TITLE 7. BANKING AND SECURITIES

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), proposes to amend §12.91 of Title 7 of the Texas Administrative Code, concerning other real estate owned. The amended rule is proposed to reduce the scope of the rule with regard to mandatory appraisals of certain real estate assets owned by state banks and to extend various deadlines for those appraisals.

BACKGROUND AND PURPOSE

Section 12.91 regulates "other real estate owned" (OREO). Most typically, OREO consists of interests in real property acquired by state banks through foreclosure or deed-in-lieu of foreclosure.

Among other things, this rule limits the ability of state banks to acquire OREO, prevents state banks from holding OREO indefinitely, and requires state banks to take steps to ensure that their books and records accurately reflect the reasonably fair market value of the OREO. State banks are currently required to obtain formal appraisals of all OREO within 60 days of acquisition unless the recorded book value of the OREO is less than $250,000 without exception. State banks are required to perform formal, written evaluations of the true market value of all of their OREO assets at least once a year. In addition, for state banks that record OREO assets on their books at values above a certain dollar threshold, a formal re-appraisal of that OREO is currently required every three years.

Under the current rule, while the department has authority to require additional OREO appraisals, it does not have authority to extend the initial 60-day appraisal deadline or the three-year OREO re-appraisal deadline.

The proposed amendments, if adopted, would extend the initial appraisal deadline from within 60 days of OREO acquisition to within 90 days and give the Texas Banking Commissioner (the commissioner) authority to extend all appraisal deadlines where appropriate.

The proposed amendments also reduce the scope of the OREO appraisal rule by raising the recorded book value threshold for OREO subject to the rule. Specifically, the proposed amendments, if adopted, would only require an initial appraisal, and then re-appraisal every three years, of OREO with recorded book values of more than $500,000. This raises the existing threshold from $250,000.

The amendments proposed herein follow similar amendments to similar federal rules adopted jointly by the United States Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve (Board), and the Federal Deposit Insurance Corporation (FDIC) in recent years to their regulations at Title 12 of the Code of Federal Regulations, §§34.43, 225.63, and 323.3, respectively.

The $250,000 threshold in the department's current OREO appraisal rule was adopted in 1996 based on these federal regulations regarding valuations of real estate-related assets. This threshold has not been modified since the rule was promulgated in 1996.

The federal banking agencies recently raised their threshold for requiring formal appraisals of the real estate involved in transactions. The department incorporates by reference the extensive analysis and discussion by the federal banking agencies in adopting the federal amendments, published in the Federal Register (Real Estate Appraisals, 84 Fed. Reg. 53,579 (October 8, 2019); Real Estate Appraisals, 83 Fed. Reg. 15,019 (April 9, 2018)).

As was aptly discussed by the federal banking agencies in adopting the federal amendments, real estate prices have risen significantly since the 1990s.

According to national data from the Federal Reserve Commercial Real Estate Price Index, a commercial property that sold for $250,000 as of June 30, 1994 would be expected to sell for approximately $760,000 as of December 2016, and the average price of that property during the low-point of the aftermath of the 2008 financial crisis in March 2010 was $423,000. Data from the Standard & Poor's Case-Shiller Home Price Index and the Federal Housing Finance Agency show similar increases in the prices of residential properties during these time periods.

Taking the foregoing into consideration, the department concurs with the federal banking agencies in concluding that the dollar threshold last established in the 1990s for certain formal real estate appraisal requirements can be raised to the levels in the proposed amendments without resulting in substantially increased risks for state banks. This would reduce appraisal expenses for state banks.

The proposed amendments would also reduce appraisal requirements for state banks by extending the initial appraisal deadline to within 90 days of OREO acquisition, and permitting extensions of both this deadline and the three-year re-appraisal deadline where appropriate. These changes would not adversely impact bank safety or soundness--expanding the window for initial appraisals by 30 days would not materially reduce initial appraisal accuracy or otherwise negatively affect state banks, and the commissioner would have full discretion to deny or conditionally grant extension requests as appropriate to protect safety and soundness.

SUMMARY OF CHANGES

As discussed above, the proposed amendments, if adopted, would extend the initial appraisal deadline to within 90 days of OREO acquisition and enable the commissioner to extend this deadline and the three-year re-appraisal deadline where appropriate.

The proposed amendments also reduce the scope of the OREO appraisal rule by raising the recorded book value threshold for OREO subject to the rule. Specifically, the proposed amendments, if adopted, would only require initial appraisals and three-year re-appraisals for OREO with recorded book values of more than $500,000, raising the existing threshold amount from $250,000.

FISCAL IMPACT ON STATE AND LOCAL GOVERNMENT

W. Kurt Purdom, Deputy Banking Commissioner, has determined that for the first five-year period the proposed amended rule is in effect, there will be no foreseeable increases or reductions in costs or other fiscal implications to state or local government as a result of enforcing or administering the rule as amended.

Mr. Purdom has further determined that for the first five-year period the proposed amended rule is in effect, there will be no foreseeable loss in revenue for state or local government as a result of enforcing or administering the rule as amended.

PUBLIC BENEFITS/COSTS TO REGULATED PERSONS

Mr. Purdom has determined that for each of the first five years the proposed amended rule is in effect, the public benefit anticipated from the amendments to the rule will be reducing regulatory complexity and operating costs for state banks, thereby improving the financial condition of those banks, their returns to investors, and their ability to provide cost-effective financial services to customers.

In addition, the proposed amendments ensure that state banks do not have materially more burdensome regulations with regard to OREO holdings than their federal competitors enjoy. Although the department's current OREO appraisal regulations are reasonable and do not prevent state banks from exercising the same substantial rights and privileges that federally-chartered banks may exercise regarding OREO assets, the department nevertheless is cognizant that its OREO retention requirements are somewhat more rigid than federal equivalents. The proposed amendments ameliorate that rigidity by doubling the threshold for mandatory appraisals, extending the initial appraisal deadline, and giving the department discretion to further extend all appraisal deadlines.

More importantly, the proposed amendments will not risk the interests of the public by reducing the safety and soundness of state banks--all state banks must still have prudent OREO valuation policies, and the department will continue to have authority under these regulations to require additional appraisals of OREO as deemed necessary to address safety and soundness concerns. Further, state banks are required to limit their OREO holdings to reduce risk and increase safety and soundness, which further reduces any potential impact of the rule amendments upon safety and soundness of state banks.

Mr. Purdom has further determined that for the first five years the rule amendments are in effect, there are no costs anticipated for persons required to comply with the rule as amended. The proposed amendments can only reduce costs to state banks by decreasing the number of mandatory OREO appraisals state banks must conduct. Real estate appraisals are typically significantly more costly than the alternative option of evaluation in terms of actual expenses and personnel time, so reducing the mandatory appraisals a state bank must pay for will result in savings to the bank. Further, state banks are free to conduct an appraisal rather than an evaluation should the state bank determine that to be more cost-effective or otherwise prudent.

ONE-FOR-ONE RULE ANALYSIS

Pursuant to Texas Finance Code (Finance Code), §16.002, the department is a self-directed and semi-independent agency and thus not subject to the requirements of Texas Government Code (Government Code), §2001.0045. Further, since the proposed amended rule will not increase costs upon any state bank or other regulated person, and is instead amended to reduce costs for compliance, the requirements of Government Code, §2001.0045 would be satisfied if applicable.

