Part 1. FINANCE COMMISSION OF TEXAS

Chapter 9. RULES OF PROCEDURE FOR CONTESTED CASE HEARINGS, APPEALS, AND RULEMAKINGS

Subchapter B. CONTESTED CASE HEARINGS

7 TAC §9.26

The Finance Commission of Texas (the commission) proposes to amend §9.26, concerning the applicability of the Texas Rules of Civil Evidence.

Section 9.26 provides that the Texas Rules of Evidence apply in contested cases. Among its other provisions, §9.26 prohibits the administrative law judge from admitting public comments in the form of letters and affidavits into evidence in a contested case hearing, unless the letters or affidavits satisfy an exception to the hearsay rule or come into evidence without objection. The proposed amendments are intended to address an issue that has arisen as a result of the §9.26 evidentiary restriction, provisions of Government Code, Chapter 2001 (Administrative Procedure Act or APA), which applies to contested case proceedings, and certain requirements of Occupations Code, Chapter 53 (Chapter 53), related to the consequences of criminal convictions. The proposed amendments establish by rule the procedures the administrative law judge currently applies in contested case proceedings arising under Chapter 53.

The administrative law judge from time to time conducts contested case hearings in which a person appeals an adverse licensing action taken by one of the finance agencies under the jurisdiction of the commission based upon the person's criminal conviction. These hearings are subject to the §9.26 limitation regarding the admission into evidence of letters and affidavits.

The hearings are also subject to Chapter 53. Chapter 53 applies to contested case proceedings in which a licensing authority suspends or revokes a license, disqualifies a person from receiving a license, or denies to a person the opportunity to take a licensing examination on the grounds that the person has been convicted of a felony or misdemeanor that directly relates to the duties and responsibilities of the licensed occupation. In determining whether a convicted person is fit to perform the duties and discharge the responsibilities of the licensed occupation, §53.023(a)(6) of Chapter 53 directs the licensing authority to consider evidence of the convicted person's fitness that includes letters of recommendation from prosecutors, law enforcement and correctional authorities, and any other person in contact with the convicted person. Additionally, under §53.023(b), the convicted person is responsible for obtaining and providing the recommendations to the licensing authority.

Section 53.024 of Chapter 53 provides that an appeal from a licensing authority's adverse decision based on a person's conviction is governed by the Administrative Procedures Act. One of the main features of hearings conducted under the APA is that the rules of evidence apply in the same manner as in a trial without a jury in state court. The hearsay rule is part of the rules of evidence that applies in the same manner in administrative hearings as it does in a state court non-jury trial. Additionally, §2001.087 of the APA specifically guarantees that parties may conduct cross-examination as required for a full and true disclosure of the facts.

The administrative law judge has considered statutory language, apparent legislative intent, and relevant caselaw. To harmonize and reconcile the §53.023(a)(6) requirement that the agency consider ex parte letters that are clearly hearsay in ruling on applications submitted by applicants with criminal records on the one hand and the APA provisions related to the rules of evidence and inadmissibility of hearsay on the other, the administrative law judge has interpreted §53.023(a)(6) of Chapter 53 to require the agency to consider any letters of recommendation that an applicant may offer during the preliminary or investigatory stage prior to the agency making its initial decision on the application. However, consistent with the APA, the administrative law judge does not allow such letters to be admitted into evidence in contested case hearings, unless they satisfy an exception to the hearsay rule or come into evidence without objection. Rather, the applicant must have all witnesses give testimony in person or, with advance notice to opposing counsel, by telephone in accordance with §9.32 of this chapter. The administrative judge liberally allows character witnesses to testify by telephone. In this manner, the judge accommodates witnesses and allows the parties to easily place in the hearing record the same type of information as contained in the recommendation letters, but also ensures that witnesses are available for cross-examination and to respond to clarifying questions from the judge.

The proposed amendments to §9.26 adopt the above-described procedures the administrative law judge currently applies in contested case proceedings arising under Chapter 53. The proposed amendments also make several nonsubstantive revisions in recognition that former Texas civil and criminal rules of evidence have been combined into the Texas Rules of Evidence and delete an unnecessary introductory phrase.

Larry Craddock, administrative law judge for the commission and for the Texas Department of Banking, Office of the Consumer Credit Commissioner, and Department of Savings and Mortgage Lending (finance agencies), has determined that, for each year of the first five years that the proposed amendments are in effect, there will be no fiscal implication for state or local government as a result of enforcing or administering the proposed amendments.

Mr. Craddock has also determined that, for each year of the first five years the proposed amendments are in effect, the public benefit anticipated as a result of the amendments will be that parties to the finance agencies' contested case proceedings involving Chapter 53 will clearly understand the procedures applicable to obtaining admission into evidence of information contained in letters of recommendation. In light of the administrative law judge's liberal use of telephone hearings with proper notice to opposing counsel, there is no anticipated cost to persons who are required to comply with the amendments as proposed. There will be no adverse effect on small businesses or micro-businesses.

Comments concerning the proposed amendments should be submitted within 31 days of publication in the Texas Register to Larry Craddock, Administrative Law Judge, Finance Commission of Texas, 2601 North Lamar Boulevard, Austin, Texas 78705-4294, or by e-mail to larry.craddock@banking.state.tx.us.

The amendments are proposed pursuant to Government Code, §2001.004, which requires a state agency to adopt rules of practice stating the nature and requirements of all available formal and informal procedures. The proposed amendments are also proposed under specific rulemaking authority contained in the substantive statutes administered by the finance agencies under the jurisdiction of the commission, including Finance Code, §§11.301, 11.302, 11.304, 11.306, 14.157, 31.003, 66.002, 96.002, 151.102, 154.051, 156.102, 181.003, 201.003, 342.551, 348.513, 371.006, and 396.051, and Health and Safety Code, §711.012(a) and §712.008.

Government Code, Chapter 2001, is affected by the proposed amendments. Finance Code, Titles 3 - 5, and Health Safety Code, Chapters 711 and 712, are affected by the proposed amendments to the extent of provisions relating to a right to hearing before a finance agency or the commission.

§9.26.Applicability of Texas Rules of [ Civil ] Evidence.

(a) The Texas Rules of [ Civil ] Evidence, as applied in non-jury [ civil ] cases in the courts of Texas, apply in contested cases under this subchapter. The administrative law judge shall exclude irrelevant, immaterial, or unduly repetitious evidence. When necessary to ascertain facts not reasonably susceptible of proof under those rules, the administrative law judge may admit evidence not admissible under those rules, except where precluded by law, if of a type commonly relied upon by reasonably prudent persons in the conduct of their affairs. [ Public comments in the form of letters ] Letters and affidavits are not admissible into evidence in contested case hearings unless they satisfy an exception to the hearsay rule or come into evidence without objection.

(b) In cases arising under Texas Occupations Code, Chapter 53 (related to consequences of criminal conviction), a letter of recommendation submitted to a finance agency during the investigative stage of the licensing proceeding will not be admitted into evidence at the hearing unless the letter satisfies an exception to the hearsay rule or comes into evidence without objection. A party must arrange to have all character witnesses give testimony in person or, with advance notice to opposing counsel, by phone pursuant to and in accordance with §9.32 of this chapter.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 17, 2007.

TRD-200703692

Sarah J. Shirley

General Counsel

Finance Commission of Texas

Proposed date of adoption: October 19, 2007

For further information, please call: (512) 475-1300

Chapter 25. PREPAID FUNERAL CONTRACTS

Subchapter B. REGULATION OF LICENSES

7 TAC §25.10

(Editor's note: The text of the following section proposed for repeal will not be published. The section may be examined in the offices of the Texas Department of Banking or in the Texas Register office, Room 245, James Earl Rudder Building, 1019 Brazos Street, Austin.)

The Finance Commission of Texas (commission), on behalf of the Department of Banking (department), proposes the repeal of §25.10, concerning record keeping requirements for insurance-funded prepaid funeral benefits contracts.

Chapter 25 implements Finance Code, Chapter 154 (Chapter 154), which regulates the sale of prepaid funeral benefits contracts (prepaid contract). Section 25.10 establishes the recordkeeping requirements that apply to insurance-funded prepaid contracts.

The department initiated a project to revise §25.10 approximately one year ago and the commission published proposed amendments to the section in the December 29, 2006, issue of the Texas Register (31 TexReg 10473). The commission thereafter withdrew the proposed amendments so that the department could continue to consider the input of Chapter 154 insurance permit holders and further refine the section's requirements. The department has now completed its work and determined that certain existing requirements should be eliminated and others clarified. Because of the extent of these and other, nonsubstantive revisions, the commission proposes to repeal the existing section and replace it with a new §25.10, which the commission is simultaneously proposing in this issue of the Texas Register.

Stephanie Newberg, Deputy Commissioner of the Texas Department of Banking, has determined that, for each of the first five years the proposed repeal is in effect, there will be no fiscal implication for state or local governments.

