Part 1.
FINANCE COMMISSION OF TEXAS
Chapter 1.
CONSUMER CREDIT REGULATION
Subchapter Q. CHAPTER 342, PLAIN LANGUAGE CONTRACT PROVISIONS
7 TAC §§1.1206, 1.1216, 1.1217, 1.1225 - 1.1227, 1.1235 - 1.1237, 1.1245 - 1.1247
The Finance Commission of Texas (the Commission) adopts amendments
to Chapter 1, Subchapter Q, §§1.1206, 1.1216, 1.1217, 1.1225 - 1.1227,
1.1235 - 1.1237, and 1.1245 - 1.1247 concerning plain language model clauses,
contract provisions, and permissible changes. The purpose of the amendments
is to make technical changes that clarify the rules and to offer additional
model clauses that are being frequently used in contracts. The first amendment
adds the option for a lender to obtain a witness signature on a loan contract.
The second amendment offers clarifying language to ensure readers comply with §26.02
of the Business and Commerce Code for contracts over $50,000. The amendments
also add flexibility for lenders and consumers. The amendment deletes the
model figure for the itemization of amount financed. The use of this figure
is primarily governed by Regulation Z. The rule advises that if the lender
has complied with Regulation Z, the lender will also comply with the rule.
Significant variation exists in the industry for use of the itemization of
amount financed figure. The rule creates flexibility for lenders and borrowers.
If a lender uses the model contract provisions, the lender will not be required
to submit a non-standard contract for review. The amendments are adopted without
changes to the proposal published in the December 31, 2004, issue of the
The agency received one written comment from Robert Wisner. The commenter
cited Texas Local Government Code §191.007(c) requires each document
that is filed with a county clerk for filing or recording to have a clearly
identifying heading at the top of the first page. The plain language rule
is drafted to allow each lender to format their form without having to file
it as a non-standard. The formatting for the Deed of Trust has been changed
to comply with the Local Government Code.
The amendments are 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 §342.551 authorizes the
Commission to adopt rules for the enforcement of the consumer loan chapter.
The statutory provision (as currently in effect) affected by the amendments
is Texas Finance Code §341.403.
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 February 11, 2005.
TRD-200500631
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: March 3, 2005
Proposal publication date: December 31, 2004
For further information, please call: (512) 936-7640
7 TAC §1.1308
The Finance Commission of Texas (the Commission) adopts an
amendment to Chapter 1, Subchapter R, concerning model clauses. The purpose
of the adopted amendments is to make technical changes that clarify certain
provisions or correct technical errors within the rules. The rule is adopted
with nonsubstantive changes to the proposal as published in the December 31,
2004, issue of the
Texas Register
(29 TexReg
12069).
Section 1.1308 corrects the pronoun "your" to "my" in §1.1308(8)(A)
and §1.1308(8)(B). The amendment also implements a technical correction
to change the itemization of amount financed in §1.1308(8)(B).
Section 1.1308(43) adds a permissible disclosure on the negotiability of
the finance charge. One commenter suggested that the rule was unclear whether
the clause was permissible. The agency agrees that the clause is permissible,
but declines to modify the rule because the clauses in the section are not
required. The disclosure may be used at the creditor's option. The same commenter
provided two suggestions for re-wording the disclosure, one of which more
closely followed a commonly-used and industry-recommended version of the disclosure.
The agency has non-substantively modified the disclosure. Another commenter
wanted to add a disclosure that more narrowly tracks the language of Chapter
348. The agency agrees with the comment and has added another form of the
disclosure which more closely tracks the language of Chapter 348.
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
rule is Texas Finance Code Chapter 348.
§1.1308.Model Clauses.
The following model clause provides the plain language equivalent of
provisions found in contracts subject to Chapter 348.
(1)
Identification of parties. This information identifies
the parties to the contract.
(A)
The model identification clause lists the name and address
of the creditor, the date of the contract, and the name and address of the
buyer. At the creditor's option, a creditor may include an account number
or contract number. The model clause reads:
Figure: 7 TAC §1.1308(1)(A) (No change.)
(B)
The Buyer is referred to as "I" or "me." The Seller is
referred to as "you" or "your."
(2)
Assignment of Contract. The model clause regarding Assignment
of Contract reads: "This contract may be transferred by the Seller."
(3)
Buyer's Affirmation and Promise to Pay. The model clause
regarding Buyer's Affirmation and Promise to Pay reads: "The credit price
is shown below as the "Total Sales Price." The "Cash Price" is also shown
below. By signing this contract, I choose to purchase the motor vehicle on
credit according to the terms of this contract. I agree to pay you the Amount
Financed, Finance Charge, and any other charges in this contract. I agree
to make payments according to the Payment Schedule in this contract. If more
than one person signs as a buyer, I agree to keep all the promises in this
agreement even if the others do not."
(4)
Inspection Acknowledgement. The model clause regarding
Inspection Acknowledgement reads: "I have thoroughly inspected, accepted,
and approved the motor vehicle in all respects."
(5)
Identification of the Motor Vehicle. The motor vehicle
identification information provision should contain the following information
about the motor vehicle: the seller's stock number; the manufacturer's year
model; the manufacturer's make; the manufacturer's model type or number; the
vehicle identification number; the license plate number (if applicable); a
new/used designation; and the primary purpose designation. The seller's stock
number and the license number are both optional; the omission will not make
a contract non-standard. The motor vehicle identification information provision
may include additional information about the vehicle including, odometer reading,
color, the designation as a heavy commercial vehicle, and key code. If the
creditor includes this additional information about the motor vehicle, the
change will not make the provision a non-standard provision. The model clause
regarding Identification of the Motor Vehicle reads:
Figure: 7 TAC §1.1308(5) (No change.)
(6)
Trade-in Vehicle Description. The model clause regarding
Trade-in Vehicle Description reads:
Figure: 7 TAC §1.1308(6) (No change.)
(7)
Truth-in-Lending Act Disclosure. The model clause regarding
Truth-in-Lending Act Disclosure reads:
Figure: 7 TAC §1.1308(7) (No change.)
(8)
Itemization of Amount Financed. The creditor drafting the
contract is given considerable flexibility regarding the Itemization of Amount
Financed disclosure so long as the Itemization of Amount Financed disclosure
complies with the Truth in Lending Act. As an example, a creditor may disclose
the manufacturer's rebate either as: a component of the downpayment; or a
deduction from the cash price of the motor vehicle. The model contract provision
for the Itemization of the Amount Financed discloses the manufacturer's rebate
as a component of the downpayment. If the creditor elected to disclose the
manufacturer's rebate as a deduction from the cash price of the motor vehicle,
the cash price component of the Itemization of Amount Financed would be amended
to reflect the dollar amount of the manufacturer's rebate being deducted from
the cash price of the motor vehicle.
(A) The model clause regarding Itemization of Amount Financed-Sales
Tax Advance reads:
(B) The model clause regarding Itemization of Amount Financed-Sales
Tax Deferred reads:
(9) Documentary Fee.
(A) The following notice satisfies the requirements of Texas
Finance Code §348.006 if printed in a size equal to at least ten-point
type that is boldfaced, capitalized, underlined, or otherwise set out from
surrounding written material so as to be conspicuous and within reasonable
proximity to the place at which the fee is disclosed. The bracketed insert
may be inserted at the dealer's option or the disclosure may be made without
the bracketed portion if the dealer does not charge an amount in excess of
$50 for either ordinary motor vehicles or heavy commercial vehicles or if
the contract form is not used for heavy commercial vehicles. The model clause
is contained in the Itemization of Amount Financed. The documentary fee clause
reads: "A documentary fee is not an official fee. A documentary fee is not
required by law, but may be charged to buyers for handling documents and performing
services relating to the closing of a sale. A documentary fee may not exceed
$50 (for a motor vehicle contract or a reasonable amount agreed to by the
parties for a heavy commercial vehicle contract). This notice is required
by law."
(B)
The following notice is a sufficient Spanish translation
of the documentary fee disclosure required by Texas Finance Code §348.006.
The bracketed insert may be inserted at the dealer's option or the disclosure
may be made without the bracketed portion if the dealer does not charge an
amount in excess of $50 for either ordinary motor vehicles or heavy commercial
vehicles or if the contract form is not used for heavy commercial vehicles.
The Spanish translation may read: "Un honorario de documentación no
es un honorario official. Un honorario de documentación no es requerido
por la ley, pero puede ser cargada al comparador como gastos de manojo de
documentos y para realizar servicios relacionados con el cierre de una venta.
Un honorario de documentación no puede exceder $50 (un contrato de
vehículo automotor o una cantidad razonable acordada por las partes
para un contrato de vehiculo comercial pesado). Esta notificación es
requerida por la ley." Or "Un cargo documental no es un cargo oficial. La
ley no exige que se imponga un cargo documental. Pero éste podría
cobrarse a los compradores por el manejo de la documentación y la prestación
de servicios en relación con el cierre de una venta. Un cargo documental
no puede exceder de $50 para (un contrato de vehículo automotor o una
cantidad razonable acordada por las partes para un contrato de vehículo
comercial pesado). Esta notificación se exige por ley."