GOVERNMENT GROWTH IMPACT STATEMENT

For each of the first five years the proposed amendments are in effect, the department has determined the following: (1) the rule amendments do not create or eliminate a government program; (2) implementation of the rule amendments does not require the creation of new employee positions or the elimination of existing employee positions; (3) implementation of the rule amendments does not require an increase or decrease in future legislative appropriations to the agency; (4) the rule amendments do not require an increase or decrease in fees paid to the agency; (5) the rule amendments do not create any new regulations; (6) the rule amendments neither expand nor eliminate existing regulations, but do limit existing regulation; and (7) the rule amendments do not increase or decrease the number of individuals subject to the rule's applicability. The proposed rule if amended may positively affect this state's economy by increasing competitiveness and reducing operating costs for state banks.

FISCAL IMPACT ON SMALL AND MICRO-BUSINESSES, AND RURAL COMMUNITIES

Mr. Purdom has determined the rule, if amended, will not have an adverse economic effect on small or micro-businesses, or rural communities because there are no costs or other adverse economic effects to the state banks who are required to comply with the rule. Further, because many state banks are community banks that serve small business and rural areas, the decreased operating costs and increased competitiveness resulting from the proposed amendment may result in positive economic effects on small businesses and rural communities. Moreover, many of the state banks benefitting from the reduced regulatory burden of the proposed amendments are micro-businesses or small businesses.

Because there is no adverse impact on micro-businesses or small businesses from the proposed amendments, the department asserts preparation of an economic impact statement and a regulatory flexibility analysis, as provided by Government Code, §2006.002, are not required.

Mr. Purdom has determined the proposed amendments, if adopted, may indirectly have a minimal adverse economic impact on small and micro-businesses that conduct real estate appraisals. The proposed amendments, if adopted, have the potential to reduce the number of real estate appraisals required by state banks and thereby reduce demand for appraisals, some of which are conducted by small businesses or micro-businesses. However, Mr. Purdom, in accordance with guidelines established by the Office of the Attorney General as provided by Government Code, §2006.002(g), has determined that such potential adverse economic impact only concerns appraisal services not regulated by the department and thus is only indirectly related to the rule amendment, and does not require the additional analysis for a direct adverse economic effect contemplated by Government Code, §2006.002(c).

Further, Mr. Purdom finds that any such loss of business to appraisal firms that are small or micro-businesses from the proposed amendments would be unrelated to the business's status as a small or micro-business. Businesses other than a small or micro-business performing appraisals will be similarly affected proportionate to the amount of work derived from appraisals performed for state banks.

The department further asserts the public benefits of the proposed rule, as discussed above, outweigh any potential adverse impact on small or micro-businesses.

PUBLIC COMMENTS

To be considered, comments on the proposed amendments must be submitted to the department in writing to within 30 days of publication of this proposal. Comments should be addressed to General Counsel, Texas Department of Banking, Legal Division, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294. Comments may also be submitted by email to legal@dob.texas.gov.

STATUTORY AUTHORITY

This proposal is made under the authority of Finance Code, §11.301 which authorizes the commission to adopt rules applicable to state banks, and Finance Code, §31.003, which authorizes the commission to adopt rules necessary to preserve or protect the safety and soundness of state banks.

This proposal affects the statutes administered and enforced by the department's commissioner with respect to state banks, contained in Finance Code, Subtitle A. No other statute is affected by this proposal.

§12.91.Other Real Estate Owned.

(a) - (c) (No change.)

(d) Appraisal requirements.

(1) Subject to paragraph (2) of this subsection, when OREO is acquired, a state bank must substantiate the market value of the OREO by obtaining an appraisal within 90 [60] days of the date of acquisition, unless extended by the banking commissioner. An evaluation may be substituted for an appraisal if the recorded book value of the OREO is $500,000 or less [less than $250,000].

(2) An additional appraisal or evaluation is not required when a state bank acquires OREO if a valid appraisal or appropriate evaluation was made in connection with the real estate loan that financed the acquisition of the OREO and the appraisal or evaluation is less than one year old.

(3) An evaluation shall be made on all OREO at least once a year. An appraisal shall be made at least once every three years, unless extended by the banking commissioner, on OREO with a recorded book value in excess of $500,000 [$250,000].

(4) Notwithstanding another provision of this section, the banking commissioner may require an appraisal of OREO if the banking commissioner considers an appraisal necessary to address safety and soundness concerns.

(e) - (i) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002462

Catherine Reyer

General Counsel

Texas Department of Banking

Earliest possible date of adoption: August 2, 2020

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


PART 4. DEPARTMENT OF SAVINGS AND MORTGAGE LENDING

CHAPTER 76. MISCELLANEOUS

SUBCHAPTER F. FEES AND CHARGES

7 TAC §76.98

The Finance Commission (commission), on behalf of the Department of Savings and Mortgage Lending (department), proposes amendments to Title 7, Texas Administrative Code (TAC), Part 4, Chapter 76, Subchapter F, §76.98. This proposal and the rule as amended by this proposal are referred to collectively as the "proposed rule."

Background and Purpose

7 TAC, Chapter 76 contains the department's rules concerning charges and fees imposed on regulated state savings banks. Existing §76.98 imposes an annual assessment fee on state savings banks to fund the operations of the department and provide for the supervision and examination of state savings banks by the department. Under the requirements of existing §76.98, regulated state savings banks are assessed a fee that is based on their size as reflected by their total assets. By assessing a fee based on asset size, a state savings bank is meant to pay an assessment fee proportionate to the cost of its required supervision and examination. The proposed rule, if adopted, would allow the department to also consider a state savings bank's total risk-weighted assets as a basis on which to establish the amount of its assessment fee. A risk-weighted asset approach takes into consideration not only the state savings bank's asset size, but also the character of its operations as revealed by its investment positions and associated risk profile. The department asserts a risk-weighted asset approach promotes more equitable fees for state savings banks. A state savings bank taking riskier investment positions is more likely to raise safety and soundness concerns, and typically requires closer supervision and additional scrutiny during examination, leading to increases in attendant costs disproportionate to a similarly-sized state savings bank with equivalent total assets but more conservative investment positions. As a result, the requirements of the existing rule have the tendency to distort the actual costs required for the supervision and examination of regulated state savings banks, and in some instances resulting in inflated assessment fees outsizing the actual cost of regulation. As related herein infra. the department anticipates that administering and enforcing the proposed rule will result in reduced assessment fees for regulated state savings banks overall. Existing §79.98 has been in place and stood largely unchanged since its adoption in 2012. The underlying requirements of the rule have been in place since 1993 when they were initially adopted by the department (at that time, the Texas Savings and Loan Department; 7 TAC §79.98; 18 TexReg 6100). With the advent of modern capital requirements based on risk weighting, the department has ready access to data for most state savings banks with which to apply a risk-weighted asset approach in assessing fees. Specifically, implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 at the federal level (Public Law No. 111-203, 124 Stat. 1376, 1435-38 (2010)) and application of the Basel III standards of the Basel Committee for Banking Supervision in federal law means many state savings banks already regularly report data concerning their total risk-weighted assets for purposes of their minimum capital requirements. Such data may be easily repurposed by the department for use in assessing fees on a risk-weighted asset basis. In consideration of the foregoing, the department determined that assessments based on total risk-weighted assets would result in fees that are equitable and more accurately reflect the true cost of regulation. This proposal seeks to make amendments to §76.98 to effectuate such change.

SUMMARY OF CHANGES

The proposed rule amends Subchapter F, Fees and Charges.

The proposed rule amends §76.98, Annual Fee To Do Business. The current title of the rule is replaced with "Annual Assessments," to better reflect the subject matter of the rule. Additional language is inserted in subsection (a) (which was formerly implied) to clarify when assessments are invoiced and the method by which they should be paid. A new subsection (b) is inserted to add language requiring the determination of assessments based on either total assets or the total risk-weighted assets, as reflected on the state savings bank's call report, or as otherwise voluntarily reported to the department for purposes of calculating the assessment. Other minor terminology and modernization changes are made throughout the rule to update the rule and improve readability.

