas Finance Code, §393.622(a)(3), which authorizes the commission to adopt rules regarding periodic examinations of credit access businesses by the OCCC. The amendments to §83.4003(c)(1) are adopted under Texas Occupations Code, §53.025, which requires state licensing authorities to issue guidelines relating to their use of criminal history in licensing decisions.

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 December 16, 2016.

TRD-201606649

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Effective date: January 5, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 936-7621


DIVISION 3. APPLICATION PROCEDURES

7 TAC §§83.3001 - 83.3004

These rule changes are adopted under Texas Finance Code, §393.622(a), which authorizes the Finance Commission to adopt rules to necessary to enforce and administer Chapter 393, Subchapter G. Ensuring compliance with Chapter 393 is necessary to the enforcement and administration of Chapter 393, Subchapter G.

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 December 16, 2016.

TRD-201606650

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Effective date: January 5, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 936-7621


DIVISION 4. LICENSE

7 TAC §83.4003

These rule changes are adopted under Texas Finance Code, §393.622(a), which authorizes the Finance Commission to adopt rules to necessary to enforce and administer Chapter 393, Subchapter G. Ensuring compliance with Chapter 393 is necessary to the enforcement and administration of Chapter 393, Subchapter G. The amendments to §83.4003(c)(1) are adopted under Texas Occupations Code, §53.025, which requires state licensing authorities to issue guidelines relating to their use of criminal history in licensing decisions.

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 December 16, 2016.

TRD-201606651

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Effective date: January 5, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 936-7621


DIVISION 5. OPERATIONAL REQUIREMENTS

7 TAC §83.5004

These rule changes are adopted under Texas Finance Code, §393.622(a), which authorizes the Finance Commission to adopt rules to necessary to enforce and administer Chapter 393, Subchapter G. Ensuring compliance with Chapter 393 is necessary to the enforcement and administration of Chapter 393, Subchapter G. In addition, the amendments to §83.5004 are adopted under Texas Finance Code, §393.622(a)(3), which authorizes the commission to adopt rules regarding periodic examinations of credit access businesses by the OCCC.

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 December 16, 2016.

TRD-201606652

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Effective date: January 5, 2017

Proposal publication date: November 4, 2016

For further information, please call: (512) 936-7621