(10)
Deferred Downpayments. The creditor has considerable flexibility
in disclosing the deferred downpayments. The model provision discloses the
deferred downpayments by placing the information, the due date and dollar
amount of the deferred downpayments, in several boxes. If a creditor uses
this model provision, the creditor would enter the due date and dollar amount
of each deferred downpayment in the appropriate boxes. As an alternative to
this model provision, a creditor may disclose the deferred downpayments in
the Payment Schedule of the Amount Financed in the federal disclosure box.
If a creditor elects this option, the due date and the dollar amount of the
deferred downpayment must be shown. If the total amount of the deferred downpayment
is not satisfied by the date of the second regularly scheduled installment,
the deferred downpayment must be included in the Payment Schedule. As another
alternative the creditor may disclose the deferred downpayment amount or in
the Payment Schedule. The model clause regarding Deferred Downpayments reads:
Figure: 7 TAC §1.1308(10) (No change.)
(11)
Required Physical Damage Insurance. The creditor may chose
to omit the statement of the borrowers right to obtain substitute coverage
from another source. The model clause regarding Required Physical Damage Insurance
reads:
Figure: 7 TAC §1.1308(11) (No change.)
(12)
Optional Insurance Coverages. The model clause regarding
Optional Insurance Coverages reads:
Figure: 7 TAC §1.1308(12) (No change.)
(13)
Optional Credit Life and Accident and Health Insurance.
The model clause regarding Optional Credit Life and Accident and Health Insurance
reads:
Figure: 7 TAC §1.1308(13) (No change.)
(14)
Liability Insurance. If liability insurance coverage is
not included in the contract, either of the following notices are sufficient
to satisfy the requirements of Texas Finance Code §348.205 if printed
in a size equal to at least ten-point type that is boldfaced, capitalized,
underlined, or otherwise set out from surrounding written material so as to
be conspicuous:
(A)
"THIS CONTRACT DOES NOT INCLUDE INSURANCE COVERAGE FOR
PERSONAL LIABILITY AND PROPERTY DAMAGE CAUSED TO OTHERS."
(B)
"UNLESS A CHARGE FOR LIABILITY INSURANCE IS INCLUDED IN
THE ITEMIZATION OF AMOUNT FINANCED, LIABILITY INSURANCE COVERAGE FOR BODILY
INJURY AND PROPERTY DAMAGE CAUSED TO OTHERS IS NOT INCLUDED IN THIS CONTRACT."
(C)
"UNLESS A CHARGE FOR LIABILITY INSURANCE IS INCLUDED IN
THE ITEMIZATION OF AMOUNT FINANCED, ANY INSURANCE REFERRED TO IN THIS CONTRACT
DOES NOT INCLUDE COVERAGE FOR PERSONAL LIABILITY AND PROPERTY DAMAGE CAUSED
TO OTHERS."
(15)
Prohibition Against Oral Modifications. The contract may
include a provision barring oral modifications of the contract. A unilateral
change to a contract may nevertheless occur as prescribed by the procedures
in Subchapter C of Chapter 349. The model clause regarding Prohibition Against
Oral Modifications reads:
Figure: 7 TAC §1.1308(15) (No change.)
(16)
Finance Charge Earnings Methods.
(A)
Regular Transaction using sum of the periodic balances
method.
(i)
Sales Tax Advance. At the creditor's option a creditor
may choose one of the following model clauses regarding Sales Tax Advance.
(I)
"You figure the Finance Charge using the add-on method
as defined by the Texas Finance Commission Rule. Add-on Finance Charge is
calculated on the full amount of the unpaid principal balance and added as
a lump sum to the unpaid principal balance for the full term of the contract."
(II)
"The Finance Charge will be calculated by using the add-on
method. Add-on Finance Charge is calculated on the full amount of the unpaid
principal balance and added as a lump sum to the unpaid principal balance
for the full term of the contract. The add-on Finance Charge is calculated
at a rate of $____ per $100.00."
(ii)
Deferred Sales Tax. The model clause regarding Deferred
Sales Tax reads: "The Finance Charge will be calculated by using the add-on
method. Add-on Finance Charge is calculated on the full amount of the unpaid
principal balance subject to a finance charge and added as a lump sum to the
unpaid principal balance subject to a Finance Charge for the full term of
the contract. The add-on Finance Charge is calculated at a rate of $____ per
$100.00."
(B)
True Daily Earnings Method.
(i)
Sales Tax Advance. At the creditor's option a creditor
may choose one of the following model clauses regarding Sales Tax Advance.
(I)
"You figure the Finance Charge using the true daily earnings
method as defined by the Texas Finance Code. Under the true daily earnings
method, the Finance Charge will be figured by applying the daily rate to the
unpaid portion of the Amount Financed for the number of days the unpaid portion
of the Amount Financed is outstanding. The daily rate is 1/365th of the Annual
Percentage Rate. The unpaid portion of the Amount Financed does not include
late charges or return check charges."
(II)
If a retail seller requires a retail buyer to purchase
credit life or credit accident and health insurance and the sales tax is not
deferred, the contract rate disclosure should read: "The contract rate is
_____%. This contract rate may not be the same as the Annual Percentage Rate.
You will figure the Finance Charge by applying the true daily earnings method
as defined by the Texas Finance Code to the unpaid portion of the principal
balance. The daily rate is 1/365th of the contract rate. The unpaid principal
balance does not include the late charges or returned check charges."
(ii)
Deferred Sales Tax: If a retail seller requires a retail
buyer to purchase credit life or credit accident and health insurance and
the sales tax is deferred, the contract rate disclosure should read: "The
contract rate is _____%. This contract rate may not be the same as the Annual
Percentage Rate. You will figure the Finance Charge by applying the true daily
earnings method as defined by the Texas Finance Code to the unpaid portion
of the principal balance subject to a Finance Charge. The daily rate is 1/365th
of the contract rate. The unpaid principal balance subject to a finance charge
does not include the late charges, sales tax, or returned check charges."
(C)
Scheduled Installment Earnings Method:
(i)
Sales Tax Advance: At the creditor's option a creditor
may choose one of the following model clauses regarding Sales Tax Advance.
(I)
"You figure the Finance Charge using the scheduled installment
earnings method as defined by the Texas Finance Code. Under the scheduled
installment earnings method, the Finance Charge is figured by applying the
daily rate to the unpaid portion of the Amount Financed as if each payment
will be made on its scheduled payment date. The daily rate is 1/365th of the
Annual Percentage Rate. The unpaid portion of the Amount Financed does not
include late charges or return check charges."
(II)
If a retail seller requires a retail buyer to purchase
credit life or credit accident and health insurance and the sales tax is not
deferred, the contract rate disclosure should read: "The contract rate is
_____%. This contract rate may not be the same as the Annual Percentage Rate.
You will figure the Finance Charge by applying the scheduled installment earnings
method as defined by the Texas Finance Code to the unpaid portion of the principal
balance. You based the Finance Charge, Total of Payments, and Total Sale Price
as if all payments were made as scheduled. The unpaid principal balance does
not include the late charges or returned check charges."
(ii)
Deferred Sales Tax: If a retail seller requires a retail
buyer to purchase credit life or credit accident and health insurance and
the sales tax is deferred, the contract rate disclosure should read: "The
contract rate is _____%. This contract rate may not be the same as the Annual
Percentage Rate. You figured the Finance Charge by applying the scheduled
installment earnings method as defined by the Texas Finance Code to the unpaid
portion of the principal balance subject to a Finance Charge. You based the
Finance Charge, Total of Payments, and Total Sale Price as if all payments
were made as scheduled. The unpaid principal balance subject to a Finance
Charge does not include the late charges, sales tax, or returned check charges."
(17)
Consumer Warning. The following notices satisfy the requirements
of Texas Finance Code §348.102(d) if printed in at least ten-point type
that is boldfaced, capitalized, underlined, or otherwise set out from surrounding
written material so as to be conspicuous.