Fiscal Impact on State and Local Government

Antonia Antov, director of administration and finance for the department, has determined that for the first five-year period the proposed rule is in effect, there are no foreseeable increases or reductions in costs to the state or local governments as a result of enforcing or administering the proposed rule. Ms. Antov has further determined that for the first five-year period the proposed rule is in effect, there will be no foreseeable losses or increases in revenue to local governments as a result of enforcing or administering the proposed rule. Ms. Antov has further determined that for the first five years the rule is in effect there will be no foreseeable losses or increases in revenue to the state overall and that would impact the general revenue fund. Implementation of the proposed rule will not require an increase or decrease in future legislative appropriations to the department because the department is a self-directed, semi-independent agency that does not receive legislative appropriations. The foregoing notwithstanding, Ms. Antov further determined that for the first five-year period the proposed rule is in effect, there will be a probable decrease in revenue to the department in the form of reduced assessment fees collected by the department from regulated state savings banks. The anticipated reduction in assessment fees collected will facilitate the department's continued compliance with Finance Code §16.003(c), requiring that the department collect only those amounts necessary for the purposes of carrying out its functions. The anticipated reduction in assessment fees collected by the department will not hinder the department's operations or require increases in other fees imposed by the department, or commensurate reductions in staff or other resources of the department.

Public Benefits

Stephany Trotti, deputy commissioner of the department (deputy commissioner), has determined that for each of the first five years the proposed rule is in effect, the public benefit anticipated as a result of enforcing the proposed rule will be to have a rule that more equitably imposes fees on regulated state savings banks. Since the purpose of such fees is to provide revenue for the department sufficient to supervise and examine regulated state savings banks, the proposed rule more accurately reflects the true cost of regulation, thereby increasing transparency with and accountability to the public concerning the department's operations. As discussed infra. the proposed rule also has the potential to reduce costs to regulated persons which may, in turn, confer a reduction of costs on those members of the public who are borrowers of or otherwise do business with a regulated state savings bank.

Probable Economic Costs to Persons Required to Comply with the Proposed Rule

The deputy commissioner has determined that for the first five years the proposed rule is in effect, there are no economic costs anticipated to persons required to comply with the proposed rule. The proposed rule has the potential to lower costs for regulated persons by allowing the assessment of annual fees to be conducted on the basis of the state savings bank's total risk-weighted assets, which typically results in lower assessment fees than when made on the basis of total assets.

One-for-One Rule Analysis

Pursuant to Finance Code §16.002, the department is a self-directed and semi-independent agency and thus not subject to the requirements of Government Code §2001.0045.

Government Growth Impact Statement

For each of the first five years the proposed rule is in effect, the department has determined the following: (1) the proposed rule does not create or eliminate a government program; (2) implementation of the proposed rule does not require the creation of new employee positions or the elimination of existing employee positions; (3) implementation of the proposed rule does not require an increase or decrease in future legislative appropriations to of the department; (4) the proposed rule does not require an increase in fees paid to the department. As related supra the proposed rule will likely result in a reduction in fees paid by most if not all state savings banks to the department; (5) the proposed rule does not create a new regulation (rule requirement); (6) the proposed rule does not expand, limit, or repeal an existing regulation (rule requirement); (7) the proposed rule does not increase or decrease the number of individuals subject to the rule's applicability; and (8) the proposed rule does not adversely affect this state's economy and has the potential to positively affect the state's economy as most if not all state savings banks will pay a reduced assessment fee if the proposed rule is adopted.

Local Employment Impact Statement

No local economies are substantially affected by the proposed rule. As a result, preparation of a local employment impact statement pursuant to Government Code §2001.022 is not required.

Fiscal Impact on Small and Micro-Businesses, and Rural Communities

The proposed rule will not have an adverse effect on small or micro-businesses, or rural communities because there are no anticipated costs to persons required to comply with the proposed rule. As a result, preparation of an economic impact statement and a regulatory flexibility analysis, as provided by Government Code §2006.002, are not required.

Takings Impact Assessment

There are no private real property interests affected by the proposed rule. As a result, preparation of a takings impact assessment, as provided by Government Code §2007.043, is not required.

Public Comments

Written comments regarding the proposed rule may be submitted by mail to Iain A. Berry, Associate General Counsel, at 2601 North Lamar Blvd., Suite 201, Austin, Texas 78705-4294, or by email to rules.comments@sml.texas.gov. All comments must be received within 30 days of publication of this proposal.

Statutory Authority

This proposal is made under the authority of Finance Code §91.007(1)(A), which requires the commission to adopt rules for fees and charges related to the supervision and examination of state savings banks. This proposal is further made under the authority of Finance Code §16.003(c) which provides that the department may set the amounts of fees, penalties, charges, and revenues as necessary for the purpose of carrying out the functions of the department.

This proposal affects the statutes administered and enforced by the department's commissioner with respect to state savings banks, contained in Finance Code, Subtitle C. No other statute is affected by this proposal.

§76.98.Annual Assessments [Fee To Do Business].

(a) Annual assessment. All savings banks chartered under the laws of the state and all foreign savings banks under the laws of another state of the United States holding a certificate of authority to do business in this state shall pay to the department an [such] annual assessment fee in an amount determined by the commissioner as provided by subsection (b) of this section and subject to the rate requirements [or assessment and examination fees as are] set by the Finance Commission of Texas. The annual assessment shall be paid in quarterly installments. Upon receipt of a written invoice from the department, the savings bank must pay the assessment fee by electronic/ACH payment, or by another method if directed to do so by the department. The department will maintain on its website information concerning prevailing assessment rates and fees.

(b) Determination of assessment. The assessment [Annual fees and assessments] shall be determined [established] based on either [upon] the total assets or the total risk-weighted assets of the savings bank, whichever results in the lowest applicable assessment fee. The valuation of assets shall be determined as of [at] the close of the calendar quarter immediately preceding the effective date of the [fee or] assessment. A savings bank's total assets or total risk-weighted assets shall be derived from the savings bank's Federal Financial Institutions Examination Council (FFIEC) consolidated report of condition and income (call report), filed in accordance with federal law. If a savings bank is not required by applicable federal law to disclose its total risk-weighted assets in the call report, the savings bank may voluntarily report to the commissioner information concerning its total risk-weighted assets for purposes of calculating its assessment, which shall be provided to the commissioner in the manner and within the time prescribed by the commissioner; otherwise, the assessment will be based on the savings bank's total assets.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002481

Iain A. Berry

Associate General Counsel

Department of Savings and Mortgage Lending

Earliest possible date of adoption: August 2, 2020

For further information, please call: (512) 475-1535


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) proposes 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); proposes new §83.5005 (relating to Separation Between Credit Access Business and Third-Party Lender); and proposes the repeal of §83.4007 (relating to License Reissuance) in 7 TAC, Chapter 83, Subchapter B, concerning Rules for Credit Access Businesses.

The rules in 7 TAC Chapter 83, Subchapter B govern credit access businesses (CABs). In general, the purpose of the proposed 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 Texas Register on March 27, 2020, (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 proposed amendments and new rule.

Proposed amendments to §83.2003 would 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. These false and misleading representations are a pretense to evade the Finance Code, because the CSO suggests that the transaction is regulated by the OCCC, while also asserting that the transaction is a non-CAB transaction that the OCCC does not regulate.

The purpose of the proposed 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, proposed paragraphs (1) and (2) would 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.

