Part 1. FINANCE COMMISSION OF TEXAS

Chapter 1. CONSUMER CREDIT REGULATION

Subchapter R. MOTOR VEHICLE INSTALLMENT SALES CONTRACT PROVISIONS

7 TAC §1.1309

The Finance Commission of Texas (the commission) adopts an amendment to Chapter 1, Subchapter R, concerning model clauses. The purpose of the amendments is to make technical changes that clarify certain provisions or correct technical errors within the rules. One amendment corrects the pronoun "your" to "my" in §1.1309. The amendment also implements a technical correction to change the itemization of amount financed in §1.1309. The rule is adopted with non-substantive changes to the proposal published in the February 25, 2005, issue of the Texas Register (30 TexReg 955). The commission made editing and clerical corrections to Figure: 7 TAC §1.1309(b).

Leslie L. Pettijohn, Consumer Credit Commissioner has determined that for the first five-year period the rules are in effect, there will be no fiscal implications for state or local government as a result of administering the rule.

Commissioner Pettijohn also has determined that for each year of the first five years the rules are in effect, the public benefit anticipated as a result of the proposed amendment will be providing clarity in the model forms. There is no anticipated cost to persons who are required to comply with the amendment as adopted. There will be no adverse economic effect on small or micro businesses. There will be no effect on individuals required to comply with the section as proposed.

The commission received no written comments on the proposed rule.

The amendment is adopted under Texas Finance Code §11.304, which authorizes the commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code §348.513 authorizes the commission to adopt rules for the enforcement of the motor vehicle installment sales chapter.

The statutory provision (as currently in effect) affected by the adopted amendment is Texas Finance Code, Chapter 348.

§1.1309.Permissible Changes.

(a) Creditors may make the following types of changes to the model clauses and the model contracts and may still be eligible for the defenses provided by Texas Finance Code, §349.101;

(1) Deleting inapplicable disclosures;

(2) Using a line for the consumer to initial, rather than a checkbox;

(3) Adding a signature line to the insurance disclosures to reflect joint policies;

(4) Substituting another term for "buyer", "seller" or "creditor" that has the same meaning, or use of pronouns such as "you", "we" and "us" or "it;"

(5) Changing the person of the pronouns to refer to the seller as "I" or "me" and the buyer as "you" or "your;"

(6) Substituting the word "vehicle" for the term "motor vehicle;"

(7) Presenting the model clauses in any order, and combining or further segregating at the creditor's option;

(8) Inserting descriptive headings or number provisions;

(9) Changing the case of a word if otherwise permitted by the Texas Finance Code;

(10) Omitting references to different provisions for heavy commercial vehicles where the creditor elects to treat buyers of heavy commercial vehicles under the rules applicable to other vehicles;

(11) Moving provisions from one side of the form to the other and directing the buyer to see the other side or placing all of the provisions on the same side of the form; or

(12) Changing any provision to comply with federal law.

(b) A sample model motor vehicle retail installment contract.

Figure: 7 TAC §1.1309(b) (.pdf)

(c) A contract may include other provisions that are not prohibited by law, but the other provisions must be submitted to the Office of Consumer Credit Commissioner for readability review before the creditor includes them.

(d) Nothing in this regulation prohibits a contract from including provisions that provide more favorable results for the buyer than those that would result from the use of a model clause.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 15, 2005.

TRD-200501568

Leslie L. Pettijohn

Commissioner

Finance Commission of Texas

Effective date: May 5, 2005

Proposal publication date: February 25, 2005

For further information, please call: (512) 936-7640

Chapter 81. MORTGAGE BANKER REGISTRATION

7 TAC §81.1, §81.2

The Finance Commission of Texas ("Finance Commission") adopts new Chapter 81, 7 TAC §81.1, Definitions, and 7 TAC §81.2 Loan Status Forms. The purpose of the new rule is to promulgate standard forms to be used by a mortgage banker who represents to a prospective applicant that the applicant has been pre-approved or pre-qualified for a mortgage loan. The rule is adopted with changes from the rule as published for comment on December 31, 2004 in the Texas Register (29 TexReg 12070). The changes are deemed to be non-substantive.