(A)
For contracts using the sum of the periodic balances (Rule
of 78s) or the scheduled installment earnings method. The notice may read:
(i)
"NOTICE TO THE BUYER -- I WILL NOT SIGN THIS CONTRACT BEFORE
I READ IT OR IF IT CONTAINS ANY BLANK SPACES. I AM ENTITLED TO A COPY OF THE
CONTRACT I SIGN. UNDER THE LAW, I HAVE THE RIGHT TO PAY OFF IN ADVANCE ALL
THAT I OWE AND UNDER CERTAIN CONDITIONS MAY OBTAIN A PARTIAL REFUND OF THE
FINANCE CHARGE. I WILL KEEP THIS CONTRACT TO PROTECT MY LEGAL RIGHTS." or
(ii)
"NOTICE TO THE BUYER -- THE BUYER SHOULD NOT SIGN THIS
CONTRACT BEFORE READING IT OR IF IT CONTAINS ANY BLANK SPACES. THE BUYER IS
ENTITLED TO A COPY OF THE SIGNED CONTRACT. UNDER THE LAW, THE BUYER HAS THE
RIGHT TO PAY OFF IN ADVANCE ALL THAT THE BUYER OWES AND UNDER CERTAIN CONDITIONS
MAY OBTAIN A PARTIAL REFUND OF THE FINANCE CHARGE. THE BUYER SHOULD KEEP THIS
CONTRACT TO PROTECT ITS LEGAL RIGHTS."
(B)
For contracts using the true daily earnings method. The
bracketed portion of the notice may be included at the creditor's option.
The notice may read: "NOTICE TO THE BUYER -- I WILL NOT SIGN THIS CONTRACT
BEFORE I READ IT OR IF IT CONTAINS ANY BLANK SPACES. I AM ENTITLED TO A COPY
OF THE CONTRACT I SIGN. UNDER THE LAW, I HAVE THE RIGHT TO PAY OFF IN ADVANCE
ALL THAT I OWE AND UNDER CERTAIN CONDITIONS MAY SAVE A PORTION OF THE FINANCE
CHARGE. I WILL KEEP THIS CONTRACT TO PROTECT MY LEGAL RIGHTS."
(18)
Buyer's Acknowledgment of Contract Receipt.
(A)
The following acknowledgments conform to the requirements
of Texas Finance Code §348.112 if they appear directly above the place
for the buyer's signature in at least ten-point type that is boldfaced, capitalized,
underlined, or otherwise set out from surrounding written material so as to
be conspicuous. A creditor may close the most appropriate option:
(i)
If the buyer's signature is dated. If this clause is chosen,
the copy must be mailed within a reasonable period of time. A reasonable period
of time would ordinarily be three days, excluding Sundays and holidays. The
model acknowledgement may read: "I AGREE TO THE TERMS OF THIS CONTRACT. WHEN
I SIGN THE CONTRACT, I WILL RECEIVE THE COMPLETED CONTRACT. IF NOT, I UNDERSTAND
THAT A COPY WILL BE MAILED TO ME WITHIN A REASONABLE TIME."
(ii)
If the buyer's signature is not dated. The model acknowledgment
may read: "I AGREE TO THE TERMS OF THIS CONTRACT. I CONFIRM THAT BEFORE I
SIGNED THIS CONTRACT, YOU GAVE IT TO ME, AND I WAS FREE TO TAKE IT AND REVIEW
IT. I RECEIVED THE COMPLETED CONTRACT ON ___________ (MO.) (DAY) (YR.)."
(iii)
If the buyer's signature is not dated. If this clause
is chosen, the copy must be mailed within a reasonable period of time. The
model acknowledgment may read: "I SIGNED THIS CONTRACT ON _________ AND A
COPY WILL BE MAILED TO ME WITHIN A REASONABLE TIME."
(iv)
If the buyer's signature is not dated but the contract
contains the date of the transaction. The model acknowledgement may read:
"I AGREE TO THE TERMS OF THIS CONTRACT AND ACKNOWLEDGE RECEIPT OF A COMPLETED
COPY OF IT. I CONFIRM THAT BEFORE I SIGNED THIS CONTRACT, YOU GAVE IT TO ME,
AND I WAS FREE TO TAKE IT AND REVIEW IT."
(B)
Acceptance of Contract Receipt. The model clauses regarding
Acceptance of Contract Receipt reads:
Figure: 7 TAC §1.1308(18)(B) (No change.)
(19)
Consumer Credit Commissioner Notice. The following notice
satisfies the requirements of Texas Finance Code §14.104 and §1.901
of this title relating to Consumer Notifications. The telephone number of
the retail seller, creditor, or holder may be printed in conjunction with
the name and address of the retail seller, creditor, or holder elsewhere on
the contract or agreement provided the notice required by Texas Finance Code §14.104
is amended to direct the reader's attention to the area of the contract where
the telephone number may be found. The consumer credit commissioner notice
reads: "To contact (insert authorized business name of retail seller, creditor
or holder as appropriate) about this account, call (insert telephone number
of retail seller, creditor, or holder as appropriate). This contract is subject
in whole or in part to Texas law which is enforced by the Consumer Credit
Commissioner, 2601 N. Lamar Blvd., Austin, Texas 78705-4207; (800) 538-1579;
(512) 936-7600, and can be contacted relative to any inquiries or complaints."
(20)
Finance Charge Refund Method. If a contract uses the finance
charge refunding method of the sum of the periodic balances or the scheduled
installment earnings method, the Finance Charge Refund provision reads: "If
I prepay in full, I may be entitled to a refund of part of the Finance Charge."
On contracts using the true daily earnings method, this Finance Charge Refund
provision should not be disclosed because it is not applicable.
(A)
Contracts using the sum of the periodic balances method.
(i)
Name of the method. The model clause to identify the method
of refunding finance charge reads: "You will figure the Finance Charge refund
by using the sum of the periodic balances method as defined by the Texas Finance
Commission rule."
(ii)
Optional description of the method. The creditor may include
the following additional description of the method. The model clause reads:
"You will figure the Finance Charge refund using the sum of the periodic balances
method as defined by the Texas Finance Commission rule. The Finance Charge
Refund will be computed upon the entire Finance Charge minus the Acquisition
Cost. I will not get a refund if it is less than $1.00."
(iii)
At the creditor's option, a contract for a heavy commercial
vehicle, as defined in the Texas Finance Code, may include the following description
of the method. The model clause reads: "You will figure the Finance Charge
refund using the sum of the periodic balances method as defined by the Texas
Finance Commission rule. The Finance Charge refund will be computed based
upon the entire Finance Charge calculated using the sum of the periodic balances
method. Then you will subtract the Acquisition Cost from that amount. I will
not get a refund if it is less than $1.00."
(B)
Contracts using the scheduled installment earnings method.
(i)
Name of the method. The model clause to identify the method
of refunding finance charge reads: "You will figure the Finance Charge refund
by the scheduled installment earnings method as defined by the Texas Finance
Commission rule."
(ii)
Optional description of the method. The creditor may include
the following additional description of the method: "You will figure my refund
by deducting earned finance charges from the Finance Charge. You will figure
earned finance charges by applying a daily rate to the unpaid principal balance
as if I paid all my payments on the date due. If I prepay between payment
due dates, you will figure earned finance charges for the partial payment
period. You do this by counting the number of days from the due date of the
prior payment through the date I prepay. You then multiply that number of
days times the daily rate. The daily rate is 1/365th of the Annual Percentage
Rate. You will also add the acquisition cost of $25 (or $150 for a heavy commercial
vehicle) to the earned finance charge. I will not get a refund if it is less
than $1.00."
(C)
Flexible contract forms designed to accommodate alternative
methods. Creditors may use a flexible contract form with alternative earnings
methods, so long as the method used on a particular contract is permissible
for that contract. The following illustrates one way that this may be done:
"You will figure the Finance Charge refund using the sum of the periodic balances
method as defined by the Texas Finance Commission rule if: this contract is
a Regular Payment Contract as defined by the Texas Finance Commission rule,
and this contract does not have a term greater than 61 months. If this contract
is not a Regular Payment Contract or if it has a term greater than 61 months,
you will figure the Finance Charge refund using the scheduled installment
earnings method as defined by the Texas Finance Commission rule. I will not
get a refund if it is less than $1.00."
(21)
Application of Payments. In this provision, the term "finance
charge" should not be construed to have the same meaning as Finance Charge
as defined by the Truth-in-Lending Act. A default or late charge is considered
to be a finance charge under Texas law; therefore, a default or late charge
can be charged and collected as part of the earned finance charge. At the
creditor's option the creditor may modify the Application of Payments language
by adding "and late charges" following the phrase "earned but unpaid finance
charge. The model clause reads:
Figure: 7 TAC §1.1308(21) (No change.)
(22)
Effect of Early and Late Payments. True daily earnings
method: The model clause reads: "You based the Finance Charge, Total of Payments,
and Total Sale Price as if all payments were made as scheduled. If I do not
timely make all my payments in at least the correct amount, I will have to
pay more Finance Charge and my last payment will be more than my final scheduled
payment. If I make scheduled payments early, my Finance Charge will be reduced
(less). If I make my scheduled payments late, my Finance Charge will increase."
(23)
Interest on Matured Amount. The model provision for interest
on any matured amount at any rate permitted by law reads: "If I don't pay
all I owe when the final payment becomes due, or I do not pay all I owe if
you demand payment in full under this contract, I will pay an interest charge
on the amount that is still unpaid. That interest charge will be the higher
rate of 18% per year or the maximum rate allowed by law, if that rate is higher.