Proposed 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 proposed amendments to §83.4003 would 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. Proposed amendments throughout subsections (c) and (f) of §83.4003 would implement these statutory changes from HB 1342. Other proposed amendments to §83.4003 include technical corrections, clarifying changes, and updates to citations.

The proposal 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.

Proposed amendments to §83.5001 would reflect the OCCC's practices on 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. The OCCC's current practice is to issue an injunction for the first reporting violation, not to impose an administrative penalty. Proposed amendments to §83.5001(e) would reflect this. Proposed amendments would 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.

Proposed amendments to §83.5003 would specify the content of witness declarations and records declarations that OCCC examiners obtain from CABs during examinations. The proposed 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 proposed amendments also replace the term "statement" with "declaration," and remove provisions that are not necessary to include in a declaration under Chapter 132.

Proposed amendments to §83.5004(2)(B)(vi), would 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 proposed amendments would 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.

A proposed amendment to §83.5004(3) would state 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 proposed new §83.5005, described in the next paragraph.

Proposed 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).

Proposed 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 proposal also includes amendments to the figures accompanying §83.6007, which are the model forms for the consumer cost disclosure used by CABs. The proposed amendments implement Texas Finance Code, §393.223(a), which authorizes the commission to adopt rules including the disclosure. The proposed 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.

Mirand Diamond, Director of Licensing and Registration, has determined that for the first five-year period the proposed rule changes are in effect, there will be no fiscal implications for state or local government as a result of administering the rule changes.

Huffman Lewis, Director of Consumer Protection, has determined that for each year of the first five years the proposed rule changes are in effect, the public benefits anticipated as a result of the changes will be that the commission's rules will be more easily understood by licensees required to comply with the rules, will better protect consumers, will better enable licensees to comply with Chapter 393 of the Texas Finance Code, and will aid licensees in preparing disclosures that clearly disclose up-to-date information to consumers.

Additional economic costs may be incurred by persons who are required to comply with the proposed amendments to the consumer disclosure rule at §83.6007. The anticipated costs would include the costs associated with producing new forms, and costs attributable to the loss of obsolete forms inventory. For licensees not using the fillable forms provided by the agency online, any additional economic costs are anticipated to be minimal, with an estimated programming time of less than five hours to produce the updated forms.

The agency has attempted to lessen any potential costs by providing on the agency's website fillable PDF versions of the disclosure forms free of charge. Additionally, the agency is considering a delayed implementation date for use of the revised forms, which will help minimize potential costs and allow use of current forms inventory. In particular, the agency is considering a possible implementation date of March 1, 2021, and invites comments on this issue.

The OCCC does not anticipate economic costs to persons who are required to comply with the other rule changes as proposed.

The agency is not aware of any adverse economic effect on small businesses, micro-businesses, or rural communities resulting from this proposal. But in order to obtain more complete information concerning the economic effect of these rule changes, the agency invites comments from interested stakeholders and the public on any economic impacts on small businesses, as well as any alternative methods of achieving the purpose of the proposal while minimizing adverse impacts on small businesses, micro-businesses, and rural communities.

During the first five years the proposed rule changes will be in effect, the rules will not create or eliminate a government program. Implementation of the rule changes will not require the creation of new employee positions or the elimination of existing employee positions. Implementation of the rule changes will not require an increase or decrease in future legislative appropriations to the OCCC, because the OCCC is a self-directed, semi-independent agency that does not receive legislative appropriations. The proposed rule changes do not require an increase or decrease in fees paid to the OCCC. The proposal would create a new regulation at §83.5005 to implement a statutory requirement that a CAB obtain extensions of credit by others. The proposal would expand current §83.2003 to identify acts that constitute a device or subterfuge to evade the subchapter, and would expand current §83.5004 to specify records that CABs must maintain relating to criminal history and third-party lenders. The proposal would limit current §83.4003 by amending grounds on which the OCCC may deny, suspend, or revoke a license on grounds of criminal history. The proposal would repeal current §83.4007, relating to license reissuance. The proposed rule changes do not increase or decrease the number of individuals subject to the rule's applicability. The agency does not anticipate that the proposed rule changes will have an effect on the state's economy.

Comments on the proposal may be submitted in writing to Matthew Nance, Deputy General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705 or by email to rule.comments@occc.texas.gov. To be considered, a written comment must be received on or before 5:00 p.m. central time on the 31st day after the date the proposal is published in the Texas Register. At the conclusion of business on the 31st day after the proposal is published in the Texas Register, no further written comments will be considered or accepted by the commission.

DIVISION 2. AUTHORIZED ACTIVITIES

7 TAC §83.2003

The rule changes are proposed 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 proposal are contained in Texas Finance Code, Chapter 393.

§83.2003.Attempted Evasion of Applicability of Subchapter [Chapter].

A "device, subterfuge, or pretense to evade the application of this subchapter," [of this chapter,] as used in Texas Finance Code, §393.602(c), includes: [refers to any transaction that in form may appear on its face to be something other than a deferred presentment transaction or a motor vehicle title loan, but in substance meets the definition of a deferred presentment transaction or a motor vehicle title loan as defined in Texas Finance Code, §393.602.]

(1) a transaction that is not identified as a deferred presentment transaction or payday loan, if the transaction is a deferred presentment transaction;

(2) a transaction that is not identified as a motor vehicle title loan, if the transaction is a motor vehicle title loan;

(3) a statement that a person is licensed by the Office of Consumer Credit Commissioner if the person is not licensed;

(4) a statement that a transaction is regulated by the Office of Consumer Credit Commissioner if the transaction is not regulated by the Office of Consumer Credit Commissioner;

(5) a reference in a transaction to a statute or rule regulating deferred presentment transactions or motor vehicle title loans if the transaction is not a deferred presentment transaction or motor vehicle title loan; and

(6) a disclosure or notice to a consumer about a deferred presentment transaction or motor vehicle title loan if the transaction is not a deferred presentment transaction or motor vehicle title loan.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002464

Matthew Nance

Deputy General Counsel

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 2, 2020

For further information, please call: (512) 936-7660


DIVISION 4. LICENSE

7 TAC §83.4003

The rule changes are proposed 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 proposal 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; [and]

(F) evidence of the person's compliance with any conditions of community supervision, parole, or mandatory supervision; and

(G) [(F)] evidence of the person's current circumstances relating to fitness to hold a license, which may include letters of recommendation. [from one or more of the following:]

[(i) prosecution, law enforcement, and correctional officers who prosecuted, arrested, or had custodial responsibility for the person;]

[(ii) the sheriff or chief of police in the community where the person resides; and]

[(iii) other persons in contact with the convicted person.]

(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 that does not directly relate to the duties and responsibilities of the occupation and that was committed less than five years before the date of application, as provided by Texas Occupations Code, §53.021(a)(2);]

(1) [(2)] 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) [§53.021(a)(3) - (4)];

(2) [(3)] errors or incomplete information in the license application;

(3) [(4)] 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) [(5)] 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 proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002465

Matthew Nance

Deputy General Counsel

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 2, 2020

For further information, please call: (512) 936-7660


7 TAC §83.4007

The rule changes are proposed 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 proposal are contained in Texas Finance Code, Chapter 393.

§83.4007.License Reissuance.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002466

Matthew Nance

Deputy General Counsel

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 2, 2020

For further information, please call: (512) 936-7660


DIVISION 5. OPERATIONAL REQUIREMENTS

7 TAC §§83.5001, 83.5003 - 83.5005

The rule changes are proposed 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 proposal are contained in Texas Finance Code, Chapter 393.

§83.5001.Data Reporting Requirements.