Ms. Newberg has further determined that, for each year of the first five years that the proposed repeal is in effect, the anticipated public benefit will be the deletion of regulations that are unclear or unnecessary. The repealed section will be replaced with new, updated regulations that are clear, specific and consistent with the department's current interpretation and application of insurance prepaid contract recordkeeping requirements, and that will enhance the department's enforcement of, and insurance permit holders' compliance with, the regulatory requirements of Chapter 154. For each year of such first five years, there will be no economic cost to persons required to comply with the proposed repeal. Finally, Ms. Newberg has determined that the proposed repeal will not have an adverse effect upon small businesses or micro-businesses.

To be considered, comments concerning the proposed repeal must be submitted within 30 days of publication to Russell Reese, Director, Special Audits Division, Texas Department of Banking, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294 or by e-mail to russell.reese@banking.state.tx.us.

The repeal is proposed under Finance Code, §154.051(b)(2) and (3), which authorize the commission to adopt reasonable rules regarding the keeping and inspection of records relating to the sale of prepaid funeral benefits and the filing of contracts and reports.

Finance Code, Chapter 154, is affected by the proposed repeal of this section.

§25.10.Record Keeping Requirements for Insurance-Funded Contracts.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 17, 2007.

TRD-200703700

Sarah J. Shirley

General Counsel

Texas Department of Banking

Proposed date of adoption: October 19, 2007

For further information, please call: (512) 475-1300

7 TAC §25.10

The Finance Commission of Texas (commission), on behalf of the Department of Banking (department), proposes new §25.10, concerning recordkeeping requirements for insurance-funded prepaid funeral benefits contracts.

Chapter 25 implements Finance Code, Chapter 154 (Chapter 154), which regulates the sale of prepaid funeral benefits contracts (prepaid contract). Proposed new §25.10 establishes the recordkeeping requirements that apply to insurance-funded prepaid contracts. The proposed new section will replace existing §25.10, concerning record keeping requirements for insurance-funded contracts, which the commission is simultaneously proposing for repeal in this issue of the Texas Register.

The department initiated a project to revise existing §25.10 approximately one year ago and the commission published proposed amendments to the section in the December 29, 2006, issue of the Texas Register (31 TexReg 10473). The department received comments in response to the published notice and also met with several permit holders that sell insurance-funded prepaid contracts (insurance permit holders). The commission thereafter withdrew the proposed amendments so that the department could continue to consider the input of Chapter 154 insurance permit holders and further refine the section's requirements. The department has now completed its work and determined that certain of the existing requirements should be eliminated and others clarified. Because of the extent of these and other, nonsubstantive revisions, the commission is proposing a new §25.10, rather than amendments to the existing section.

Chapter 154 provides a regulatory framework that allows a person to arrange and pay for a funeral in advance. The chapter imposes a duty upon the department and grants the department the authority to regulate sellers of prepaid contracts to make sure that (1) the prepaid contract is performed in accordance with its terms and the funeral merchandise and services are provided as specified in the contract; and (2) funds are available to pay for the contracted funeral merchandise and services. In developing revisions to existing §25.10, the department has been sensitive to insurance permit holder concerns about regulatory burden and has sought to reduce recordkeeping requirements to the extent possible and in a manner consistent with the department's basic regulatory construct: the department must have the information it considers necessary to verify that insurance-funded contracts are performed and funded in accordance with their terms and Chapter 154.

The department believes that proposed new §25.10 achieves an appropriate balance. As a general matter, the proposed new section provides clarity. The requirements are set out specifically and reflect the department's current construction and application of the requirements carried over from existing §25.10. The proposed new section also applies plain language writing principles by using direct language, eliminating unnecessary verbiage, using terms consistently, and incorporating current terminology. Additionally, in response to input from insurance permit holders, proposed new §25.10 eliminates a number of existing recordkeeping requirements the department considers unnecessary. The proposed new section also provides permit holders with more flexibility with respect to how records are maintained and, as a general matter, shortens the retention period or triggering event, such as a contract status change, from three years to the period since the previous examination. However, proposed new §25.10 continues to require permit holders to maintain the records necessary for the department to compare the preneed contract and the at-need performance to ensure that the prepaid contract was performed and funded in accordance with its terms and the law.

Proposed new §25.10(a) consolidates into one subsection the general requirements applicable to the place and manner in which records must be kept and produced for department examination. Proposed new subsection (a) recognizes that a permit holder may obtain an exception in accordance with proposed new §25.10(g)(3) and (h). Absent an exception, a permit holder must maintain records and produce them for inspection as specified in the section. The records must be made available at the physical location in Texas previously designated by the permit holder in writing. Further, all the records specified in the department's pre-examination records request must be produced at the beginning of the examination, and other records requested during the examination must be produced in a manner that does not impede the efficient conduct of the examination. The records must be maintained either in hard copy form, or stored on microfiche or in an electronic database from which the record can be retrieved and printed in hard copy in a manner, again, that does not delay the examination.

Proposed new §25.10(b) establishes recordkeeping requirements with respect to a permit holder's general files. The proposed new subsection eliminates many of the requirements of existing §25.10(b). For example, under the proposed new subsection, a permit holder is no longer required to maintain the latest approved renewal permit application and its last filed annual report, the current permit issued by the department, each department-approved agent appointment and resignation given within the past three years, or a list of and related orders approving each trust to insurance conversion for the past three years.

Proposed new subsection (b) clearly identifies and requires a permit holder to maintain certain prepaid contract forms, insurance depository letters, financial statements, Texas Department of Insurance (TDI) approval letters, and other insurance regulatory documentation, and also department-related documentation, including examination report acknowledgments, correspondence, and approvals or directions upon which a permit holder relies in connection with its current operations. Finally, the proposed new subsection requires a permit holder to maintain price lists or alternative documentation for certain outstanding prepaid contracts.

Proposed new §25.10(c) requires a permit holder to maintain a prepaid contract file on each contract purchaser. The proposed new subsection specifies how the file must be maintained and the general individual contract records that must be included in the file. Proposed new subsection (c) also clearly identifies in paragraphs (2) and (3) the specific records that must be maintained with respect to outstanding contracts, matured contracts performed by the contracted funeral provider or under a successor provider assignment, and matured contracts performed by some other person. Many of the requirements, particularly those related to matured contracts performed by the contracted funeral provider or assigned successor, provide the documentation the department needs to confirm that the contracted for benefits were performed and the contract was correctly funded, or provide an explanation of differences between the prepaid contract and at-need performance.

Additionally, proposed new subsection (c) specifies in paragraphs (4) and (5), respectively, the records that must be maintained in a contract file pertaining to a canceled contract and a file pertaining to a contract whose insurance funding policy has changed status since the previous examination.

In addition to requiring a permit holder to maintain general and individual contract files, proposed new §25.10 carries over in subsection (d) the requirements from existing §25.10 that a permit holder maintain certain ledgers and reports regarding its prepaid funeral benefits operations for both new and conversion contract sales. Paragraph (1) of subsection (d) requires a permit holder to maintain an historic contract register that reflects all prepaid contracts and insurance policies and notes contract status and other specified information. Paragraph (2) requires that detailed individual payment receipt records be kept. Paragraph (3) and (4) require and specify the information that must be maintained, respectively, in an in-force policy register and in reports detailing out-of-force and non-forfeiture policies. Proposed new paragraphs (1), (3) and (4) set out how the required registers and reports must be maintained, totaled, balanced and formatted.

Additionally, proposed new §25.10(d) requires in paragraph (5) that a permit holder maintain an activity reconciliation report that reflects what has occurred with respect to a policy that moves from in-force to out-of force or non-forfeiture status during the reporting period. Specifically, the report must show the activity related to each in-force policy identified in the in-force policy register required under paragraph (3) and must balance to the corresponding policy subsequently identified in the out-of-force and non-forfeiture policy reports required under paragraph (4). The permit holder must provide documentation to support the reported activity and the report must be balanced as of June 30 and December 31 of each year.

Proposed new §25.10(e) specifies the records a permit holder must maintain regarding trust-funded contracts that have been converted to insurance-funding.

Proposed new §25.10(f) requires a permit holder to maintain, and make available for examination, corporate minutes and records related to actual or anticipated regulatory action or litigation that could result in the permit holder's insolvency.

Proposed new §25.10(g) authorizes certain exceptions from the section's recordkeeping requirements. Proposed paragraph (1) confirms that a permit holder that sells only insurance-funded contracts need not maintain records applicable only to trust-funded contracts. Proposed paragraph (2) explains the records that must be kept with respect to prepaid contracts sold prior to the effective date of the section. Finally, proposed paragraph (3) authorizes a permit holder to apply to the commissioner for an exception to the proposed new section's recordkeeping requirements, and provides that an exception may be granted or revoked for good cause by the commissioner's prior written direction.

Proposed new §25.10(h) pertains to the relocation of records. A permit holder that wishes to change the location where records are maintained or the examination is conducted must give the department written notice specifying the new address. Additionally, if a permit holder wishes to maintain records or have an examination conducted outside of Texas, the permit holder must first request and obtain an exception under proposed new §25.10(g)(3). Proposed new subsection (h) also reserves to the commissioner the right to deny or revoke a records relocation approval if such action is necessary to effectively regulate the permit holder and examine records. The department does not anticipate having to deny or revoke a relocation approval except in unusual circumstances. A relocation approval might need to be revoked if, for example, funding issues preclude department examiners from traveling out-of-state to conduct examinations.