The interest charge for this amount will begin the day after the final payment
becomes due." In this provision, the maximum rate allowed by law refers to
the rate found in Chapter 303 of the Texas Finance Code.
(24)
Balloon Payments. If the contract has a balloon payment,
the creditor must include a provision in the contract that allows the buyer
to refinance the balloon payment over time. The provision must comply with
Section 348.123 of the Texas Finance Code. The model provision for defining
the balloon payment reads: "A balloon payment is a scheduled payment more
than twice the amount of the average of my scheduled payments, other than
the downpayment, that are due before the balloon payment."
(A)
Paying the balloon payment. If a retail installment contract
contains a balloon payment that is the final payment, the contract must also
provide the right for the retail buyer to pay the balloon payment. The model
provision for paying the amount of the final scheduled balloon payment reads:
"I can pay all I owe when the balloon payment is due and keep my motor vehicle."
(B)
Balloon payment alternatives. If the retail installment
contract contains the right for a retail buyer to refinance a balloon installment,
the contract provision to refinance the installment must comply with either
clause (i) or (ii) of this subparagraph. A contract under clause (ii) of this
subparagraph must also contain the right of the retail buyer to sell the motor
vehicle back to holder or retail seller.
(i)
The model clause to describe a buyer's right to refinance
a balloon installment under Texas Finance Code §348.123(a), when applicable
reads: "If I buy the motor vehicle primarily for personal, family, or household
use, I can enter into a new written agreement to refinance the balloon payment
when due without a refinancing fee. If I refinance the balloon payment, my
periodic payments will not be larger or more often than the payments in this
contract. The annual percentage rate in the new agreement will not be more
than the Annual Percentage Rate in this contract. This provision does not
apply if my Payment Schedule has been adjusted to my seasonal or irregular
income."
(ii)
If the contract contains a balloon payment and the seller
intends Texas Finance Code §348.123(b)(5) to apply to the contract:
(I)
Special right to refinance balloon payment under Texas
Finance Code §348.123(b)(5)(B)(iii). "I can enter into a new agreement
to refinance my last installment if I am not in default. I can refinance at
an annual percentage rate up to 5 points greater than the Annual Percentage
Rate shown in this contract. The rate will not be more than applicable law
allows. The new agreement will allow me to refinance the last installment
for at least 24 months with equal monthly payments. You and I can also agree
to refinance the last installment over another time period or on a different
payment schedule."
(II)
If the contract includes a balloon payment, the creditor
must draft a provision addressing the repurchase option.
(25)
Agreement to Keep the Motor Vehicle Insured. The model
clause regarding Agreement to Keep the Motor Vehicle Insured reads: "I agree
to have physical damage insurance covering loss or damage to the motor vehicle
for the term of this contract. The insurance must cover your interest in the
vehicle." The creditor may include the following optional provision: "The
insurance must include collision coverage and either comprehensive or fire,
theft, and combined additional coverage."
(26)
Your Right to Purchase Required Insurance if I Fail to
Keep the Motor Vehicle Insured. The model clause regarding Agreement to Allow
Creditor to Purchase Required Insurance if Buyer Fails to Keep the Motor Vehicle
Insured reads: "If I fail to give you proof that I have insurance, you may
buy physical damage insurance. You may buy insurance that covers my interest
and your interest in the motor vehicle, or you may buy insurance that covers
your interest only. I will pay the premium for the insurance and a finance
charge at the contract rate. If you obtain collateral protection insurance,
you will mail notice to my last known address shown in your file."
(27)
Physical Damage Insurance Proceeds. The model clause regarding
Physical Damage Insurance Proceeds reads: "I must use physical damage insurance
proceeds to repair the motor vehicle, unless you agree otherwise in writing.
However, if the motor vehicle is a total loss, I must use the insurance proceeds
to pay what I owe you. I agree that you can use any proceeds from insurance
to repair the motor vehicle, or you may reduce what I owe under this contract.
If you apply insurance proceeds to the amount I owe, they will be applied
to my payments in the reverse order of when they are due. If my insurance
on the motor vehicle or credit insurance doesn't pay all I owe, I must pay
what is still owed. Once all amounts owed under this contract are paid, any
remaining proceeds will be paid to me."
(28)
Returned Insurance Premiums and Service Contract Charges.
The contract may authorize a creditor to apply charges returned to the creditor
for canceled insurance, service contract, and extended warranty charges to
the buyer's obligation under the agreement as permitted by law, regardless
of whether or not the buyer is in default under the contract.
(A)
The model clause for contracts using the true daily earnings
method reads: "If you get a refund on insurance or service contracts, or other
contracts included in the cash price, you will subtract it from what I owe.
Once all amounts owed under this contract are paid, any remaining refunds
will be paid to me."
(B)
For contracts using the scheduled installment earnings
or sum of the periodic balances method, the creditor may substitute the following:
"If you get a refund of insurance or service contract charges, you will apply
it and the unearned finance charges on it in the reverse order of the payments
to as many of my payments as it will cover. Once all amounts owed under this
contract are paid, any remaining refunds will be paid to me."
(29)
Application of Credits. The model clause regarding Application
of Credits reads: "Any credit that reduces my debt will apply to my payments
in the reverse order of when they are due, unless you decide to apply it to
another part of my debt. The amount of the credit and all finance charge or
interest on the credit will be applied to my payments in the reverse order
of my payments."
(30)
Transfer of Rights. The seller does not have a duty to
disclose the terms on which a contract or a balance under a contract is acquired,
including any discount or difference between the rates, charges, or balance
under the contract and the rates, charges, or balance acquired as provided
by Texas Finance Code, §348.301. The model clause regarding Transfer
of Rights reads: "You may transfer this contract to another person. That person
will then have all your rights, privileges, and remedies."
(31)
Grant of a Security Interest in Collateral. The model
clause regarding a description of a security interest granted in a typical
motor vehicle installment sale reads.
Figure: 7 TAC §1.1308(31) (No change.)
(32)
Agreements Regarding the Use and Transfer of the Motor
Vehicle. The contract may contain a provision prohibiting a buyer from transferring
any interest in the motor vehicle without the creditor's written permission,
requiring the buyer to notify the seller of change of address, or prohibiting
the removal of the motor vehicle from Texas. The transfer fee limitation establishes
the maximum fee that a creditor could contract for, charge, or collect for
transferring the buyer's equity in the motor vehicle to another party. If
desired, a creditor could amend the model provision to reflect a lower transfer
fee amount. The model clause regarding agreements regarding the use and transfer
of the motor vehicle reads: "I will not sell or transfer the motor vehicle
without your written permission. If I do sell or transfer the motor vehicle,
this will not release me from my obligations under this contract, and you
may charge me a transfer of equity fee of $25.00 ($50 for a heavy commercial
vehicle). I will promptly tell you in writing if I change my address or the
address where I keep the motor vehicle. I will not remove the motor vehicle
(Optional: motor vehicle or other collateral) from Texas for more than 30
days unless I first get your written permission."
(33)
Care of the Motor Vehicle. The contract may obligate the
buyer to keep the motor vehicle free of liens and encumbrances, require the
buyer to keep the motor vehicle in good working order and repair, or prohibit
the buyer from allowing the motor vehicle to be exposed to seizure, confiscation,
or other involuntary transfer. The model clause regarding care of the motor
vehicle reads: "I agree to keep the motor vehicle free from all liens, and
claims except those that secure this contract. I will timely pay all taxes,
fines, or charges pertaining to the motor vehicle. I will keep the motor vehicle
in good repair. I will not allow the motor vehicle to be seized or placed
in jeopardy or use it illegally. I must pay all I owe even if the motor vehicle
is lost, damaged or destroyed. If a third party takes a lien or claim against
or possession of the motor vehicle, you may pay the third party any cost required
to free the motor vehicle from all liens or claims. You may immediately demand
that I pay you the amount paid to the third party for the motor vehicle. If
I do not pay this amount, you may repossess the motor vehicle and add that
amount to the amount I owe. If you do not repossess the motor vehicle, you
may still demand that I pay you, but you cannot compute a finance charge on
this amount."
(34)
Default Rights and Repossession Provisions. This subsection
details agreements allowing acceleration of the buyer's obligation upon the
buyer's default or upon the creditor's determination of insecurity as permitted
by Business and Commerce Code, §1.208. The following provisions are samples
of model clauses of some of the default rights and remedies of a creditor
in a typical motor vehicle installment sale transaction:
(A)
Acceleration and Default. The model clause regarding Acceleration
and Default reads:
Figure: 7 TAC §1.1308(34)(A) (No change.)
(B)
Late Charge. The model clause regarding Late Charge reads:
"I will pay you a late charge as agreed to in this contract when it accrues."