(a) Generally. Each licensee must file the required reports described by this section for the prior period's credit access business activity in a form prescribed by the commissioner and must comply with all instructions relating to submitting the reports. During each calendar year, licensees are required to submit four quarterly reports as provided by Texas Finance Code, §393.627. Additionally, certain quarterly data will be collected by the OCCC on an annual basis under Texas Finance Code, §393.622(a)(1). For purposes of this section, the term "annual report" refers to the quarterly data submitted on an annual basis. Each quarterly or annual report must be completed in accordance with the OCCC's instructions. All information provided on each quarterly or annual report must be accurate and calculated in accordance with the OCCC's instructions.

(b) Due dates.

(1) Quarterly reports. The quarterly reports are due on:

(A) April 30, for transactions conducted during January through March;

(B) July 31, for transactions conducted during April through June;

(C) October 31, for transactions conducted during July through September; and

(D) January 31, for transactions conducted during October through December.

(2) Annual report. The annual report is due on January 31 for transactions conducted during the preceding January through December.

(c) Confidentiality. All individual licensee submissions of data, whether submitted on a quarterly or annual basis, are confidential in their entirety under the provisions of Texas Finance Code, §393.622(b).

(d) Aggregated public information. The OCCC will publish aggregated data on its website within a reasonable time after each quarterly report and annual report is due.

(e) Enforcement actions. The OCCC may take enforcement actions described by this subsection if a licensee violates this section by failing to file a complete and accurate quarterly or annual report by the applicable deadline.

(1) Injunction. As provided by Texas Finance Code, §14.208(a), if the OCCC has reasonable cause to believe that a licensee has violated this section, it may issue an injunction ordering the licensee to file one or more complete, accurate, and timely quarterly or annual reports.

(2) Administrative penalty. As provided by Texas Finance Code, §14.251, the OCCC may assess an administrative penalty against a licensee that knowingly and wilfully violates Texas Finance Code, §393.627 or this section. In addition, as provided by Texas Finance Code, §14.208(c), the OCCC may impose [assess ] an administrative penalty against a licensee that violates an injunction described by paragraph (1).

(3) Cumulative sanctions. The OCCC may impose the following sanctions for violations of this section.

(A) First violation. If the licensee violates this section and has not violated this section during any of the four quarters preceding the violation, then the OCCC may issue an injunction [administrative penalty is $100 for each licensed location].

(B) Second violation. If the licensee violates this section during any of the four quarters following a first violation described by subparagraph (A) of this paragraph, then the administrative penalty is $500 for each licensed location.

(C) Third and subsequent violations. If the licensee violates this section during any of the four quarters following a second violation described by subparagraph (B) of this paragraph, then the administrative penalty is $1,000 for each licensed location. The $1,000 administrative penalty applies to subsequent violations that occur during any of the four quarters following a third or subsequent violation described by this subparagraph.

(4) [(3)] Suspension or revocation [for fourth or subsequent violation]. If the licensee violates this section during any of the four quarters following a third or subsequent violation described by subsection (e)(3)(C) of this section, or if a licensee fails to pay an administrative penalty required by a final administrative penalty order, [(e)(2)(C),] then the OCCC may suspend or revoke the licensee's license, as provided by Texas Finance Code, §393.614.

§83.5003.Examinations.

(a) Examination authority. The OCCC may periodically examine each place of business of a licensee and inspect the licensee's transactions and records, including books, accounts, papers, and correspondence, to the extent the transactions and records pertain to business regulated under Texas Finance Code, Chapter 393.

(b) Access to records. A licensee must allow the OCCC to examine the licensee's place of business and make a copy of an item that may be inspected under subsection (a) of this section.

(c) Third-party lender agreements. The OCCC's examination authority includes the authority to review all agreements between a licensee and any third-party lender with which the licensee contracts to provide services under Texas Finance Code, Chapter 393.

(d) Witness declarations [statements]. In connection with an examination, the OCCC may obtain witness declarations [statements] that pertain to business regulated under Texas Finance Code, Chapter 393. A witness declaration must substantially comply with Texas Civil Practice and Remedies Code, Chapter 132. [A witness statement must be signed and dated, and must include an acknowledgment that the statement may be introduced in an enforcement action in which the licensee is a party.]

(e) Records declarations [statements]. In connection with an examination, the OCCC may obtain declarations [statements] regarding records maintained by the licensee that pertain to business regulated under Texas Finance Code, Chapter 393. A records declaration must substantially comply with Texas Civil Practice and Remedies Code, Chapter 132 [statement must be signed and dated by a witness], and must include acknowledgments of the following:

(1) a statement that the witness is the custodian of records [of the witness's positon and duties] at the licensee;

(2) a statement that the witness is familiar with the manner in which records are created and maintained by virtue of duties and responsibilities;

(3) the number of pages of attached records;

(4) a statement that the records are original records or exact duplicates of the original records;

(5) a statement that the records were made at or near the time of each act, event, condition, opinion, or diagnosis set forth;

(6) a statement the records were made by, or from information transmitted by, persons with knowledge of the matters set forth;

(7) a statement that the records were kept in the course of regularly conducted business activity; and

(8) a statement that it is the regular practice of the business activity to make the records. [; and]

[(9) an acknowledgment that the statement and the accompanying records may be introduced in an enforcement action in which the licensee is a party.]

§83.5004.Files and Records Required.

A licensee must maintain records for each transaction under Texas Finance Code, Chapter 393, and make those records available to the OCCC for examination. The records required by this section may be maintained by using a paper or manual recordkeeping system, electronic recordkeeping system, optically imaged recordkeeping system, or a combination of these types of systems, unless otherwise specified. All records must be prepared and maintained in accordance with generally accepted accounting principles. If federal law requirements for record retention are different from the provisions contained in this section, the federal law requirements prevail only to the extent of the conflict with the provisions of this section.

(1) (No change.)

(2) Consumer's transaction file. A licensee must maintain a paper or electronic transaction file for each individual transaction under Texas Finance Code, Chapter 393, or be able to produce this information within a reasonable amount of time. The transaction file must contain documents that show the licensee's compliance with applicable state and federal law, including Texas Finance Code, Chapter 393. If a substantially equivalent electronic record for any of the following documents exists, a paper copy of the record does not have to be included in the transaction file if the electronic record can be accessed upon request.

(A) (No change.)

(B)The transaction file must include the following documentation if the licensee services or collects a loan in connection with a transaction under Texas Finance Code, Chapter 393, or if the licensee otherwise obtains this documentation in the course of business:

(i) - (v) (No change.)

(vi) Criminal charge records. The transaction file must include complete documentation of any threat of criminal prosecution against a consumer, and must include complete documentation of any criminal referral, charge, or complaint filed by a licensee against a consumer, showing the licensee's compliance with Texas Finance Code, §393.201(c)(3). This must include any written statement threatening criminal prosecution, a written summary of any oral statement threatening criminal prosecution, any written evidence of criminal conduct, any information submitted to law enforcement relating to alleged criminal conduct by a consumer, a written summary of any oral statement submitted to law enforcement, any police report, and any court records obtained by the licensee.

(vii) - (viii) (No change.)

(C) (No change.)