Proposed new §25.10(i) requires that the documents and records required under the proposed new section be filed within 30 days of receipt, and specifies the time within which cash and other forms of payment and cash withdrawals must be posted.

Proposed new §25.10(j) requires a permit holder that maintains records electronically to provide evidence of a disaster recovery plan, or compliance with TDI business continuity planning requirements, and offsite data storage capabilities regarding all records and documentation related to prepaid contracts.

Consistent with established practice, the department provided a draft of the proposed revisions to §25.10 to its 57 Chapter 154 insurance permit holders and invited informal comment. The department received one comment from an insurance permit holder. The department also received comments on behalf of the Texas Pre-Need Coalition (TPNC) suggesting several revisions and noting TPNC's fundamental disagreement with the department regarding the records that can and should be required of an insurance permit holder, the same position TPNC argued in connection with the previously proposed §25.10 amendments.

The department made several revisions to the proposal draft in response to the submitted comments. However, the requirements of proposed new §25.10 reflect the department's longstanding interpretation and application of Chapter 154 that insurance permit holders must maintain the records and provide the information the department considers necessary to discharge its statutory duty and confirm that insurance-funded prepaid contracts are performed and funded in accordance with their terms and Chapter 154.

Stephanie Newberg, Deputy Commissioner of the Texas Department of Banking, has determined that, for each of the first five years that proposed new §25.10 is in effect, there will be no fiscal implication for state or local governments.

Ms. Newberg has further determined that, for each year of the first five years that the proposed new section is in effect, the anticipated public benefit will be updated and more specific and understandable regulations that will enhance the department's enforcement of, and insurance permit holders' compliance with, the regulatory requirements of Chapter 154. For each year of such first five years, there will be no economic cost to persons required to comply with the proposed new section. Finally, Ms. Newberg has determined that the proposed new section will not have an adverse effect upon small businesses or micro-businesses.

To be considered, comments concerning proposed new §25.10 must be submitted within 30 days of publication to Russell Reese, Director, Special Audits Division, Texas Department of Banking, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294 or by e-mail to russell.reese@banking.state.tx.us.

The proposed new section implements Finance Code, §154.051(b)(2) and (3), which authorize the commission to adopt reasonable rules regarding the keeping and inspection of records relating to the sale of prepaid funeral benefits and the filing of contracts and reports.

Finance Code, Chapter 154, is affected by the proposed new section.

§25.10.Recordkeeping Requirements for Insurance-Funded Contracts.

(a) Application and general requirements. This section applies to a permit holder that sells or maintains insurance-funded prepaid funeral benefit contracts (prepaid contracts). Unless the commissioner grants an exception as provided for in subsections (g)(3) and (h) of this section, a permit holder must maintain and produce for examination the records as specified in this section. The permit holder:

(1) must make the records available to the department for examination at the physical location in Texas that the permit holder has designated in written notice to the department on file at the time of the examination;

(2) is required to make all the records specified in the department's pre-examination records request available to the department at the beginning of an examination and must produce such other records as may be requested during the examination in a manner that does not impede the efficient conduct of the examination; and

(3) must maintain the records either in hard copy form or stored on microfiche or in an electronic database from which the record can be retrieved and printed in hard copy in a manner that does not impede the efficient conduct of the examination.

(b) General files. A permit holder subject to this section must maintain general files regarding its prepaid funeral benefits operations. The files must contain the original or a copy of the following:

(1) each department-approved prepaid contract form currently used or approved for sales since the last examination, unless no outstanding contracts exist using the form;

(2) all department-approved insurance depository letters pertaining to outstanding prepaid contracts;

(3) if the permit holder is an insurance company or an entity that controls or is controlled by an insurance company, the most current consolidated financial statement or the most recent annual statement filed with the insurance regulatory agency of the insurance company's state of domicile;

(4) the examination report acknowledgments, signed by the permit holder's board of directors, for the last examination report;

(5) the Texas Department of Insurance (TDI) approval letter for each policy form issued to fund any outstanding prepaid contract or prepaid contract that was sold and has matured since the last examination;

(6) a copy of the final post-conversion summary for each trust-to-insurance conversion approved by the department since the last examination;

(7) all correspondence with the department since the last examination;

(8) copies of all recordkeeping exceptions and other department or commissioner approvals or directions upon which the permit holder relies in connection with its current operations;

(9) if the permit holder is an insurance company or an entity that controls or is controlled by an insurance company, a copy of the examination reports of the insurance regulatory agency of the insurance company's state of domicile for the period since the last examination, and the responses to the regulatory agency regarding examination report findings that are pertinent to the prepaid funeral benefits business, unless the law of the state of domicile prohibits disclosure of the examination reports and related correspondence to the department; and

(10) for any outstanding prepaid contract with a funeral provider that has an issue date since the last examination, either:

(A) general, casket, outer burial container, and urn price lists for the corresponding or contracted funeral provider; or

(B) alternative documentation that demonstrates compliance with required casket, outer-burial container and urn merchandise descriptions.

(c) Individual files.

(1) A permit holder subject to this section must maintain a prepaid contract file on each purchaser. The file must either be maintained separately or be capable of retrieval separately for outstanding contracts and may be maintained either chronologically, alphabetically or serially by policy number. Each file must contain all correspondence pertaining to the contract, including documentation to evidence that the executed prepaid contract has been issued to the contract purchaser and the funding policy has been issued to the contract purchaser or policy owner within 30 days of the receipt of the initial down payment and insurance application.

(2) Each file pertaining to an outstanding prepaid contract must contain a copy of the contract, any irrevocable assignments, and the data face sheet of the insurance policy or annuity contract funding the contract.

(3) Each file pertaining to a matured prepaid contract must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding prepaid contract, and must also contain a fully completed department withdrawal form, or evidence of department withdrawal approval, or a proof of claim form prepared and completed by the permit holder which contains all the required information included on the department's prescribed withdrawal form. In addition:

(A) a matured-contract file for which services were provided by the contracted funeral provider or under an executed successor provider assignment accepted by all contracting parties must contain:

(i) the original or a final copy of the completed at-need contract or funeral purchase agreement, the cemetery interment order if the prepaid contract relates only to a grave opening and closing fee, outer burial container or other related merchandise and services, or an itemization of services performed and merchandise delivered; the document must be signed by the decedent's personal representative and indicate the prepaid credits and discounts applied and the balance due, if any, from the family at the time of death;

(ii) documentation to substantiate any upgrades or downgrades or discounts or credits given and to explain any differences between the prepaid and the at-need contracts;

(iii) a copy of a certified death certificate;

(iv) the certificate of performance of contract services executed by the decedent's personal representative;

(v) evidence of payment of the policy(s) death benefits to the servicing funeral provider, e.g., a copy of payment check or check stub;

(vi) documentation of premium payment history;

(vii) documentation that reflects the balance owing, if any, on the funding policy(s) and the death benefits available at the time of claim; and

(viii) if applicable, evidence of payment to the decedent's personal representative of any refund of contract overcharges by the provider.

(B) a matured contract file for which services were provided by a person other than a person listed in subparagraph (A) of this paragraph must contain:

(i) a signed assignment of benefits statement from the purchaser or purchaser's representative requesting the delivery of funds to the servicing funeral provider;

(ii) evidence of payment to the servicing funeral provider;

(iii) a copy of a certified death certificate; and

(iv) documentation of premium payment history which reflects the balance owing, if any, on the funding policy(s) and the death benefits available at the time of claim.

(4) Each file pertaining to a canceled prepaid contract must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding contract, a completed departmental withdrawal form or evidence of departmental withdrawal approval, documentation of premium payment history to support the available cash surrender value, and evidence of payment of cancellation benefit, e.g., a copy of payment check or check stub.

(5) Each file pertaining to a prepaid contract whose funding insurance policy has changed status since the last examination, for example, to a reduced paid-up, lapsed, or extended term insurance policy, must be retained for the period since the last examination. The file must contain copies of all documents required for an outstanding contract and a copy of the permit holder's letter to the purchaser informing the purchaser of contract status. The letter must state the date of the status change and, if applicable, the reduced death benefit coverage amount and the termination date of such coverage. The letter must also inform the purchaser that the prepaid benefits may not be honored by the funeral provider due to the non-forfeiture or delinquent status of the funding policy. Each reduced paid-up or extended term policy file must also include copies of an election form indicating the purchaser has chosen reduced paid-up or extended term status, unless the policy has automatic non-forfeiture provisions.