(C)
Repossession. At the creditor's option a creditor may choose
one of the following model provision pertaining to repossessions reads:
(i)
"If I default, you may repossess the motor vehicle from
me if you do so peacefully. If any personal items are in the motor vehicle,
you can store them for me and give me written notice at my last address shown
on your records within 15 days of discovering that you have my personal items.
If I do not ask for these items back within 31 days from the day you mail
or deliver the notice to me, you may dispose of them as applicable law allows.
Any accessory, equipment, or replacement part stays with the motor vehicle."
In this provision, the term "peacefully" is intended to have the same meaning
as "breach of peace," as determined by the Texas courts.
(ii)
"If I default, you may repossess the motor vehicle from
me if you do so without breaching the peace. If any personal items are in
the motor vehicle, you can store them for me and give me written notice at
my last address shown on your records within 15 days of discovering that you
have my personal items. If I do not ask for these items back within 31 days
from the day you mail or deliver the notice to me, you may dispose of them
as applicable law allows. Any accessory, equipment, or replacement part stays
with the motor vehicle."
(D)
Buyer's right to redeem. The model clause regarding buyer's
right to redeem reads: "If you take my motor vehicle, you will tell me how
much I have to pay to get it back. If I do not pay you to get the motor vehicle
back, you can sell it or take other action allowed by law. My right to redeem
ends when the motor vehicle is sold or you have entered into a contract for
sale or accepted the collateral as full or partial satisfaction of a contract."
(E)
Disposition of motor vehicle. The model clause regarding
disposition of motor vehicle reads: "If I don't pay you to get the motor vehicle
back, you can sell it or take other action allowed by law. You will send me
notice at least 10 days before you sell it. You can use the money you get
from selling it to pay allowed expenses and to reduce the amount I owe. Allowed
expenses are expenses you pay as a direct result of taking the motor vehicle,
holding it, preparing it for sale, and selling it. If any money is left, you
will pay it to me unless you must pay it to someone else. If the money from
the sale is not enough to pay all I owe, I must pay the rest of what I owe
you plus interest. If you take or sell the motor vehicle, I will give you
the certificate of title and any other document required by state law to record
transfer of title."
(F)
Collection costs. The model clause regarding collection
costs reads: "If you hire an attorney who is not your employee to enforce
this contract, I will pay reasonable attorney's fees and court costs as the
applicable law allows."
(G)
Cancellation of optional insurance or service contracts.
The model clause regarding cancellation of optional insurance or service contracts
reads: "This contract may contain charges for insurance or service contracts
or for services included in the cash price. If I default, I agree that you
can claim benefits under these contracts to the extent allowable, and terminate
them to obtain refunds of unearned charges to reduce what I owe or repair
the motor vehicle."
(35)
Acceleration, Waiver of Notice of Intent to Accelerate,
and Notice of Acceleration. A model clause regarding the holder's right to
accelerate maturity of the contract and to waive the buyer's or co-buyer's
common law right to notice of intent to accelerate, notice of acceleration,
or both reads: "If I default, or you believe in good faith that I am not going
to keep any of my promises, you can demand that I immediately pay all that
I owe. You don't have to give me notice that you are demanding or intend to
demand immediate payment of all that I owe."
(36)
Refund Upon Acceleration. Sum of the periodic balances
method or scheduled installment earnings method: The model clause regarding
the buyer's right to a finance charge refund upon acceleration of the contract
reads: "If you demand that I pay you all that I owe, you will give me a credit
of part of the Finance Charge as if I had prepaid in full."
(37)
Integration and Severability. The contract may include
an integration clause indicating that the parties to the contract intend it
to be final written expression their agreement, such as: "This contract contains
the entire agreement between you and me relating to the sale and financing
of the motor vehicle." The contract may also include a severability clause
providing that the invalidity of any portion of the contract does not render
invalid other parts of the contract that would otherwise be valid. The model
clause regarding severability reads: "If any part of this contract is not
valid, all other parts stay valid."
(38)
No Waiver and Limitations on Creditor's Rights and Usury
Savings.
(A)
A model clause to prevent a creditor's delay in enforcing
rights under the contract from affecting a waiver of those rights reads: "If
you don't enforce your rights every time, you can still enforce them later."
(B)
A provision establishing limitations on the creditor's
rights reads: "You will exercise all of your rights in a lawful way."
(C)
The model clause regarding usury savings reads: "I don't
have to pay finance charge or other amounts that are more than the law allows.
This provision prevails over all other parts of this contract and over all
your other acts."
(39)
Applicable Law. A model clause to establish the law that
will apply to the contract reads: "Federal and Texas law apply to this contract."
(40)
Warranty Disclaimer. The disclaimer of express and implied
warranties should be set out from the surrounding text so that the disclosure
is conspicuous. A disclaimer of express and implied warranties, such as the
following, is permitted by Article 2, Section 3 of the Business and Commerce
Code reads: "Unless the seller makes a written warranty, or enters into a
service contract within 90 days from the date of this contract, the seller
makes no warranties, express or implied, on the motor vehicle, and there will
be no implied warranties of merchantability or of fitness for a particular
purpose. This provision does not affect any warranties covering the motor
vehicle that the motor vehicle manufacturer may provide."
(41)
Preservation of Consumer's Claims and Defenses Notice.
This notice only applies if the motor vehicle financed in the contract was
purchased for personal, family, or household use. The preservation of consumer's
claims and defenses notice disclosure should be set out from the surrounding
text so that the disclosure is in all capitals, bold faced and in at least
10 point type. The preservation of consumer's claims and defenses notice disclosure,
as required by the Federal Trade Commission's Preservation of consumer's claims
and defenses notice, 16 C.F.R. §433.1 et seq., reads: "NOTICE: ANY HOLDER
OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH
THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS AND SERVICES OBTAINED
PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR
SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. This provision applies
to this contract only if the motor vehicle financed in the contract was purchased
for personal, family, or household use."
(42)
Used Car Buyers Guide. The Used Car Buyers Guide disclosure
should be set out from the surrounding text so that the disclosure is conspicuous.
The disclosure should be prefaced by the words "In this box only, the word
"you" refers to the Buyer." The Used Car Buyers Guide disclosure, as required
by the Federal Trade Commission's Used Car Regulation, 16 C.F.R. §455.1
et seq., reads:
(A)
"Used Car Buyer's Guide. The information you see on the
window form for this vehicle is part of this contract. Information on the
window form overrides any contrary provisions in the contract of sale."
(B)
Spanish Translation: "Guía para compradors de vehículos
usados. La información que ve en el formulario de la ventanilla para
este vehículo forma parte del presente contrato. La información
del formulario de la ventanilla deja sin efecto toda disposición en
contrario contenida en el contrato de venta."
(43)
Negotiability and Assignment. The disclosure of the negotiability
of the contract should be placed on the front side of the contract and may
read:
(A)
The Annual Percentage Rate may be negotiated with the Seller.
The Seller may assign this contract and retain its right to receive a part
of the Finance Charge;
(B)
The rates of this contract are negotiable. The seller may
assign or otherwise sell this contract and receive a discount or other payment
for the difference between the rate, charges, or balance; or
(C)
A customer may obtain their own financing. The finance
charge may be negotiable. The dealership may assign the retail installment
contract. There is no duty to disclose the terms for the sale of this contract
(e.g., price paid to retail seller to purchase retail installment contract).
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 February 11, 2005.
TRD-200500632
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: March 3, 2005
Proposal publication date: December 31, 2004
For further information, please call: (512) 936-7640
Chapter 80.
MORTGAGE BROKER AND LOAN OFFICER LICENSING
Subchapter A. LICENSING
7 TAC §80.1, §80.2
The Finance Commission of Texas ("Finance Commission") adopts
amendments to 7 TAC §80.1, Scope and 7 TAC §80.2, Definitions to
more clearly define the terms "mortgage broker," "loan officer", and "mortgage
loan." Section 80.1 is adopted with minor changes to the proposed rule as
published in the
Texas Register
on December
31, 2004, (29 TexReg 12070). The changes are non-substantive. Section 80.2
is adopted without changes and will not be republished.
The amendments to 7 TAC §80.1 amend the rule defining the activities
which require licensing under the Act. Amended §80.1(4) provides that
the taking of an application for a mortgage loan when combined with any of
the other activities identified in that section will constitute activity requiring
a license. In connection with the normal services of a real estate agent,
general information relating to loans available in the marketplace may be
provided to consumers. Amended §80.1(5) is intended to clarify that the
providing of general information by a real estate agent does not activate
the licensing requirement, provided no additional compensation is received
by the real estate agent.
The amendment to §80.1(5)(B)(iii) clarifies the exemption of a person
who makes a mortgage loan from his own funds but does not regularly engage
in the business of making mortgage loans. Under the amendment, a person will
be deemed to be regularly engaging in the business of making mortgage loans
if the person either holds himself out as being engaged in the business of
making mortgage loans or if the person makes more than one loan in a calendar
quarter.