(3) Agreements between licensee and third-party lender. A licensee must maintain all documentation of its current agreements with third-party lenders, including copies of the agreement, any guarantees or letters of credit, and underwriting guidelines issued by the lender. A licensee must maintain documentation and records of transfers of money between itself and any third-party lender, as described by §83.5005 of this title (relating to Separation Between Credit Access Business and Third-Party Lender). The documentation must show the licensee's compliance with Texas Finance Code, §393.001(3). The licensee may maintain this documentation at a centralized location other than the licensed location or branch office if the agreements apply to multiple locations. However, upon the OCCC's request, the licensee must have the ability to promptly obtain or access copies of the complete documentation so that the OCCC can examine it. If an agreement terminates, documentation of the agreement must be maintained until the latest of:

(A) four years from the date of the last consumer transaction subject to the agreement;

(B) two years from the date of the final entry made on the consumer's account in the last consumer transaction subject to the agreement;

(C) one year from the date of termination of the agreement; or

(D) the OCCC's next examination of the licensee (if the documentation is maintained at a centralized location, this refers to the next examination of the centralized location).

(4) - (8) (No change.)

(9) Index of litigation, criminal charges, and repossessions. A licensee must maintain (or be able to produce within a reasonable period of time) an index of each litigation action and criminal charge or referral filed by or against the licensee, as well as each repossession initiated by the licensee. The index must show the consumer's name, account number, and date of action. Each record in the index must be retained for a period of four years from the date of the transaction, or two years from the date of the final entry made on the consumer's account, whichever is later.

(10) - (12) (No change.)

§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.

(4) A licensee may not delegate functions to a third-party lender, except by written agreement.

(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 proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002467

Matthew Nance

Deputy General Counsel

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 2, 2020

For further information, please call: (512) 936-7660


DIVISION 6. CONSUMER DISCLOSURES AND NOTICES

7 TAC §83.6007

The rule changes are proposed 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 proposal 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)

[Figure: 7 TAC §83.6007(a)]

(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)

[Figure: 7 TAC §83.6007(b)]

(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)

[Figure: 7 TAC §83.6007(c)]

(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)

[Figure: 7 TAC §83.6007(d)]

(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 proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002468

Matthew Nance

Deputy General Counsel

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 2, 2020

For further information, please call: (512) 936-7660


CHAPTER 85. PAWNSHOPS AND CRAFTED PRECIOUS METAL DEALERS

SUBCHAPTER B. RULES FOR CRAFTED PRECIOUS METAL DEALERS

DIVISION 1. REGISTRATION PROCEDURES

7 TAC §85.1012

The Finance Commission of Texas (commission) proposes the repeal of §85.1012 (relating to Registration System Transition), in 7 TAC, Chapter 85, Subchapter B, concerning Rules for Crafted Precious Metal Dealers.

In general, the purpose of the proposed repeal in 7 TAC Chapter 85, Subchapter B 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 85, Subchapter B was published in the Texas Register on March 27, 2020, (45 TexReg 2211). The commission received no comments in response to that notice.

The OCCC distributed an early precomment draft of the proposed repeal to interested stakeholders for review, and then held a stakeholder webinar regarding the repeal. The OCCC received no informal precomments on the rule text draft.

The proposed repeal is intended to delete a section of 7 TAC Chapter 85, Subchapter B that expired by its own terms on January 1, 2020. This provision was meant to transition crafted precious metal dealers from a registration system in the Department of Public Safety to one in the OCCC.

Mirand Diamond, Director of Licensing, has determined that for the first five-year period the proposed repeal is in effect, there will be no fiscal implications for state or local government as a result of administering the rule repeal.

Huffman Lewis, Director of Consumer Protection, has determined that for each year of the first five years the repeal of §85.1012 is in effect, the public benefits anticipated as a result of the change will be that the commission's rules will be more easily understood by crafted precious metal registrants and more in line with current practices.

There is no anticipated cost to individual crafted precious metal dealers who are required to comply with the repeal as proposed.

The OCCC is not aware of any adverse economic effect on small businesses, micro-businesses, or rural communities resulting from this proposal. But in order to obtain more complete information concerning the economic effect of these rule changes, the OCCC invites comments from interested stakeholders and the public on any economic impacts on small businesses, micro-businesses, and rural communities, as well as any alternative methods of achieving the purpose of the proposal while minimizing adverse impacts.

During the first five years the proposal will be in effect, it will not create or eliminate a government program. Implementation of the proposal will not require the creation of new employee positions or the elimination of existing employee positions. Implementation of the proposal will not require an increase or decrease in future legislative appropriations to the OCCC, because the OCCC is a self-directed, semi-independent agency that does not receive legislative appropriations. The proposal does not require an increase or decrease in fees paid to the OCCC. The proposal does not create a new regulation. The proposal does not expand or limit an existing regulation. The proposal repeals 7 TAC §85.1012. The proposal does not increase or decrease the number of individuals subject to the rule's applicability. The agency does not anticipate that the proposed rule changes will have an effect on the state's economy.

Comments on the proposal may be submitted in writing to Audrey Spalding, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705 or by email to rule.comments@occc.texas.gov. To be considered, a written comment must be received on or before 5:00 p.m. central time on the 31st day after the date the proposal is published in the Texas Register. At the conclusion of business on the 31st day after the proposal is published in the Texas Register, no further written comments will be considered or accepted by the commission.

The repeal is proposed under Texas Occupations Code, §1956.0611, which authorizes the commission to adopt rules to implement and enforce Texas Occupations Code, Chapter 1956.

The statutory provisions affected by the proposal are contained in Texas Occupations Code, Chapter 1956.

§85.1012.Registration System Transition.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002471

Audrey Spalding

Assistant General Counsel

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 2, 2020

For further information, please call: (512) 936-7659


CHAPTER 89. PROPERTY TAX LENDERS

The Finance Commission of Texas (commission) proposes amendments to §89.701 (relating to Sworn Document Authorizing Transfer of Tax Lien), and proposes new §89.805 (relating to Payoff for Property Tax Loan Secured by Multiple Properties) in 7 TAC, Chapter 89, concerning Property Tax Lenders.

In general, the purpose of the proposed 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.

Proposed 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." Proposed 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, a proposed amendment at §89.701(d)(4) would allow property tax lenders to include this reference if the sworn document will be recorded.

Proposed new §89.805 would provide 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 proposed 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 (b) 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 (c) 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 (c)(4) describes how to calculate post-closing costs that may be included in the payoff amount. Subsection (c)(5) describes the requirement to maintain records, and subsection (c)(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 proposed 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.

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 proposed text includes several changes responding to suggestions from stakeholders. 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, proposed §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. The rule will 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. The OCCC and commission believe that this is unnecessary, and that this confirmation in the preamble is sufficient.

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 proposal 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(c)(6) would specify 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(c)(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 proposed 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.

Mirand Diamond, Director of Licensing and Registration, has determined that for the first five-year period the proposed rule changes are in effect, there will be no fiscal implications for state or local government as a result of administering the rule changes.

Huffman Lewis, Director of Consumer Protection, has determined that for each year of the first five years the proposed amendments are in effect, the public benefits anticipated as a result of the changes will be that the commission's rules will be more easily understood by licensees required to comply with the rules, will better protect consumers, will better enable licensees to comply with Chapter 32 of the Texas Tax Code, and will better enable lienholders to exercise their statutory rights under Chapter 32.

Additional economic costs may be incurred by persons who are required to comply with the proposed new rule at §89.805. The anticipated costs would include the costs associated with updating systems to use the calculation method described in the rule. For licensees that currently allow lienholders to pay off individual properties, any additional economic costs are anticipated to be minimal. The agency has attempted to lessen any potential costs by specifying the limited scope of the rule in proposed §89.805(a). In addition, the new rule will apply only to property tax loans entered on or after the rule's effective date.