The Mortgage Banker Registration Act, Finance Code Chapter 157, (the "Act") requires registration of mortgage bankers and creates a system of regulation for them. The Act directs the Finance Commission to promulgate regulations to implement the Act (the "Regulations") and specifically authorizes the Finance Commission to adopt rules to adopt standard forms for use in representing that an applicant has been preapproved or prequalified for a mortgage loan. The Commissioner of the Texas Savings and Loan Department ("Department") is charged with administration of the Act.

The Finance Commission initially published the proposed rule in the November 5, 2004 issue of the Texas Register (29 TexReg 10188). The Commission received five comments. Three comments were from individuals who identified themselves as real estate agents or brokers. These individuals supported the original proposed rule. They expressed their belief that mortgage bankers and mortgage brokers should adhere to the same rules.

In addition to the individuals, the Mr. Tom Morgan commented on behalf of the Texas Association of Realtors ("TAR") on behalf of the rule. While TAR generally supported the original proposal, as to the Conditional Approval Letter, TAR commented: "TAR is concerned that allowing a Mortgage Banker to check "no" in response to these questions (referring to questions relating to reviewing credit report and credit score and verification of certain financial information) , dissipates the value of the form to the consumer."(language in italics not in original). TAR suggested that the utility of the form to a seller of property who relied on the conditional approval is also diminished.

Comments on the original proposal were also received from Deborah Goodell Polan on behalf of the Texas Financial Services Association (TFSA). TFSA indicated that the proposed rule appeared to be incongruous with activity permitted under the Fair Credit Reporting Act (FCRA), and that the rule would prohibit creditors from offering pre-screened firm offers of credit in Texas. Under FCRA, a creditor is permitted to make a firm offer of credit to a prospective borrower prior to the consumer submitting an application for credit. The FCRA establishes restrictions on this activity. Because certain loan terms such as the amount of the loan, interest rate, and payment terms are not known at the time the firm offer of credit is extended, TFSA is concerned that "since Form A requires disclosure of information not yet available to the creditor in this scenario, it will be impossible to comply with the proposed regulation, leading to the effective elimination of firm offers of credit by mortgage bankers." TFSA proposed that §81.2(a) be limited to "applicants" rather than "prospective applicants", or that an express exception be made for firm offers of credit made in conformity with FCRA and its implementing regulations.

In addition to these comments, the Department received an oral comment that the provisions of §81.2(a)(1) and (b)(1) should be modified to make the use of the descriptive heading "Conditional Qualification Letter" and "Conditional Approval Letter" mandatory and not optional.

In response to these comments, the Finance Commission republished for comment the proposed rule with changes in the December 31, 2004 issue of the Texas Register . As re-proposed, the descriptive headings in (a)(1) and (b)(1) are mandatory and not optional.

In republishing the proposed rule the Finance Commission sought comments on the following issues: (1) should the descriptive headings be mandatory or optional; (2) should Form B permit a mortgage broker to answer "No" to the credit and verification of information questions as suggested, or should the Form B more closely resemble the companion form used by mortgage brokers currently under §80.22; and (3) how should the final rule address the issue of "firm offers of credit" made in conformity with the FCRA?

Because the Finance Commission anticipates that the forms required by mortgage brokers will be revised to make them substantially similar to the final mortgage banker forms,  these questions were also discussed at the January 26, 2005  meeting of the Mortgage Broker Advisory Committee (MBAC).  The MBAC agreed that the descriptive headings should be mandatory and not optional.  The MBAC also agreed that the mortgage banker form conditional qualification letter could provide for a "firm offer of credit" exemption.  The MBAC reached no consensus as to whether or not the comment of TAR should be adopted relating to deleting the "No" column from the Conditional Approval Letter. 

The only comments received on the proposed rule as republished were submitted by Mr. Larry Temple on behalf of the Texas Mortgage Bankers Association. On the issue of whether or not the use of the descriptive heading "Conditional Qualification Letter" and "Conditional Approval Letter" should be mandatory or optional, TMBA favors optional.