The amendment to 7 TAC §80.2 is intended to more clearly define "commercial
loans." If the real property is intended to be used as a one to four family
residence, it is a "mortgage loan" for purposes of the Act even if it is acquired
for investment purposes. This is consistent with the provisions of the Act.
Three individuals submitted comments during the official comment period.
A mortgage broker suggested that assisting an applicant with understanding
and clearing credit problems is a function often performed by loan processors
who are exempt from licensing. An oral comment from the Texas Association
of Realtors also suggested that this activity may occasionally be performed
by a real estate agent, and should not be considered licensed activity when
performed by a real estate agent. The Mortgage Broker Advisory Committee considered
this comment at its January 26, 2005 meeting. The Committee concurred and
suggested deleting this requirement. This change has been made. Therefore,
the rule as adopted eliminates §80.1(4)(A)(iv) of the rule as published
for comment.
Another commenter objected to the revision of the definition of "regularly
engage in the business of making or brokering Mortgage Loans. Prior to the
amendment, §80.1(4)(A)(iii) exempted persons who made loans from their
own funds, but did not invest more than 50% of their net assets in mortgage
loans. The proposed rule §80.1(6)(A)(iii) included in the definition
anyone who either held himself out as engaged in making such loans or made
more than one loan per quarter. The commenter stated that this change unduly
impeded his right to do business and requested that the change not be made.
The Mortgage Broker Advisory Committee recommended that the proposed rule
not be amended to reflect the views of the commenter. Both the Committee and
the Finance Commission believe that the new definition is reasonable, and
that the benefit to consumers outweighs any burden on similarly situated individuals
or businesses. As amended, the rule is consistent with the scope of the Federal
Truth in Lending Act which defines a "creditor" as someone making more than
four extensions of credit in the period of a year.
A third individual suggested that the rule further attempt to define the
term "receive an application." The Commission declines to do so at this time.
The term is consistent with the use of the term in the statute itself. The
Mortgage Broker Advisory Committee did not believe the rule needed further
clarification.
In the adopted amendment, §80.1(5) has been modified to provide a
technical correction by inserting (A) between (4) (i) and (ii) to properly
reference (4)(A)(i) and (ii). In addition the word "additional" has been inserted
before the word "compensation" to further clarify the intent of the paragraph.
The amendments are adopted under
Finance
Code
, §11.306, which authorizes the Finance Commission to adopt
mortgage broker rules as provided by Chapter 156 of the Act, and under
The section of the Act affected by the amendment is
Finance Code
, §156.102(a) relating to authority for the Finance
Commission to adopt rules to implement the intended purposes of the Act or
to enforce the Act. The amended rule relates to
Finance Code
§156.002(5), (9), and (10); and
Finance Code
§156.201.
§80.1.Scope.
This Chapter governs the licensing and conduct of Mortgage Brokers,
and the Loan Officers working for them, under the Act.
(1)
As used herein the term "Mortgage Broker" means an individual
who receives an application from a prospective borrower to attempt to obtain
a Mortgage Loan. An individual is a "Mortgage Broker" even if the individual
is not exclusively engaged in the activities of a Mortgage Broker.
(2)
As used herein, the term "Loan Officer" means an individual
required to be sponsored by a licensed Mortgage Broker for the purposes of
performing the acts of a Mortgage Broker.
(3)
The terms Mortgage Broker and Loan Officer do not include:
(A)
An individual who performs only clerical functions in connection
with the obtaining, compiling, or delivery of an application for a Mortgage
Loan; or
(B)
An individual functioning solely as a Mortgage Loan processor
performing those duties listed in
Finance Code
§156.002(6).
(4)
An individual is required to be licensed under the Act
if:
(A)
The individual, acting alone or in concert with others,
receives a mortgage loan application and performs any one of the following
activities:
(i)
Advises a prospective borrower about the different type
of loan products available, or advises a prospective borrower how closing
costs and monthly payments could vary under each product; or
(ii)
Consults or discusses with a prospective borrower about
the maximum amount of the mortgage a prospective borrower can afford; or
(iii)
Provides disclosures to a prospective borrower or discusses
or explains such disclosures. Disclosures include but are not limited to the
mortgage broker disclosure form; truth in lending disclosures, the good faith
estimate of settlement costs, affiliated business arrangements; and disclosures
relating to the dual role as mortgage broker and loan officer and real estate
broker or sales agent. An individual who prepares a required disclosure under
the direction and supervision of a licensed loan officer or licensed mortgage
broker, but who does not discuss the disclosure with a prospective borrower
shall not be deemed to have provided a disclosure for purposes of this subsection;
or
(iv)
Determines the lender(s) or investor(s) to whom the loan
will be submitted; or
(v)
Issues or signs a prequalification letter or preapproval
letter; or
(B)
the individual represents or holds himself out as a "loan
officer," "mortgage consultant," or "mortgage broker", or otherwise represents
that the person is engaging in or conducting the business of originating mortgage
loans.
(5)
An individual who is a licensed real estate agent or real
estate broker, and who only provides general information relating to activities
described in paragraph (4)(A)(i) and (4)(A)(ii) is not required to be licensed
provided that such individual receives no additional compensation for providing
such services.
(6)
Exemptions.
(A)
The following business entities are exempt from the Act
and this Chapter, and the Employees, as defined in paragraph (11) of §80.2
of this Chapter (relating to Definitions), of such entities are also exempt
from the Act and this Chapter to the extent they are working for the benefit
of their employer:
(i)
a bank, savings bank, or savings association and any subsidiary
or affiliate of any of the foregoing;
(ii)
a state or federal credit union;
(iii)
in insurance company licensed or authorized to do business
in the State of Texas;
(iv)
a Mortgage Banker; or
(v)
an organization that qualifies for an exemption from state
franchise and sales taxes by virtue of its status under §501(c)(3) of
the
Internal Revenue Code
, as amended.
(vi)
An Employee is presumed to be working for the benefit
of his or her employer with respect to a Mortgage Loan if when the Mortgage
Loan is made it is closed at the direction of the employer or the employer
directly shares in the economic gain or loss of the Mortgage Loan transaction.
(B)
The following individuals are exempt from the Act and this
Chapter:
(i)
an individual who makes a Mortgage Loan from the individual's
own funds to a spouse, former spouse, or person or persons in the lineal line
of consanguinity of the person making such Mortgage Loan;
(ii)
an owner of real property who makes a Mortgage Loan to
a purchaser of the real property for all or a part of the purchase price of
that same real property; and
(iii)
an individual who makes a Mortgage Loan from that individual's
own funds who is not and is not required, by virtue of his or her business,
to be an authorized lender under Chapter 342,
Finance
Code
, and does not regularly engage in the business of making or brokering
Mortgage Loans. For purposes of this subsection, a person is deemed to be
regularly engaging in the business of making or brokering Mortgage Loans if
that person:
(I)
advertises or holds himself out to be engaged in the business
of making or brokering mortgage loans; or
(II)
originates or brokers more than one mortgage loan in any
one calendar quarter.
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 February 14, 2005.
TRD-200500657
John Fleming
General Counsel
Texas Savings and Loan Department
Effective date: March 6, 2005
Proposal publication date: December 31, 2004
For further information, please call: (512) 475-1353
Chapter 91.
CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS
Subchapter D. POWERS OF CREDIT UNIONS
7 TAC §91.403
The Credit Union Commission adopts an amendment to §91.403,
relating to debt cancellation products with a non-substantive change to the
text published in the November 5, 2004, issue of the
Texas Register
(29 TexReg 10189).
The amendment clarifies how a refund of a debt cancellation product should
be calculated and adds a definition for "actuarial method". It also adds a
consumer protection provision requiring that certain written disclosures be
given to the borrower prior to the execution of a debt cancellation agreement.
One comment was received on the proposal from Mike Roark at Resource One
Credit Union. The commenter felt that GAP products should not be included
in a rule on debt cancellation products since credit unions do not cancel
debt with GAP. The Commission disagrees and believes that GAP is a debt cancellation
product and credit unions would not have authority to offer GAP unless it
is included in this rule. The Commission on its own initiative made a non-substantive
change to correct a grammatical error.
The amendment is adopted under the provision of the Texas Finance
Code, §15.402, which authorizes the Commission to adopt reasonable rules
for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas
Finance Code and Texas Finance Code §123.003 which authorizes the Commission
to adopt rules that authorize a state credit union to engage in any activity
in which it could engage, exercise any power it could exercise, or make any
loan or investment it could make, if it were operating as a federal credit
union.
The specific section affected by the amendment is Texas Finance Code, §124.001.
§91.403.Federal Parity Debt Cancellation Products.
(a)
A credit union may offer any debt cancellation product
it could offer if it were operating as a federal credit union, so long as
it complies with this section. For the purposes of this section, a debt cancellation
product is an agreement between the credit union and the member under which
the credit union agrees to waive, suspend, defer, or cancel all or part of
a member's obligation to pay an indebtedness under a lease, loan, or other
extension of credit upon the occurrence of a specified event. The credit union
may offer debt cancellation products for a fee. If the debt cancellation product
is offered on a fee basis, then participation must be optional for the member.