(d) Records. A permit holder subject to this section must maintain the following records regarding its prepaid funeral benefits operations for both new and conversion sales:

(1) an historical contract register maintained chronologically or by policy number or by contract number reflecting all prepaid contracts and policies, and a notation of the status of the contracts and policies as outstanding, matured, canceled, or reduced paid-up. Contracts may be removed from the register when three years or more has elapsed from the date of final disposition. The contract register must be formatted in columns with headings that accurately describe the information set out in each column. The specific information required to be included in separate columns is:

(A) the prepaid contract and corresponding policy number(s);

(B) the prepaid contract purchase date;

(C) the purchaser's name;

(D) the beneficiary's name (if different from the purchaser's name);

(E) the prepaid contract total; and

(F) the final disposition of the prepaid contract, including notations as to whether the contract and policy are matured, canceled, surrendered, lapsed, reduced paid-up, extended term, voided, or not taken. The notation must also include the date of withdrawal claim and the amount of funds paid; or, in lieu thereof, a record separate from the register, listing matured, canceled, surrendered, lapsed, reduced paid-up, extended term, voided, or not taken contracts and policies for the examination period and setting out the contract and/or policy number, contract purchaser, date of the withdrawal claim paid, and amount of the withdrawal claim paid;

(2) detailed individual payment receipt records to document the date of initial collection of the down payment on the funding application and subsequent premium payments from the contract purchaser by the permit holder or its agent;

(3) an in-force policy register, maintained either chronologically by date of policy issuance, alphabetically by the insured's name, or serially by policy number. The in-force register must balance to the policy activity report required under paragraph (5) of this subsection, and must accumulate to grand totals for all policies with respect to the information required under subparagraphs (C), (E), (F), and (G) of this paragraph. The in-force register must be formatted in columns with headings that accurately describe the information set out in each column. The specific information required to be included in separate columns is:

(A) the insured's name;

(B) the policy number or numbers;

(C) the prepaid contract total;

(D) the date of policy issuance;

(E) the death benefit, or insurance in force, whichever is applicable;

(F) growth, e.g., dividends and interest, attributable to outstanding policies for the reporting period; and

(G) cumulative growth totals for each outstanding policy;

(4) reports detailing out-of-force and non-forfeiture policies, subtotaled in count and reduced coverage amount by status codes for death maturity, canceled, surrendered, lapsed, reduced paid-up, extended term, voided, not taken, or such other codes which may be used to designate policies no longer in force, maintained either chronologically by date of policy issuance, alphabetically by the insured's name, or serially by policy number. If the reports cannot be sub-totaled, a separate report must be generated for each type of termination status or non-forfeiture change. The reports must balance to the policy activity report required under paragraph (5) of this subsection. The reports must be formatted in columns with headings that accurately describe the information set out in each column. The specific information required to be included in separate columns is:

(A) the insured's name;

(B) the date of policy issuance;

(C) the policy number or numbers;

(D) the date the policy matured, lapsed, or was surrendered or canceled; and

(E) the amount of in-force coverage or face value of insurance that has been paid, reduced, deleted, or transferred.

(5) an activity reconciliation report that shows the activity related to each policy that was identified in the in-force policy register required under paragraph (3) of this subsection and balances to the corresponding policy subsequently identified in the out-of-force and non-forfeiture policy reports required under paragraph (4) of this subsection . The permit holder must provide documentation to support the reported activity and may use the department's Annual Report Recapitulation of Policy Activity format to complete this report. The report must be balanced as of June 30 and December 31 of each year.

(e) Conversions. A permit holder subject to this section shall maintain a file copy of the original trust-funded prepaid funeral contracts that have been converted to insurance funding and the payment history records for each converted contract prior to conversion.

(f) Corporate records. Corporate records of a permit holder subject to this section pertaining to actual or anticipated regulatory action or litigation that could result in the permit holder's insolvency and all corporate minutes must be maintained and made available to the department at each examination.

(g) Exceptions.

(1) A permit holder that sells only insurance-funded contracts is not required to maintain records that are applicable only to trust-funded contracts.

(2) With respect to contracts sold prior to the effective date of this section, a permit holder will not violate this section if it cannot produce records required under this section which were not previously required by statute or rule. However, basic reporting of in-force benefit amounts and policy activity from the last examination date to the current examination date will be required of all permit holders for insurance companies that have outstanding insurance policies funding prepaid contracts in Texas.

(3) A permit holder may apply to the commissioner for an exception to the requirements of this section. An exception may be granted or revoked for good cause only by prior written direction of the commissioner.

(h) Relocation of records. Prior to changing the location where required records are maintained or where the examination is to be performed pursuant to §154.053(a) of the Texas Finance Code, a permit holder must notify the department, specifying the new address in writing, and, if the change in location requires the granting of an exception, comply with subsection (i)(3) of this section before required records are moved to the new location. The commissioner may revoke a records location if the commissioner determines that such action is necessary to effectively regulate the permit holder and examine the records.

(i) Maintenance of files. Documents and records required to be maintained under this section must be filed within 30 days of receipt. Cash and other forms of payments received must be posted within 30 days of receipt, and cash withdrawn on death maturity must be posted within 30 days of actual withdrawal.

(j) Disaster recovery plan. If required records are maintained electronically, the permit holder must provide evidence of a disaster recovery plan or compliance with TDI business continuity planning requirements and offsite data storage capabilities regarding all records and documentation related to prepaid contracts.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 17, 2007.

TRD-200703699

Sarah J. Shirley

General Counsel

Texas Department of Banking

Proposed date of adoption: October 19, 2007

For further information, please call: (512) 475-1300

7 TAC §25.23, §25.24

The Texas Finance Commission (commission), on behalf of the Department of Banking (department), proposes amendments to §25.23, concerning application fees, and §25.24, concerning examination costs and assessment fees.

Section 25.23 establishes the application and renewal fees a person must pay to the department to obtain and maintain a license to sell prepaid funeral benefits contracts (prepaid contracts) under Finance Code, Chapter 154 (Chapter 154). Section 25.24 requires a Chapter 154 permit holder to pay an annually assessed examination fee (annual assessment). The commission proposes to amend §25.23(b)(2) and §25.24(b). As explained in this preamble, the proposed amendments to §25.23(b)(2) and §25.24(b)(1) change the date as of and the document in which outstanding contract information is reported for renewal fee and annual assessment calculation purposes. Additionally, the proposed amendments to §25.24(b)(1) create a tier assessment structure for annual assessments and generally increase the assessment a permit holder must pay. The proposed amendments are intended to provide greater consistency with respect to the calculation of annual assessments and allow the department to more accurately assess the prepaid funeral benefits contracts industry. The proposed amendments will also enable the department to recover its costs in administering and enforcing Chapter 154.

Section 25.23(b)(2) specifies the basis on which the renewal fee is calculated. Under existing paragraph (2), the fee is based upon a permit holder's total number of outstanding prepaid contracts as of the permit holder's last department examination. The proposed amendment to paragraph (2) provides that the amount of the fee is based on the total number of outstanding prepaid contracts as reflected on the most recent annual report filed by the permit holder with the department.

Section 25.24(b) pertains to the annual assessment a permit holder must pay as an examination fee pursuant to Finance Code, §154.054. Section 25.24(b)(1) sets out the basis and formula for calculating the assessment. The proposed amendments to paragraph (1) provide that the amount of the annual assessment is based on the permit holder's total number of outstanding prepaid contracts as reflected on the most recent annual report filed with the department.

Additionally, the proposed amendments to §25.24(b)(1) revise the formula for determining the amount of the annual assessment and add an assessment schedule. Existing paragraph (1) provides for an annual assessment based upon a rate of up to $3.00 for each outstanding contract, subject to a minimum and maximum assessment. The proposed amendments to paragraph (1) create a "tier" assessment structure by establishing dollar amounts and a corresponding assessment for each range as set out in the schedule. For example, if a permit holder's total number of outstanding contracts is between 1,000 and 1,999, the annual assessment is $3,100 plus an amount that represents the number of outstanding contracts over 1,000 multiplied by $2.00, the specified factor. The proposed amendments to paragraph (1) also increase the minimum assessment from $100 to $150 and the maximum assessment from $7,350 to $15,000.

The proposed amendments to §25.24(b) also delete the statement in existing paragraph (3) that examination fees cannot be reduced or waived. The proposed amendments to paragraph (3) replace that statement with the requirement that a new Chapter 154 permit holder that has not yet filed the first annual report required by Finance Code, §154.052, must pay an examination fee of $600 per day for each examiner and all associated travel expenses. Finally, the proposed amendments to §25.24(c) clarify in paragraph (1) that the referenced "annual examination fee" is the annual assessment.

As a general matter, the proposed amendments to §25.24(b)(1) may significantly increase the annual assessment a Chapter 154 permit holder must pay. The department has determined that the increase is necessary to comply with the Finance Code, §154.054, mandate that the commission impose upon and collect from Chapter 154 permit holders fees sufficient to cover the cost of examination, including salary and travel expenses for department employees and other expenses reasonably incurred in conducting the examination, the equitable or proportionate cost of maintaining and operating the department, and the cost of enforcing Chapter 154.

The commission has for a number of years successfully avoided raising assessments--despite inflation and rising program costs, the amount of the annual assessment charged Chapter 154 permit holders has not increased since 1994. The need to now increase the amounts collected from permit holders is attributable to several factors. The primary factor is that the department has had to employ additional examiners in order to complete examinations within the time parameters established by the department's statutorily mandated performance measures. Additionally, for the past several years, the department has collected administrative penalties from permit holders that have repeatedly violated Chapter 154 and 7 TAC Chapter 25, and has used the penalties to offset the department's overall Chapter 154 costs. The department expects compliance to improve and does not anticipate the collection of significant administrative penalties in the future. As a result, the department must compensate for lost revenue.