As to the elimination of the "No" column from Form B, TMBA expressed that it was not in objection to the change suggested by TAR. On the third issue relating to exempting persons extending "firm offers of credit" from the requirements for using the Conditional Qualification letter, TMBA stated that it would support either exempting "firm offers of credit" from the requirements of §81.2(a) or changing the term "prospective applicant" to "applicant."

The final rule as adopted makes the use of the descriptive headings "Conditional Qualification Letter" and "Conditional Approval Letter" mandatory as provided in the republished proposed rule. The Finance Commission believes that this requirement promotes uniformity and better informs consumers and their representatives as to what the letter should contain. Also, the use of these descriptive headings assists consumers in clearly distinguishing between the prequalification letter and the conditional approval letter. This reduces the possibility that a consumer might confuse the prequalification letter and the conditional approval letter.

The final rule adopts the comment of TAR and eliminates the "No" column from Form B. The Finance Commission concurs that this change increases the utility of this form and decreases the possibility of consumer misunderstanding.

Finally, the adopted rule provides that a person extending a "firm offer of credit" in conformity with the Fair Credit Reporting Act is exempt from the required use of the prequalification letter. The Finance Commission believes that the strict requirements imposed on the use of firm offers of credit are adequate to protect consumer interests at the pre-application stage.

The new rules are adopted under Finance Code Chapter , Section 157.011 which authorizes the Finance Commission to adopt rules to implement or fulfill the purposes of the Mortgage Banker Registration Act and to adopt by rule required standard forms to be used by mortgage bankers who represent that a person has been pre-approved or pre-qualified for a mortgage loan

The section of the Mortgage Banker Registration act affected by the new rules is Finance Code Chapter §157.011(b) relating to adoption of standard forms for use by mortgage bankers.

§81.1.Definitions.

(a) "Mortgage banker" shall have the same meaning as that provided in Finance Code Chapter §157.002(2).

(b) "Mortgage loan" shall have the same meaning as that provided in Finance Code Chapter §157.002(3).

§81.2.Loan Status Forms.

(a) Unless exempted under subsection (c), whenever a mortgage banker provides a prospective loan applicant with written confirmation of the prospective loan applicant’s conditional qualification for a loan that has not been approved, the mortgage banker shall use the form attached as Form A below. Such form may be modified as follows:

(1) The descriptive heading "Conditional Qualification Letter" may not be omitted;

(2) Additional aspects of the Loan may be described as long as they are not misleading;

(3) Additional items that the mortgage banker has reviewed may be described;

(4) Additional terms, conditions, and requirements may be added; and

(5) An alternative form may be used if it provides at least the same information as is set forth in the approved form.

Figure: 7 TAC §81.2(a)(5)

(b) Whenever a mortgage banker or loan officer provides a loan applicant with confirmation that an application for a mortgage loan has been approved as to credit but not as to collateral, the mortgage banker may use the form attached as Form B below. Such form maybe modified as follows:

(1) The descriptive heading "Conditional Approval Letter" may not be omitted;

(2) Additional aspects of the Loan may be described as long as they are not misleading;

(3) Fees charged may be disclosed but such disclosure shall not serve as a substitute for the Good Faith Estimate required by the Real Estate Settlement Procedures Act.

(4) Additional items that the mortgage banker has reviewed may be described;

(5) Additional terms, conditions, and requirements may be added;

(6) An alternative form may be used if it provides at least the same information as is set forth in the approved form.

Figure: 7 TAC §81.2(b)(6)

(c) A mortgage banker who makes a "firm offer of credit" as defined in the Fair Credit Reporting Act (the "FCRA", 15 USC §1681 et seq), is exempted from the requirement to use the Conditional Qualification Letter as required by subsection (a) provided that the firm offer of credit is made in conformity with the requirements of the FCRA.

This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on April 18, 2005.

TRD-200501594

John Fleming

General Counsel

Texas Savings and Loan Department

Effective date: May 8, 2005

Proposal publication date: December 31, 2004

For further information, please call: (512) 475-1353