(b)
For any debt cancellation product offered by a credit union:
(1)
The credit union must purchase insurance, from an insurer
authorized to do business in Texas, to indemnify itself from loss resulting
from operation of the product;
(2)
The credit union may not extend credit nor alter the terms
or conditions of an extension of credit conditioned upon the member choosing
a debt cancellation product; and
(3)
The debt cancellation product must provide for the refunding
of, or crediting to, the member any unearned fees resulting from termination
of the member's participation in the product, whether by prepayment of the
extension of credit or otherwise. Any unearned fees must be calculated using
a method that produces a result at least as favorable to the member as the
actuarial method. The credit union must disclose, in writing, prior to purchase
of the debt cancellation product that the purchase of the debt cancellation
product is optional; the conditions for and method of calculating any refund
of the debt cancellation fee, including when fees are considered earned by
the credit union; that the member should carefully review all of the terms
and conditions of the debt cancellation agreement prior to signing the agreement.
(c)
A credit union must notify the commissioner in writing
of its intent to offer any type of debt cancellation product at least 30 days
prior to any such product being offered to members. The notice must contain:
(1)
A statement describing the type(s) of debt cancellation
product(s) that the credit union will offer to its membership; and
(2)
The name of the insurer from whom the credit union will
purchase the insurance policy required under subsection (b)(1) of this section.
(d)
Each credit union, before offering any debt cancellation
products, shall adopt written policies approved by its board of directors
that establish and maintain effective risk management and control processes
over the offering of these products. The policies shall also establish reasonable
fees, if any, that will be charged; the appropriate disclosures that will
be given; and the claims processing procedures that will be utilized.
(e)
For purposes of this section "actuarial method" means the
method of allocating payments made on a debt between the amount financed and
the finance charge pursuant to which a payment is applied first to the accumulated
finance charge and any remainder is subtracted from, or any deficiency is
added to, the unpaid balance of the amount financed.
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 February 14, 2005.
TRD-200500680
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: March 6, 2005
Proposal publication date: November 5, 2004
For further information, please call: (512) 837-9236
7 TAC §91.709
The Credit Union Commission adopts amendments to rule §91.709
relating to member business loans with no changes to the text published in
the November 5, 2004 issue of the
Texas Register
(29 TexReg 10190).
The amendments to the rule give state chartered credit unions more permissive
member business loan regulations similar to those for federal credit unions.
In keeping with the "parity" provisions of Section 123.003, Texas Finance
Code, the Commission felt that a revision of §91.709 was necessary to
provide as much flexibility for state chartered credit unions as the federal
chartered credit unions now enjoy. The amendments also set forth certain specific
criteria for any waivers of member business loan limitations to be granted
by the Commissioner.
No comments were received on the proposal.
The amendment is adopted under the provision of the Texas Finance
Code, Section 15.402, which authorizes the Commission to adopt reasonable
rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the
Texas Finance Code and Texas Finance Code Section 123.003 which authorizes
the Commission to adopt rules that authorize a state credit union to engage
in any activity in which it could engage, exercise any power it could exercise,
or make any loan or investment it could make, if it were operating as a federal
credit union.
The specific sections affected by the amendment are Texas Finance Code,
Sections 124.001 and 124.003.
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 February 14, 2005.
TRD-200500682
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: March 6, 2005
Proposal publication date: November 5, 2004
For further information, please call: (512) 837-9236
7 TAC §91.804
The Credit Union Commission adopts amendments to rule §91.804
relating to custody and safekeeping with no changes to the text published
in the November 5, 2004 issue of the
Texas Register
(29 TexReg 10194).
The amendment to the rule adds a requirement that credit unions perform
an annual analysis of each safekeeper as part of their due diligence.
No comments were received on the proposal.
The amendment is adopted under the provision of the Texas Finance
Code, Section 15.402, which authorizes the Commission to adopt reasonable
rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the
Texas Finance Code and Texas Finance Code Section 124.351, which authorizes
the Commission to adopt rules authorizing other investments permissible for
credit unions that are responsive to (a) changes in economic conditions or
competitive practices and (b) the need for safety and soundness of credit
union investments.
The specific section affected by the amendment is Texas Finance Code, Section
124.351.
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 February 14, 2005.
TRD-200500681
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: March 6, 2005
Proposal publication date: November 5, 2004
For further information, please call: (512) 837-9236
Chapter 152.
REPAIR, RENOVATION, AND NEW CONSTRUCTION ON HOMESTEAD PROPERTY
7 TAC §§152.9, 152.11, 152.13
The Joint Financial Regulatory Agencies comprised of the
Finance Commission of Texas and the Texas Credit Union Commission (the "Commissions")
adopt new 7 TAC §§152.9, 152.11, and 152.13 (Chapter 152), administrative
interpretations of subsection (t), Section 50, Article XVI, Texas Constitution.
Sections 152.11 and 152.13 are adopted with non-substantive changes to the
proposal as published in the November 5, 2004, issue of the
Texas Register
(29 TexReg 10195). Section 152.9 is adopted without
changes and will not be republished.
The Commissions made non-substantive changes to clarify and simplify the
addressed provisions as the result of comments.
The Commissions received written comments. The following commenters only
requested clarifications or recommended modifications: Robert W. Doggett of
Texas RioGrande Legal Aid, Inc.; and Gaylan Goodnight of Countrywide Home
Loans.
The constitutional provisions do not detail every aspect of home equity
lending. Compliance with Section 50 along with other Texas and federal statutes
and Texas constitutional provisions is required in making a home equity loan.
These interpretations construe the language of Section 50(a)(6)(Q)(x) and
provide the required practical framework for home equity lending that reflects
the constitutional language and the intent of the legislature and the voters.
For example, Section 50(a)(6)(Q)(x) contains terms that are not defined, even
though definitions are necessary for clear meaning and consistent application.
Additionally, the constitutional provisions are silent as to the effect of
other laws on home equity lending.
The Commissions have applied Chapter 311, Government Code (Code Construction
Act) in the use of language in Chapter 153. For example, in Chapter 153, words
used in the singular include the plural and the plural includes the singular,
the heading of a title, subtitle, chapter, subchapter, or section does not
limit or expand the meaning of an interpretation, and the use of the word
"include" means "including but not limited to."
Issues raised in comments to the proposed interpretations have been addressed
in this preamble regardless of whether a change was made to the interpretation
in response to the comments. Constitutional provisions not interpreted at
this time may be addressed either at the request of an interested party or
on the motion of the Commissions.
Proposed §§152.9, 152.11, and 152.13 interpret Section 50(a)(5),
the constitutional provisions that govern the nature of and process by which
a lender of a home improvement loan may take a lien against a homestead. Each
section is more fully explained in the following paragraphs.
Section 152.9 specifies the method for counting the days for the five day
waiting period that must elapse between the date the owner makes written application
for a loan for work and materials and the execution of the contract for work
and materials by the owner and the owner's spouse.
Section 152.11 specifies the method for counting the three days the owner
has to rescind the contract for work and materials after it is executed by
all parties. This section goes on to explain that the three day right of rescission
is not the same as the three day right of rescission in Regulation Z.
One commenter suggested that the rule specify the time of day when the
rescission period ends. The commenter suggested that by specifying exactly
when the rescission ends would avoid unnecessary disputes among borrowers,
contractors, lenders and title companies. The Commissions agree with the commenter
and have modified the rule.
One commenter suggested that if the third calendar day fell on a Saturday,
that the rescission period should be extended to the next calendar day that
is not a Sunday or federal legal public holiday. The Commissions decline to
modify the rule. This interpretation is consistent with the interpretation
of the rescission period contained in Chapter 153 and the Commissions do not
believe a change is justified. The Commissions decline to modify the interpretation.
Section 152.13 prescribes the procedures for waiver by the owner of either
the 5-day waiting or 3-day rescission period.
One commenter suggested that the rule omitted two concepts contained in
the constitution: necessity that the repairs be performed immediately and
that the condition of the property materially affect the health or safety
of the owner. The Commissions agree with the comment and have modified the
rule. The same commenter also suggested the rule might create a rebuttable
presumption in favor of the repairs. The Commissions do not believe that the
rule creates a rebuttable presumption. The rule creates a procedure that may
be used. In order to comply with the requirements of the constitution, an
evaluation would have to be made of the content of the statement by the owner.
This evaluation will have to be made on a case by case basis. The Commissions
decline to change the rule to address the commenter's suggestion of a rebuttable
presumption.
One commenter provided a number of reports, studies, and loan documents
as support for his comments. The commenter wanted the Commissions to have
the information to consider prior to adopting any more interpretations. No
specific relationship was drawn between the documents that were provided in
support of the comments and the interpretations or the comments themselves.