Based upon the number of Chapter 154 permit holders and the department's experience in regulating and examining them, the department believes that the annual assessments established by the proposed amendments to §25.24(b) will provide the funding required to administer and enforce Chapter 154 and to do so in a manner that is fair and equitable to all permit holders. In determining the amount of the proposed assessments, the department has adhered to the limitation that only such funds as are necessary to defray Chapter 154 administrative and enforcement costs, the cost of examination, and the proportionate cost of maintenance and operation of the department may be imposed and collected, and that the department is statutorily prohibited from retaining excess revenue.

Consistent with established practice, the department provided each of the department's 415 Chapter 154 permit holders with a draft of the proposed amendments, along with a letter detailing the permit holder's anticipated annual assessment under the proposal, and invited informal comment. The department received one comment submitted on behalf of the Texas Pre-Need Coalition. The commenter suggested that the proposed fee structure be revised to provide for a contract fee to be paid by a consumer upon entering into a prepaid contract transaction. A portion of the fee could be paid to the department to offset examination costs and support the costs associated with abandoned books of business of insolvent permit holders. The department does not have a mechanism in place at this time to administer such a fee program, but notes that a permit holder is not precluded from assessing a contract processing fee to help offset the increase in assessments.

The renewal fee and assessments provided for in the proposed amendments are established by the commission and not mandated by the Legislature.

Russell Reese, Director of Special Audits, Texas Department of Banking, has determined that for the first five-year period that the proposed amendments are in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the proposed amendments. The total amount of the department's appropriations for all regulatory programs the department administers will remain approximately the same. Only the sources of revenue to enforce and administer Chapter 154 will change.

Mr. Reese has also determined that, for each year of the first five years the proposed amendments are in effect, the public benefit anticipated as a result of the proposed amendments will be greater consistency with respect to the calculation of assessments and the more accurate assessment of the prepaid funeral benefits contracts industry. Additionally, the proposed amendments will enable the department to recover its costs in administering and enforcing Chapter 154. The prepaid funeral benefits contracts industry will wholly fund its regulation and, as a result, such regulation will not require the expenditure of public monies from other sources. Mr. Reese has further determined that, for each of the first five years the proposed amendments are in effect, there will be no economic costs to Chapter 154 permit holders as a result of the proposed amendments to §25.23. The economic costs to permit holders as a result of the proposed amendments to §25.24 will be an average yearly increase in the annual assessment of approximately $440.

Of the department's 415 Chapter 154 permit holders, 243 are micro-businesses, 30 are small businesses, and 142 are large businesses under the definitions of those terms in Government Code, §2006.001. The average annual assessment increase for the micro-businesses under the proposed amendments to §25.24 will be approximately $141, or 68.4486 per 100 outstanding prepaid contracts. The average annual assessment increase for the small businesses will be approximately $200, or 25.8604 per 100 outstanding prepaid contracts. The average annual assessment increase for the large businesses will be $1,003, or 19.0311 per 100 outstanding prepaid contracts.

To be considered, comments on the proposed amendments must be submitted in writing not later than 30 days after the date of publication of this notice. Comments should be directed to Russell Reese, Director, Special Audits Division, Texas Department of Banking, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294, or by e-mail to Russell.Reese@banking.state.tx.us.

The amendments are proposed under the authority of Texas Finance Code, §154.051, which authorizes the commission to adopt rules establishing fees to defray the costs of administering Chapter 154, and §154.054, which directs the commission to establish an annually assessed examination fee sufficient to cover the costs of examination, the equitable or proportionate cost of maintaining and operating the department, and the cost of enforcing the chapter.

Texas Finance Code, Chapter 154, is affected by the proposed amendments.

§25.23.Application and Renewal Fees.

(a) (No change.)

(b) Application fees. The application fees set forth in this subsection have been set in accordance with the Finance Code, Chapter 154, for the purpose of defraying the cost of administering the Finance Code, Chapter 154. Except as otherwise provided in this subsection, all fees are due at the time the application is filed and are nonrefundable. An application submitted without the appropriate filing fee will be deemed incomplete and will not be considered.

(1) (No change.)

(2) Renewal fee. The renewal fee for an existing permit is based on the number of outstanding contracts as reflected on the most recent annual report you have filed with the department [ of the last examination ], as specified in the Renewal Fee Schedule following this paragraph. You must pay the renewal fee by ACH debit on or before March 1 of each year, or by another method if directed to do so by the department. At least 15 days prior to the scheduled ACH transfer, the department will send you a notice specifying the amount of the renewal fee and the date the department will initiate payment of the fee by ACH debit, which will be March 1 of each year or, if March 1 is a holiday, the last business day immediately preceding March 1.

Figure: 7 TAC §25.23(b)(2) (No change.)

(3) - (4) (No change.)

§25.24.What fees must I pay for an examination?

(a) (No change.)

(b) As a prepaid funeral benefits seller, what fees must I pay for department examinations?

(1) An annual assessment must be paid as an examination fee to the department to defray the cost of administering §154.054 of the Finance Code. The amount of your annual assessment is based on the number of outstanding contracts as reflected on your most recent annual report filed with the department. You must pay the annual assessment specified in the following table: [ Section 154.054 of the Finance Code requires that you must pay an examination fee to the department. This examination fee is calculated at a rate of up to $3.00 for each contract outstanding as of your last examination. Except that: ]

Figure: 7 TAC §25.24(b)(1)

[(A) If you annual examination fee calculation is less than $100, your annual examination fee will be $100; or]

[(B) If your annual examination fee calculation is more than $7,350, your annual assessment will be $7,350.]

(2) (No change.)

(3) If you are a new permit holder and have not yet filed your first annual report required by §154.052 of the Finance Code, you must pay an examination fee of $600 per day for each examiner and all associated travel expenses. Your subsequent annual assessment will be calculated in accordance with paragraph (1) of this subsection. [ Your examination fee will not be reduced or waived. ]

(c) How will the department bill me for the examination fees and when must I pay them?

(1) Your annual examination fee (annual assessment) may be billed in quarterly or fewer installments each fiscal year. You must pay a billed installment by ACH debit or by another method if directed to do so by the department. At least 15 days prior to the scheduled ACH transfer, the department will send you a notice specifying the amount of the payment due and the date the department will initiate payment by ACH debit.

(2) (No change.)

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 17, 2007.

TRD-200703701

Sarah J. Shirley

General Counsel

Texas Department of Banking

Proposed date of adoption: October 19, 2007

For further information, please call: (512) 475-1300

7 TAC §26.1

The Texas Finance Commission (commission), on behalf of the Department of Banking (department), proposes amendments to §26.1, concerning fees.

Section 26.1(b) establishes the fees a person must pay the department to operate a perpetual care cemetery (PCC) under Health and Safety Code, Chapter 712 (Chapter 712), and requires a PCC certificate holder to pay an annual fee and an annually assessed examination fee (annual assessment). As explained in this preamble, the proposed amendments to §26.1(b) change the date as of and the document in which trust fund balance information is reported for annual fee and assessment calculation purposes. Additionally, the proposed amendments create a tier assessment structure for annual assessments and provide generally for increased assessments. The proposed revisions are intended to provide greater consistency with respect to the calculation of assessments and allow the department to more accurately assess the perpetual care cemetery industry. The proposed amendments will also enable the department to recover its costs in administering and enforcing Chapter 712.

Section 26.1(b)(2) specifies the basis on which the annual fee is calculated. Under existing paragraph (2), the fee is based upon the perpetual care fund balance as of the date of the PCC certificate holder's last examination. The proposed amendment to paragraph (2) provides that the amount of the fee is based on the fund balance as reflected on the most recent annual statement of funds report filed by the PCC certificate holder with the department.

Section 26.1(b)(3) specifies the basis and formula for calculating the annual assessment. As does the proposed revision to paragraph (2), the proposed amendments to paragraph (3) provide that the amount of a certificate holder's annual assessment is based on the fund balance as reflected on the most recent annual statement of funds report filed with the department. Additionally, the proposed amendments revise the formula for determining the amount of the annual assessment and add an assessment schedule. Existing paragraph (3) provides for an annual assessment based upon a flat rate of $0.0030 per dollar of the fund balance. The proposed amendments create a "tier" assessment structure by establishing "ranges" of dollar amounts and a corresponding assessment for each range as set out in the schedule. For example, if the total amount of a PCC required fund balance is between $100,000 and $199,999.99, the annual assessment is $650 plus the amount of the required fund balance over $100,000 multiplied by .0035, the specified factor. The proposed amendments to paragraph (3) also increase the minimum assessment from $115 to $200 and the maximum assessment from $6400 to $7600.

Finally, the proposed amendments add a new paragraph (4) to §26.1(b). The proposed new paragraph requires a new PCC certificate holder that has not yet filed the first annual statement of funds report to pay an examination fee of $600 per day for each examiner and all associated travel expenses, and to pay subsequent annual assessments in accordance with the tier assessment structure provided for in the proposed amendments to paragraph (3).