In an informal precomment, a property tax lender argued that the rule would lead to increased closing costs for borrowers. This property tax lender argued that the rule will require property tax lenders to make a separate property tax loan for each separate property, and that this will result in increased documentation, resulting in increased closing costs for borrowers. The property tax lender proposed an alternative interpretation of the Tax Code's provisions, under which a lienholder must pay off the entire property tax loan, not just the amount corresponding to the individual property where the lienholder holds a lien. The OCCC disagrees with this argument and interpretation. First, the rule does not prohibit property tax lenders from making property tax loans secured by multiple properties. Second, if there are costs associated with enabling lienholders to pay off liens, these costs are required by the Tax Code, and do not result from the rule. Third, the property tax lender's alternative interpretation would result in increased costs for other lienholders, because it would require lienholders to pay off liens on property that they have no interest in, in order to exercise their statutory rights.

The OCCC does not anticipate economic costs to persons who are required to comply with the proposed amendments to §89.701.

The agency is not aware of any adverse economic effect on small businesses, micro-businesses, or rural communities resulting from this proposal. But in order to obtain more complete information concerning the economic effect of these rule changes, the agency invites comments from interested stakeholders and the public on any economic impacts on small businesses, as well as any alternative methods of achieving the purpose of the proposal while minimizing adverse impacts on small businesses, micro-businesses, and rural communities.

During the first five years the proposed rule changes will be in effect, the rules will not create or eliminate a government program. Implementation of the rule changes will not require the creation of new employee positions or the elimination of existing employee positions. Implementation of the rule changes will not require an increase or decrease in future legislative appropriations to the OCCC, because the OCCC is a self-directed, semi-independent agency that does not receive legislative appropriations. The proposed rule changes do not require an increase or decrease in fees paid to the OCCC. The proposal would create a new regulation at §89.805 to describe requirements for a payoff of a property tax loan secured by multiple properties. The proposal would limit current §89.701 by removing language suggesting that the sworn document must be recorded. The proposal would not expand or repeal an existing regulation. The proposed rule changes do not increase or decrease the number of individuals subject to the rule's applicability. The agency does not anticipate that the proposed rule changes will have an effect on the state's economy.

Comments on the proposal may be submitted in writing to Matthew Nance, Deputy General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705 or by email to rule.comments@occc.texas.gov. To be considered, a written comment must be received on or before 5:00 p.m. central time on the 31st day after the date the proposal is published in the Texas Register. At the conclusion of business on the 31st day after the proposal is published in the Texas Register, no further written comments will be considered or accepted by the commission.

SUBCHAPTER G. TRANSFER OF TAX LIEN

7 TAC §89.701

The rule changes are proposed 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 proposal are contained in Texas Tax Code, Chapter 32 and Texas Finance Code, Chapter 351.

§89.701.Sworn Document Authorizing Transfer of Tax Lien.

(a) Required information. A sworn document containing all of the required information provided by this subsection meets the requirements of Texas Tax Code, §32.06(a-1). A sworn document under this section must contain the following information:

(1) (No change.)

(2) a statement that [after] the document [is recorded, it] is to be returned to the transferee;

(3) - (17) (No change.)

(b) (No change.)

(c) Standard sworn document. The standard sworn document under Texas Tax Code, §32.06(a-1) is presented in the following figure.

Figure: 7 TAC §89.701(c) (.pdf)

[Figure: 7 TAC §89,701(c)]

(d) Permissible changes.

(1) Multiple account transfers. In the case of multiple account transfers, the information required by subsection (a)(6), (7), and (8) of this section may be provided in table or list format as an attachment to the standard form.

(2) Joint owners. In a transfer involving joint owners, additional signature blocks containing the information required by subsection (a)(6), (7), (8), (9), and (15) of this section may be attached to the standard form.

(3) Title. The title of the sworn document may be relocated to the top of the form.

(4) Statement on recording. If the transferee will record the sworn document in the real property records, the transferee may replace "Return to:" with "After recording, return to:" at the top of the form.

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002472

Matthew Nance

Deputy General Counsel

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 2, 2020

For further information, please call: (512) 936-7660


SUBCHAPTER H. PAYOFF STATEMENTS

7 TAC §89.805

The rule changes are proposed 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 proposal 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) 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.

(c) 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 proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002473

Matthew Nance

Deputy General Counsel

Office of Consumer Credit Commissioner

Earliest possible date of adoption: August 2, 2020

For further information, please call: (512) 936-7660


PART 8. JOINT FINANCIAL REGULATORY AGENCIES

CHAPTER 155. PAYOFF STATEMENTS

SUBCHAPTER A. FORM AND DELIVERY [REGISTRATION]

7 TAC §155.2

The Finance Commission (commission), on behalf of the Department of Savings and Mortgage Lending (SML), the Office of the Consumer Credit Commissioner (OCCC), and the Texas Department of Banking (DOB; SML, OCCC, and DOB, collectively, the "joint financial regulatory agencies"), proposes amendments to existing Title 7 Texas Administrative Code (TAC), Part 8, Chapter 155, Subchapter A, §155.2. This proposal and the rule as amended by this proposal are referred to collectively as the "proposed rule."

Background and Purpose

7 TAC, Chapter 155 contains the administrative rules of the joint financial regulatory agencies concerning requirements for the creation and delivery of payoff statements for home loans. The proposed rule arises in part from the joint financial regulatory agencies' periodic review of Chapter 155, conducted pursuant to Government Code, §2001.039. The commission, determining that the reasons for initially adopting the rules contained in Chapter 155 continued to exist, readopted such rules in the January 3, 2020, issue of the Texas Register (45 TexReg 162). While readopting the rules, the commission contemporaneously proposed amendments to 7 TAC §155.2 (45 TexReg 33). The amendments proposed at that time were limited to non-substantive formatting changes to reconcile differences between the form published on SML's website and the form embedded in §155.2. However, during the period for public comment to such proposal, the joint financial regulatory agencies received a request from the Texas Land Title Association (commenter) that the payoff statement form be revised to include additional information. Specifically, the commenter requested that, in order for the title company to more easily verify the loan servicer has correctly identified the loan for which the payoff statement was requested, the payoff statement form state the loan number assigned for identification purposes, or if the loan number is not available, the original loan amount. The joint financial regulatory agencies initially determined the comment and proposed revision had merit and that the revision should be considered by the commission for potential adoption. However, the joint financial regulatory agencies further determined that the revisions suggested by the commenter would be best achieved by amending the rule to impose the requirement within the actual text of the rule, in addition to making corresponding changes to the form embedded in the rule. Furthermore, the revisions to the form would be substantive in nature instead of merely non-substantive formatting changes. In consideration of the foregoing, the joint financial regulatory agencies determined it would be prudent to republish the rule to provide additional notice and opportunity for public comment.

SUMMARY OF CHANGES

The proposed rule amends Subchapter A, Registration. A proposed amendment would replace the title of Subchapter A with "Form and Delivery," to better reflect the subchapter's subject matter.

The proposed rule amends §155.2, Payoff Statement Form. Subsection (a) is amended to clarify that a loan servicer may designate a mailing address and a fax number to receive requests for payoff statements. Existing §152.2(b)(3) requires the loan servicer to provide "sufficient information to identify the loan for which the payoff information is provided." §152.2(b)(3) is amended to insert two new subparagraphs requiring that such information include the loan number, or if the loan number is not available, the original amount of the loan. The proposed rule further revises the prescribed form for the payoff statement embedded in §155.2 as an attached graphic. The proposed rule makes corresponding changes to the form to implement the new requirement for the loan number or original loan amount to be included by adding fields for both pieces of information. The proposed rule also makes formatting revisions to the form to make the form consistent with the payoff statement form published by SML on its website. The proposed rule also amends §155.2 to make terminology and other modernization changes to update the rule and improve readability. These changes include: using updated terminology for transmittal by email and fax; and making minor punctuation changes.