Additionally, there does not appear to be a relationship between the comments
made and the information contained in the documents other than providing general
information relating to mortgage lending. Listed below is a brief summary
of each document provided.
1. Quantifying the Economic Cost of Predatory Lending, by Eric Stein of
Coalition for Responsible Lending, 2001.
Summary: Describes three types of predatory lending practices (Equity Stripping,
Rate-Risk Disparities, and Excessive Foreclosures) and estimates the cost
of these practices on U.S. consumers.
2. North Carolina's Subprime Home Loan Market After Predatory Lending Reform,
By Keith Ernst et al. of Coalition for Responsible Lending, 2002.
Summary: A study of home lending in North Carolina after passage of a state
law curbing predatory mortgage lending. The study concludes that North Carolina
has benefited from the curb on predatory lending.
3. Curbing Predatory Home Mortgage Lending, by HUD-Treasury Task Force,
June 2000.
Summary: The task force proposes a four-point plan to address predatory
lending practices:
(1) Improve consumer literacy and disclosures;
(2) Prohibit harmful sales practices in the mortgage market;
(3) Restrict abusive terms and conditions on High-Cost loans; and
(4) Improve market structure.
4. Credit, Capital and Communities: The Implications of the Changing Mortgage
Banking Industry for Community Based Organizations, by Joint Center for Housing
Studies, Harvard University, 2004.
Summary: Principal Findings:
(1) New technology drives mortgage industry restructuring
(2) Industry structure perpetuates a dual market system
(3) A prime lending gap exists in minority neighborhoods
(4) Changes in the mortgage industry challenge Community Based Organization
activities
(5) Community Based Organizations must work to improve their mortgage lending
activities
(6) New roles present Community Based Organizations with new opportunities
Community Based Organizations once had the ability to protest the lack
of mortgage lending in the community by local banks. The evolution of the
mortgage lending market has reduced the ability of CBO's to put pressure on
the local segment of the mortgage lending industry. CBO's must work to improve
the ability of consumers to shop wisely for mortgage products. CBO's must
increase their understanding of how today's technologically sophisticated
Market operates.
5. Consumer Protection -- Federal and State Agencies Face Challenges in
Combating Predatory Lending, United States General Accounting Office, January
2004.
Summary: Principal Findings:
(1) Federal agencies have taken enforcement and other actions to address
predatory lending, but face challenges.
(2) Many states have passed laws addressing predatory lending, but Federal
agencies have preempted some statutes.
(3) The secondary market may benefit consumers but can also facilitate
predatory lending.
(4) The usefulness of consumer education, counseling, and disclosures in
deterring predatory lending may be limited.
(5) Predatory lenders may target elderly consumers.
6. Declaration of Cathy Lesser Mansfield (ACORN v. Finance Commission of
Texas) Summary: Ms. Mansfield's statement expressing her opinion on interpretations
already adopted.
7. A Tale of Three Markets: The Law and Economics of Predatory Lending,
by Kathleen C. Engel and Patricia A. McCoy, 2002.
Summary: Describes the forces that have contributed to the emergence of
predatory lending and concludes that such practices will continue without
government intervention.
8. Loan Documents of Plaintiffs:
Carlos Rivas (000001 - 000021)
Valerie Norwood (000022 - 000048)
Pamela E. Cooper (000049 - 000052)
Mary Ann Robles (000053 - 000074)
Bobby L. Martin (000075 - 000087)
Elsie P. Shows (000088 - 000109)
Summary: Copies of borrower's home equity loan documents for these consumers.
9. Texas Finance Commission Meeting Minutes, August 16, 2002.
Summary: Minutes of the Finance Commission meeting where the study on subprime
lending was discussed.
10. Texas Finance Commission Meeting Minutes, February 14, 2003.
Summary: Minutes of the Finance Commission meeting where the study on subprime
lending was discussed.
11. Office of Consumer Credit Commissioner Accomplishment Report for Fiscal
Year September 1, 2001, to August 31, 2002, October 8, 2002.
Summary: Report to the Finance Commission discussing several issues, mortgage
lending/predatory lending being the first issue.
12. Office of Consumer Credit Commissioner External Assessment: The View
From Here, October 6, 2004.
Summary: Focus on "Predatory Lending: Murky Waters" section.
13. Home Equity Lending Report
Summary: Breakdown of number of loans, total dollar amount loaned, and
average amount loaned for 1st and 2nd lien home equity loans for calendar
years 1998 through 2002.
14. The Finance Commission of Texas and The Office of Consumer Credit Commissioner
by the Texas Legislative Council, Legislative Report, Analysis of Home Mortgage
Disclosure Act (HMDA) Data for Texas, 1999-2001, April 11, 2003.
Summary: Measure of home mortgage lending activity for calendar years 1999
through 2001. Shows number and type of loan applications; number and reasons
for application denials; and number, type and dollar amounts of loans.
15. Texas Department of Banking, Briefing Packet on Home Equity Lending
Survey Results for The House Committee on Financial Institutions, Randall
S. James, Commissioner, April 6, 2000.
Summary: Measure of the home equity lending market in state chartered banks
conducted in December of 1999.
16. House Committee on Border and International Affairs, Interim Charge
#6: Prevalence of Subprime and Predatory Lending Along the Texas Border, August
12, 2004.
Summary: Gives an overview of subprime and predatory lending also breaks
down the types of business operating in the market. Discusses how predatory
lending is being addressed in Federal and State Legislation.
17. Research Into Home Equity Lending in Texas: Interviews with Key Decision-Makers
in 91 Financial Institutions, September, 1999.
Summary: The Texas Finance Commission provided Analytica information from
347 financial institutions. Analytica broke the information down into many
facets including: type of institution, loan approval rates, interest rate
amounts, types of fees and advertising.
18. Research Into Home Equity Lending in Texas: A Survey of 1,201 Texas
Homeowners, September 1999.
Summary: Analytica, Inc. surveyed 1,200 Texas homeowners on their perceptions
and experiences regarding home equity lending. Analytica broke the information
gathered into many facets including: demographic information of the homeowners
surveyed, effectiveness of advertising, level of service they received when
shopping for a product, where they shopped for a product, and how they used
the proceeds.
The listed documents do not appear to relate to the comments made on the
proposed interpretation or to any one of the proposed interpretations. No
response is required to information that does not relate to the proposed rule
or to the comments made on the rule.
The sections (interpretations) are adopted pursuant to Texas
Finance Code, §11.308 and §15.413 (as added by Acts 2003, 78th Legislature,
Chapter 1207, §2), which separately and independently authorize each
Commission to issue interpretations of the Texas Constitution, Article XVI, §50(a)(5)
- (7), (e) - (p), (t), and (u), subject to Texas Government Code, Chapter
2001.
The Texas Constitution, Article XVI, §50(a)(5)(B) and (C) are affected
by the proposed sections.
§152.11.Three Day Right to Rescind Contract for Work and Materials for Repairs or Renovation: Section 50(a)(5)(C).
The owner and owner's spouse may rescind the contract for work and
materials within three calendar days after execution by all parties of the
contract for work and materials. To count the three days, the day after the
contract is executed is day one. The rescission period ends at midnight of
the third calendar day following the execution of the contract. If the third
calendar day falls on a Sunday or federal legal public holiday, then the right
of rescission is extended to midnight of the next calendar day that is not
a Sunday or federal legal public holiday.
§152.13.Health or Safety Reasons for Waiving the Five Day Waiting Period and the Three Day Right to Rescind: Section 50(a)(5)(B) and (C).
(a)
If the owner wants to waive the 5-day waiting period in §50(a)(5)(B)
or the 3-day right of rescission in §50(a)(5)(C), the owner must sign
a statement that, at a minimum:
(1)
describes how the conditions of the homestead property
require immediate repair;
(2)
describes how the conditions of the homestead property
materially affect the health and safety of the owner or the person residing
in the homestead; and
(3)
states that the owner is waiving the 5-day waiting period
under §50(a)(5)(B), the 3-day period to rescind the contract for work
and materials under §50(a)(5)(C), or both;
(b)
Printed forms for this purpose are prohibited.
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 February 11, 2005.
TRD-200500637
Leslie L. Pettijohn
Commissioner
Joint Financial Regulatory Agencies
Effective date: March 3, 2005
Proposal publication date: November 5, 2004
For further information, please call: (512) 936-7640
Subchapter R. MOTOR VEHICLE INSTALLMENT SALES CONTRACT PROVISIONS
Part 4.
TEXAS SAVINGS AND LOAN DEPARTMENT
Part 6.
CREDIT UNION DEPARTMENT
Subchapter G. LENDING POWERS
Subchapter H. INVESTMENTS
Part 8.
JOINT FINANCIAL REGULATORY AGENCIES
Chapter 153.
HOME EQUITY LENDING