As a general matter, the proposed amendments to §26.1(b) may increase the annual assessment a PCC certificate holder must pay. The department has determined that the increase is necessary to comply with the statutory mandate of Health and Safety Code, §§712.008, 712.042, and 712.044(b), that the commission by rule adopt fees to defray the cost of enforcing and administering Chapter 712, the cost of examination, and the equitable and proportionate cost of maintenance and operation of the department.

The commission has for a number of years successfully avoided raising assessments--despite inflation and rising program costs, the amount of the annual assessments charged PCC certificate holders has not increased since 2004. The need to now increase assessments is attributable to several factors. The department has had to employ additional examiners in order to complete examinations within the time parameters established by the department's statutorily mandated performance measures. Additionally, the time required to complete on-site PCC examinations has increased because the department must verify compliance with state laws and regulations that have been passed and adopted within the past several years. For example, the department must confirm compliance with the requirement that a PCC timely order and set markers and monuments and respond to consumer complaints.

Based upon the number of PCC certificate holders and the department's experience in examining them and regulating PCCs, the department believes that the annual assessments established by the proposed amendments to §26.1(b) will provide the funding required to administer and enforce Chapter 712 and to do so in a manner that is fair and equitable to all certificate holders. In determining the amount of the proposed assessments, the department has adhered to the limitation that only such funds as are necessary to defray the cost of enforcing and administering Chapter 712, the cost of examination, and the equitable and proportionate cost of maintenance and operation of the department may be imposed and collected, and that the department is statutorily prohibited from retaining excess revenue.

Consistent with established practice, the department provided each of its 240 PCC certificate holders with a draft of the proposed amendments, along with a letter detailing the certificate holder's anticipated assessment under the proposal, and invited informal comments. One certificate holder submitted comments objecting to the amount of the annual assessment increase.

The assessments provided for in the proposed amendments are established by the commission and not mandated by the Legislature.

Russell Reese, Director of Special Audits, Texas Department of Banking, has determined that for the first five-year period that the proposed amendments are in effect, there will be no fiscal implications for state or local government as a result of enforcing or administering the proposed amendments. The total amount of the department's appropriations for all regulatory programs the department administers will remain approximately the same. Only the sources of revenue to enforce and administer Chapter 712 will change.

Mr. Reese has also determined that, for each year of the first five years the proposed amendments are in effect, the public benefit anticipated as a result of the proposed amendments will be greater consistency with respect to the calculation of assessments and the more accurate assessment of the perpetual care industry. Additionally, the proposed amendments will enable the department to recover its costs in administering and enforcing Chapter 712. The perpetual care cemetery industry will wholly fund its regulation and, as a result, such regulation will not require the expenditure of public monies from other sources. Mr. Reese has further determined that, for each year of the first five years the proposed amendments to §26.1(b) are in effect, the economic costs to PCC certificate holders will be an average yearly increase in the annual assessment of approximately $423.

Of the department's 240 PCC certificate holders, 142 are micro-businesses, 25 are small businesses, and 73 are large businesses under the definitions of those terms in Government Code, §2006.001. The average annual assessment increase for the micro-businesses under the proposed amendments to §26.1 will be approximately $356, or 0.14601166 per $100 of the PCC certificate holder's total statutory trust fund balance. The average annual assessment increase for the small businesses will be approximately $425, or 0.09536870 per $100 of the total statutory trust fund balance. The average annual assessment increase for the large businesses will be approximately $552, or 0.04046659 per $100 of the total statutory fund balance.

To be considered, comments regarding the proposed amendments must be submitted in writing not later than 30 days after the date of publication of this notice. Comments should be addressed to Russell Reese, Director, Special Audits Division, Texas Department of Banking, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294, or by e-mail to Russell.Reese@banking.state.tx.us.

The amendments to §26.1(b) are proposed under the authority of Health and Safety Code, §§712.008, 712.042, and 712.044(b), which authorize the commission to adopt rules providing fees to defray the cost of enforcing and administering Chapter 712, the cost of examination, and the equitable and proportionate cost of maintenance and operation of the department.

Health and Safety Code, Chapter 712, is affected by the proposed amendments.

§26.1.What fees must I pay to operate a perpetual care cemetery?

(a) (No change.)

(b) If I want to operate a perpetual care cemetery, what fees must I pay to the department?

(1) (No change.)

(2) An annual fee must be paid as required by Section 712.042 of the Act. This annual fee is based on your fund balance as reflected on the most recent annual statement of funds report you have filed with the department [ of the date of your last examination ]. Your annual fee will be calculated according to the following table:

Figure: 7 TAC §26.1(b)(2) (No change.)

(3) An annual assessment must be paid as an examination fee imposed annually on a perpetual care cemetery corporation to defray the cost of administering the Act as required by Section 712.004(b) of the Act. The amount of your annual assessment is based on your fund balance as reflected on the most recent annual statement of funds report you have filed with the department. You must pay the annual assessment specified in the following table: [ Your annual assessment is calculated at a rate of $0.0030 per dollar of your fund balance as of the date of your last examination, except that: ]

Figure: 7 TAC §26.1(b)(3)

[(A) If your calculated annual assessment is less than $115, your annual assessment will be $115; or]

[(B) If your calculated annual assessment is more than $6,400, your annual assessment will be $6,400.]

(4) If you are a new certificate holder and have not yet filed your first annual statement of funds report required by Section 712.041 of the Act, you must pay an examination fee of $600 per day for each examiner and all associated travel expenses. Your subsequent annual assessments will be calculated in accordance with paragraph (3) of this subsection.

(c) - (f) (No change.)

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 17, 2007.

TRD-200703702

Sarah J. Shirley

General Counsel

Texas Department of Banking

Proposed date of adoption: October 19, 2007

For further information, please call: (512) 475-1300

Chapter 80. MORTGAGE BROKER AND LOAN OFFICER LICENSING

The Finance Commission of Texas ("Finance Commission") proposes to amend the following sections of 7 TAC Chapter 80, Mortgage Broker and Loan Officer Licensing: 7 TAC §80.1 Scope; 7 TAC §80.2 Definitions; 7 TAC §80.3 Licensing--General; 7 TAC §80.4 Qualifications for Obtaining Licenses; 7 TAC §80.5 Renewals; 7 TAC §80.6 Sponsorship and Termination Thereof; 7 TAC §80.7 Background Checks; 7 TAC §80.12 Display of License Certificates, Changes of Address; 7 TAC §80.13 Books and Records; 7 TAC §80.20 Inspections; 7 TAC §80.21 Investigations; 7 TAC §80.23 Annual Reports. These amendments are proposed in order to implement the provisions of HB 2783 and HB 1716 as passed by the 80th Texas Legislature. These bills make substantial modifications to the Mortgage Broker License Act, Finance Code Chapter 156 (the "Act") relating to the licensing and regulation of mortgage brokers. In addition, the amendments are being proposed to update language and to respond to evolving regulatory concerns in combating mortgage fraud and predatory lending. Other sections are being amended to streamline administrative functions to better serve the public and the constituents of the regulated community.

Prior to the enactment of HB 2783, only individuals have been licensed as mortgage brokers. New Finance Code §156.204(b) requires business entities to be licensed in order to act as a mortgage broker. The proposed amendments to §80.1 Scope substitute the term "person" for the term "individual" in several provisions. The term "person" as used in the Code Construction Act expressly includes business entities as well as natural persons. The use of the term "individual" is retained or added in those places where the provision is intended to apply only to a natural person.

The proposal to amend §80.1(6) reflects the changes to exemptions language in Finance Code §156.202 as amended by HB 2783 and HB 1716. Currently, persons who finance property which they own and sell are not required to be licensed. Under Finance Code §156.202 as amended by HB 2783, the exemption will now apply only to owners who make no more than five such loans in any 12-month period. HB 1716 creates an exemption from licensing for exclusive agents of registered financial services companies. The proposed amendments incorporate this new exemption in proposed §80.1(6)(vi).

The proposed amendments to §80.2(1) and (4) reflect the change to the agency name made in the 2005 legislative session from the Savings and Loan Department to Department of Savings and Mortgage Lending. The proposed amendment to the definition of a mortgage loan in §80.2(5) conforms the definition to Finance Code §156.002(10) as amended by HB 2783 by eliminating the word "first." This modification expands the definition of mortgage loans to include all residential mortgage loans regardless of their priority. HB 2783 provides that licensed mortgage brokers will no longer be required to have a separate Chapter 342 license to originate second lien loans with interest greater than 10 percent and designates the Savings and Mortgage Lending Commissioner as the officer responsible for overseeing Chapter 342 loans originated by licensed mortgage brokers. The proposed amendment to the definition of "mortgage banker" in §80.2(7) by adding the word "unconditional" is intended to clarify the definition of direct endorsement authority for HUD-authorized originators. The proposed amendment to the definition of a "physical office" in §80.2(9) is intended to more clearly describe the manner of posting business hours for offices which may be located in shared facilities, such as an executive office suite arrangement, or when a mortgage broker operates out of his or her residence. The amendment further requires that a licensee provide on-site staff during all posted hours of business. These amendments are intended to insure that consumers know when the mortgage originator is open for walk-in traffic and that assistance will be available during those hours. The proposed amendments to the definition of criminal offense in §80.2(13) reflect the current definition that the Department of Savings and Mortgage Lending considers criminal offenses related to the business of a mortgage broker. The Commissioner believes that non-financial related offenses, such as drug dealing and crimes involving weapons pose danger to the public at large and to consumers in particular. Further, the Commissioner believes that a pattern of misdemeanor convictions may evidence such disregard for authority as to cause concern that the person would be more likely to disregard laws regulating mortgage lending, therefore placing consumers at risk. The proposed amendments simply formalize the approach the Commissioner and Department have taken in dealing with these types of offenses.