Fiscal Impact on State and Local Government

Ernest Garcia, General Counsel of SML, Mirand Diamond, Director of Licensing and Registration for OCCC, and Jesse Moore, Assistant General Counsel for DOB, have determined that for the first five-year period the proposed rule is in effect, there are no foreseeable increases or reductions in costs to the state or local governments as a result of enforcing or administering the rule. Ernest Garcia of SML, Mirand Diamond of OCCC, and Jesse Moore of DOB further determined that for the first five-year period the proposed rule is in effect, there will be no foreseeable loss in revenue for the state or local governments as a result of enforcing or administering the proposed rule.

Public Benefits

Ernest Garcia of SML, Huffman Lewis, Director of Consumer Protection for OCCC, and Jesse Moore of DOB have determined that for each of the first five years the proposed rule is in effect, the public benefit anticipated as a result of enforcing the proposed rule will be to have an amended payoff statement form with formatting that is more consistent with the form published by SML on its website. The new requirement to state the original loan number or amount of the loan on the form will also promote uniformity among loan servicers in complying with the requirements of existing §155.2(b)(3), thereby promoting familiarity with the form by the public. The uniform provision of identifying information also has the tendency to limit erroneous payoff information when a loan servicer misidentifies the loan for which the payoff statement is meant to be provided, thereby reducing or preventing harm to a member of the public who is a party to a transaction involving a payoff statement.

Probable Economic Costs to Persons Required to Comply with the Proposed Rule

Ernest Garcia of SML, Huffman Lewis of OCCC, and Jesse Moore of DOB have determined that for the first five years the proposed rule is in effect, there are no substantial economic costs anticipated to persons required to comply with the proposed rule. A loan servicer may use custom electronic forms in order to fulfill the requirements of existing §155.2. As related supra, loan servicers are already required to provide information identifying the loan for which the payoff statement is provided. In meeting existing requirements, loan servicers often include the loan number and the original loan amount, and these loan servicers would not incur any costs in order to comply with the proposed rule. Loan servicers that do not already include the loan number or the original loan amount on their custom electronic forms may be inclined to update such forms to comply with the rule. However, any such costs should only be incurred on a one-time basis and are anticipated to be de minimis. Use of custom electronic forms by a loan servicer is not required by the proposed rule, and is discretionary. Moreover, if the proposed rule is adopted, it will include an electronic form the servicer may use to comply with the rule at no cost. Additionally, SML intends to publish a form-fillable version of the form on its website for use at no cost. The text of the new information required by the proposed rule rarely exceeds twenty characters in length. As a result, printed forms preexisting the potential adoption of the proposed rule that do not include the required information may still be used but supplemented with the new required information at no cost. In an effort to discern any potential costs to regulated persons, and to mitigate any such costs, the joint financial regulatory agencies solicited the comments and feedback of industry stakeholders and other interested persons. Specifically, on February 25, 2020, the joint financial regulatory agencies posted a notice on their respective websites with an initial draft of potential amendments concerning the proposed rule. Such notice specifically solicited comments concerning whether or not there would be costs imposed on regulated persons as a result of the potential amendments. The notice also solicited comments concerning whether regulated persons might benefit from or would be harmed by potential delayed implementation of the potential amendments should they be adopted. The joint regulatory agencies received no written comments within the time prescribed by such notice, or otherwise. The foregoing notwithstanding, the commission and the joint financial regulatory agencies invite comments from stakeholders and interested persons who believe there will be costs imposed on regulated persons associated with adoption of the proposed rule, and whether delayed implementation is helpful or necessary.

One-for-One Rule Analysis

Pursuant to Finance Code §16.002, each of the joint financial regulatory agencies is a self-directed and semi-independent agency and thus not subject to the requirements of Government Code §2001.0045.

Government Growth Impact Statement

For each of the first five years the proposed rule is in effect, the joint financial regulatory agencies have determined the following: (1) the proposed rule does not create or eliminate a government program; (2) implementation of the proposed rule does not require the creation of new employee positions or the elimination of existing employee positions; (3) implementation of the proposed rule does not require an increase or decrease in future legislative appropriations to any of the joint financial regulatory agencies; (4) the proposed rule does not require an increase or decrease in fees paid to the any of the joint financial regulatory agencies; (5) the proposed rule does not create a new regulation (rule); (6) the proposed rule does expand, limit, or repeal an existing regulation (rule). The proposed rule expands an existing rule requiring identifying information for the loan for which a payoff statement is issued by dictating the minimum information required to comply. The proposed rule does not limit or repeal an existing regulation (rule); (7) the proposed rule does not increase or decrease the number of individuals subject to the rule's applicability; and (8) the proposed rule does not positively or adversely affect this state's economy.

Local Employment Impact Statement

No local economies are substantially affected by the proposed rule. As a result, preparation of a local employment impact statement pursuant to Government Code §2001.022 is not required.

Fiscal Impact on Small and Micro-Businesses, and Rural Communities

The proposed rule will not have an adverse effect on small or micro-businesses, or rural communities because there are no substantial economic costs anticipated to persons required to comply with the proposed rule. As a result, preparation of an economic impact statement and a regulatory flexibility analysis, as provided by Government Code §2006.002, are not required.

Takings Impact Assessment

There are no private real property interests affected by the proposed rule. As a result, preparation of a takings impact assessment, as provided by Government Code §2007.043, is not required.

Public Comments

Written comments regarding the proposed rule may be submitted by mail to Iain A. Berry, Associate General Counsel for SML, at 2601 North Lamar Blvd., Suite 201, Austin, Texas 78705-4294, or by email to rules.comments@sml.texas.gov. All comments must be received within 30 days of publication of this proposal.

Statutory Authority

This proposal is made under the authority of, and to implement, Finance Code §343.106(b), which requires the commission to adopt rules governing requests by title insurance companies for payoff information from mortgage servicers related to home loans and the provision of that information, including rules prescribing a standard payoff statement form that must be used by mortgage servicers to provide payoff statements.

This proposal affects the statutes contained in Finance Code, Chapter 343. No other statute is affected by this proposal.

§155.2.Payoff Statement Form.

(a) Requests made pursuant to this chapter shall be in writing and submitted to the mortgage servicer by mail, email, [electronic mail] or fax [facsimile]. If the mortgage servicer has designated a specific mailing [physical] address, [;] email [electronic mail] address, fax number, [;] and/or a specific representative to receive requests made pursuant to this chapter, then requests shall be submitted in accordance with such designation. Requests for a payoff statement shall, at a minimum, include the following:

(1) - (3) (No change.)

(b) Upon receipt of a valid request made under subsection (a) of this section, a mortgage servicer shall provide, in writing, by mail or email [electronic mail], the payoff statement information for the home loan specified in the request which must be provided on the prescribed payoff statement form, Figure 7 TAC §155.2(c)(6), or in a substantially similar format which contains all elements not indicated as optional on the prescribed payoff statement form. The statement must include the following information:

(1) - (2) (No change.)

(3) Sufficient information to identify the loan for which the payoff information is provided, including:

(A) the loan number, if available; or

(B) the original amount of the loan, if the loan number is not available.

(c) If applicable, the payoff statement may contain:

(1) - (5) (No change.)

(6) Other information necessary to provide a clear and concise payoff statement.

Figure: 7 TAC §155.2(c)(6) (.pdf)

[Figure: 7 TAC §155.2(c)(6)]

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on June 22, 2020.

TRD-202002485

Iain A. Berry

Associate General Counsel

Joint Financial Regulatory Agencies

Earliest possible date of adoption: August 2, 2020

For further information, please call: (512) 475-1535