The proposed amendments to §80.3(a) eliminate the language that only individuals may be licensed, consistent with the new statutory provisions for entity licensing. Additionally, the proposed amendments clarify the application procedure and more accurately reflect current processes. The proposed amendments to §80.3(b) for provisional licenses reflect changes mandated by new Finance Code §156.2011 relating to provisional licensing for those persons with recent experience as loan officers with exempt entities. The intent is to provide an expedited license process for these persons as they move from exempt entities to a licensed activity. The proposed amendments to §80.3 add a new subsection (c) which brings together in one subsection the provisions on license application fees and how they are established.

The proposed amendments to §80.4 conform the rule to the amended language in Finance Code §156.202 as amended by HB 2783. The proposed amendment also clarifies the requirements for acceptable surety bonds which may be used in lieu of the mortgage broker net worth requirements. New subsection (c) provides for entity licensing as required by HB 2783. The statutory change did not specifically address whether the entity must independently meet the financial requirements of a mortgage broker. The proposed amendment provides that an entity will be deemed to satisfy the net worth requirement so long as the mortgage broker serving as the designated representative meets the requirement.

The proposed amendments to §80.5 update and correct internal statutory citations, and update and clarify the procedures for license renewals. The proposed amendments also update the grounds for denying a renewal to conform to the statutory provisions found in amended Finance Code §156.208. Proposed §80.5(b)(3) provides that a person may be denied for engaging in conduct which reflects a lack of trustworthiness, integrity, or honesty. The Department considers this to be consistent with the amended statutory language which provides for denial of a license if the licensee has engaged in activity which would have been grounds for denial of an original license. For example, if a person is found civilly liable for damages arising from non-mortgage related fraudulent business practices, the Department would consider that to reflect on the individual's trustworthiness or integrity, and it would be grounds for denial of an original license. Therefore, if the act is committed by a current licensee, the act should be considered as grounds for denial of the renewal. The proposed amendments to §80.5(c) remove outdated language and provide for the option of establishing staggered license renewal dates for entity licenses.

The proposed amendments to §80.6 update the names of currently used forms. The amendments provide that loan officers may be sponsored by either the licensed entity or by an individual mortgage broker. This option provides flexibility to the newly licensed entities as to how loan officers may be sponsored, and is considered especially favorable to providing flexibility to small business operations.

The proposed amendments to §80.7 provide that the process for criminal background checks for exclusive agents of registered financial services companies will be that used for licensees. This amendment is proposed to implement the provisions of HB 1716. The proposal also updates existing language to incorporate the use of fingerprint scans in addition to cards and reflects the Department's use of this new technology.

The proposed amendments to §80.12 are intended to eliminate the need for the issuance of a paper license. As proposed, license verification certificates will be provided online and may be downloaded and printed for display. In addition, the proposed amendments update §80.12 to conform to amendments to Finance Code §156.211 which provide for notice to the Department and payment of fees for name changes, address changes, and notice of use of assumed names.

The proposed amendment to §80.13(1)(A) adds a new provision to require that licensees retain a copy of the notice to be given to applicants under Finance Code §343.105. This new statutory provision requires a notice to be signed by mortgage applicants advising them of the possible criminal consequences of making a misrepresentation in connection with a loan application. It is part of the 80th Texas Legislature's mortgage fraud prevention initiative in HB 716 authored by Representative Solomons.

The proposed amendments to §80.20 provide that advance notice of an inspection of a licensee need not be given when the Department believes the advance notice would compromise the inspection by providing an opportunity for a licensee to purge files or otherwise obstruct the examination of records. This is of particular concern when the Department has reason to suspect that the licensee is engaged in mortgage fraud. The amendment also provides that e-mail may be used when advance notice is given. This reflects the broad current use of e-mail as a primary means of communication for many persons.

The proposed amendments to §80.21 are intended as implementation provisions for entity licensing. The language is modeled on similar provisions found in the regulations of real estate licenses subject to jurisdiction of the Texas Real Estate Commission. The language provides that the designated representative of a licensed entity is individually responsible for the acts of loan officers acting on behalf of the entity.

The proposed amendments to §80.23 establish by rule a fixed annual date for the filing of annual reports. Traditionally, the Commissioner has announced the date on an annual basis as the last business day of February. This proposal eliminates the need for the Commissioner to establish the date each year, and it provides greater direction to the regulated community.

The Act establishes a Mortgage Broker Advisory Committee to advise the Commissioner and the Finance Commission on the promulgation of forms and regulations and the implementation of the Act. The advisory committee met on July 18, 2007, and discussed the proposed amendments. The amendments as presented to the Finance Commission were recommended for publication by a unanimous vote of the advisory committee.

Danny Payne, Commissioner of the Department of Savings and Mortgage Lending, has determined that for the first five-year period the proposed amended sections, as proposed, will be in effect, there will be no fiscal implications for state and local government as a result of enforcing or administering these sections, and they will add equal amounts of revenue and costs to the Department.

Mr. Payne estimates that for the first-five year period the proposed amended sections are in effect, the public will benefit by strengthening the qualifications required to obtain a license; subjecting business entities to heightened accountability; and enhancing the Department's ability to inspect mortgage brokers. This will further the ability of the Department to detect and enforce violations of the Act, and provide improved consumer protection. No difference will exist between the cost of compliance for small business and the cost of compliance for the largest business affected by the amended sections.

Comments on the proposed amendments may be submitted in writing to Danny Payne, Commissioner, Texas Savings and Mortgage Lending Department, 2601 North Lamar, Suite 201, Austin, Texas 78705-4294 or e-mailed to smlinfo@sml.state.tx.us, no later than 30 days from the date these proposed rules are published in the Texas Register.

Subchapter A. LICENSING

7 TAC §§80.1 - 80.7

The amended sections are proposed 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 Finance Code , §156.102(a) and (b), which authorize the Commissioner of the Texas Savings and Mortgage Lending Department, subject to review and compliance with the directives of the Finance Commission, to adopt and enforce rules necessary for the intent of or to ensure compliance with the Act.

The section of the Act affected by the proposed amendments 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 proposed amendments relate to the following sections of the Finance Code : §156.002; 156.2011; 156.202; 156.204; 156.208; 156.211; 156.214; 343.103; and 343.105.

§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 a person [ an individual ] who receives an application from a prospective borrower to attempt to obtain a Mortgage Loan. A person [ An individual ] is a "Mortgage Broker" even if the person [ 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) A person [ An individual ] is required to be licensed under the Act if:

(A) The person [ 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) an [ 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 individual who is an exclusive agent of a registered financial services company under a written agreement prohibiting the individual from soliciting, processing, negotiating, or placing a mortgage loan with a person other than the registered financial services company or an affiliate of that company.

(vii) [ (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 persons [ 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 in any 12-consecutive-month period makes no more than five [ makes a ] Mortgage Loans [ Loan ] to purchasers [ a purchaser ] of the real property for all or a part of the purchase price of that same real property; or [ 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.

§80.2.Definitions.

As used in this Chapter, the following terms have the meanings indicated:

(1) "Commissioner" means the Commissioner of the Department of Savings and Mortgage Lending [ Savings and Loan Commissioner of the State of Texas ].

(2) "Commissioner's designee" means an employee of the Department performing his or her assigned duties or such other person as the Commissioner may designate in writing. A Commissioner's designee is deemed to be the Commissioner's authorized "personnel or representative" as such term is used in the Act.

(3) "Commission" means the Finance Commission of the State of Texas.

(4) "Department" means the Department of Savings and Mortgage Lending [ Texas Savings and Loan Department ].

(5) "Mortgage Loan" means any indebtedness secured by a [ first ] lien against, or security interest in, one-to-four family residential real property when the property is intended to be occupied for residential purposes whether or not the property is acquired for investment purposes or acquired for owner occupancy. It includes new loans and renewals, extensions, modifications, and rearrangements of such loans. The term does not include a loan which is secured by a structure that is suitable for occupancy as a one-to-four [ one to four ] family residence, but is used for a commercial purpose such as a professional office, beauty salon, or other non-residential [ nonresidential ] use, and is not used as a residence.

(6) "One-to-four family residential real property" means improved or unimproved real property, or any portion of or interest in any such real property, on which a one-to-four family dwelling, including a manufactured home, is, is being or is to be constructed or situated.

(7) "Mortgage Banker" means a person who is:

(A) approved or authorized by the United States Department of Housing and Urban Development as a mortgagee, for Mortgage Loans as defined in this Chapter, with unconditional direct endorsement underwriting authority;

(B) an approved seller or servicer under the Federal National Mortgage Association;

(C) an approved seller or servicer under the Federal Home Loan Mortgage Corporation; or

(D) an approved issuer for the Government National Mortgage Association.

(8) "Mortgage Applicant" means any person who is solicited to use or uses a Mortgage Broker, directly or through a Mortgage Broker's Loan Officer, to obtain a Mortgage Loan.

(9) "Physical Office" means an actual office where the business of mortgage lending and/or the business of taking or soliciting Mortgage Loan applications is conducted. It must have a street address. A post office box or other similar designation will not suffice. It must be accessible to the general public as a place of business and must hold itself open on a regular basis during posted hours. The posted hours of business must be posted in a manner to give effective notice to walk-up traffic as to the hours of opening and closing. Normally this will require posting of the hours on an exterior door or window of the office. In those instances where the physical office is in a shared office suite or building, the hours may be posted in a common lobby or reception area. During the hours in which the physical office is open, at least one staff member must be present to assist customers. The physical office of a Mortgage Broker or a Loan Officer need not be the location at which such person's required records are maintained, but the location at which such required records are maintained must be accessible to the Commissioner or the Commissioner's designee for inspection during normal business hours.

(10) "Branch office" means any location at which a Mortgage Broker, acting directly or through one or more Loan Officers, solicits or receives applications for Mortgage Loans. A branch office includes any location at which a Mortgage Broker (or a Loan Officer acting on behalf of a Mortgage Officer) owns, leases, operates, maintains, or staffs a computer or other similar electronic device by means of which a consumer may make application for a Mortgage Loan.

(11) "Employee" means, with respect to an individual working for a business entity, any individual whom the business entity has elected to treat as an employee for federal income tax and FICA withholding purposes.

(12) "Recovery Fund" means the Mortgage Broker Recovery Fund established and administered in accordance with Subchapter F of the Act.

(13) "Criminal Offense" means any violation of any state or federal criminal statute which:

(A) involves theft, misappropriation, or misapplication, of monies or goods in any amount;

(B) involves the falsification of records, perjury, or other similar criminal offenses indicating dishonesty;

(C) involves the taking of bribes, kickbacks, or other illegal compensation;

(D) involves deceiving the public by means of swindling, false advertising or the like;

(E) involves acts of moral turpitude and violation of duties owed to the public including, but not limited to, the unlawful manufacture, distribution, or trafficking in a controlled substance, dangerous drug, or marijuana;

(F) involves acts of violence or use of a deadly weapon;

(G) when considered in connection with several other violations committed by the same person over a period of time forms part of a pattern showing a lack of respect for, disregard for, or, apparent inability to follow, the criminal law; or

(H) [ (E) ] involves any other crime which the Commissioner determines has a reasonable relationship to whether a person is fit to serve as a Mortgage Broker or Loan Officer in a manner consistent with the purposes of the Act and the best interest of the State of Texas and its residents.

§80.3.Licensing--general.

(a) Applications for a Mortgage Broker License or Loan Officer license must be submitted on the current application forms promulgated by the Commissioner from time to time. Current application forms will be made available on the Department's website in a format which can be downloaded and printed. An application, notice, or any other filing with the Department will only be deemed submitted if it is complete. A filing is complete only if all required supporting documentation is included and only if all required fees have been received by the Department. If an applicant fails to provide to the Department any information or supplemental documentation within 30 days from the date of request, the application may be deemed withdrawn. Except as otherwise specifically provided in these rules, a Mortgage Broker license or Loan Officer license shall be valid for a period of two years from the date of issuance. [ Only individuals may apply for and obtain Mortgage Broker or Loan Officer licenses. Entities other than individuals may not be licensed under the Act and this Chapter. All applications for Mortgage Broker or Loan Officer licenses are to be submitted on the current version(s) of forms promulgated by the Commissioner, including the forms for attachments. No application or notice required under the Act or these regulations is deemed to be submitted until the required fee has been received by the Department. Such fees are not refundable. A license issued pursuant to the Act is valid for a period of two years or, in the instance of a provisional or probationary license, such shorter period as the Commissioner may specify. The Commissioner's schedule of fees is Appendix A to this Chapter. If an application is submitted and the Commissioner or the Commissioner's designee requests additional, clarifying, or supplemental information, failure to provide such requested information within thirty days may result in the application being returned and deemed withdrawn. ]

(b) Provisional Licenses

(1) If the Commissioner determines that the completion of an application for a license required by the Act will be delayed significantly due to the need for additional information to render the application complete and the Commissioner has determined that there is no reason to believe, based on the facts and circumstances known, that the application will be denied, the Commissioner may, in his or her sole discretion, issue a provisional license. A provisional license issued under this paragraph :

(A) may contain such limitations and restrictions as the Commissioner determines are reasonably necessary or appropriate to further the purposes of the Act;

(B) is subject to revocation for any of the grounds set forth in § [ Section ] 156.303 of the Act; and

(C) is subject to revocation if the Commissioner determines that any facts or circumstances exist which would have constituted grounds for denial of the application.

(2) If an applicant for a loan officer license has been employed as a loan officer for at least 18 months of the 20 months immediately preceding the date of the application by a person exempt from the Act under §156.202, the applicant may be granted a 90 day provisional license as provided in this subdivision:

(A) The applicant must meet the qualifications for a loan officer license, other than the educational and examination requirements.

(B) The applicant must pay a non-refundable $100 expedited processing fee in addition to the fee for regular license.

(C) No extension of the provisional license will be granted. Unless the applicant has met all of the requirements for a regular license, including the educational and testing requirements, and the license has been issued, the provisional license will expire at the end of the 90 day period.

(D) The Commissioner shall use best efforts to issue the provisional loan officer license on or before the later of:

(i) the 10th business day after the date of receipt of a completed application; or

(ii) the second business day after the date of receipt of the criminal background information required under §156.206 of the Act, demonstrating that the applicant has no pending criminal charges and has not been convicted of a criminal offense. A person is considered convicted as provided by §156.204(d) of the Act.

(E) The Commissioner may revoke a provisional loan officer license if the Commissioner discovers that the applicant has made a misrepresentation relating to the applicant's qualifications for a loan officer license, has violated this chapter, or does not meet the qualifications for a provisional loan officer license. The revocation of a provisional loan officer license is not subject to appeal.

(3) [ (2) ] The holder of a provisional license shall be required, while operating under such provisional license, to comply with all requirements of the Act as if he or she were the holder of a license, including, but not limited to, display of his or her provisional license.

(c) The fees for the application or for the renewal of a mortgage broker license or loan officer license shall be established by the Commissioner. The amount of the fees may be modified upon not less than 30 days advance notice posted on the Department's website. Fees are nonrefundable and nontransferable.

§80.4.Qualifications for obtaining licenses.

(a) Individual Mortgage Broker Licenses. In order to be issued a license as a Mortgage Broker, an individual applicant, [ the applicant ] must establish to the satisfaction of the Commissioner that:

(1) the applicant is an individual of at least 18 years of age;

(2) the applicant is either a United States citizen or a lawfully admitted alien;

(3) the applicant maintains a Physical Office in the State of Texas and has designated that office in his or her application;

(4) the applicant either:

(A) has received a bachelor's degree in an area relating to finance, banking, or business administration from an accredited college or university AND has 18 months or more of actual experience in the mortgage lending field as evidenced by documentary proof of full-time employment for the required period as a licensed mortgage broker or licensed loan officer or with a person exempt under §156.202 of the Act;

(B) is currently licensed in the State of Texas as:

(i) an active real estate broker;

(ii) an active attorney; or

(iii) a local recording agent or insurance agent for a legal reserve life insurance company under Chapter 21 of the Insurance Code (or holds an equivalent license under the Insurance Code or its equivalent regulations as now or hereafter promulgated); or

(C) has three years or more experience in the mortgage lending field as evidenced by documentary proof of full-time employment for the required period as a loan officer or with a person exempt under § [ Section ] 156.202 of the Act;

(5) the applicant either has net assets of $25,000 or more (which must be maintained while the license is in effect) or the applicant has provided to the Commissioner a surety bond in an amount of not less than $50,000 issued by a surety company authorized to do business in the State of Texas by the Texas Department of Insurance. The bond shall be issued for the full term of the license and may not be cancelled for any reason during the term of the license. The surety bond shall be for the benefit of the Commissioner and any consumer aggrieved by the actions of a licensee. The bond shall be issued on a form approved by the Department. [ has provided an acceptable surety bond in an amount of not less than $50,000 (an acceptable bond being a bond issued by a surety licensed by the Texas Department of Insurance and issued on a form approved by the Texas Department of Insurance for that purpose); ]

(6) the applicant has not been convicted of any Criminal Offense as defined in paragraph (13) of §80.2 (relating to Definitions) of this Chapter or, if the applicant has been convicted of any such Criminal Offense, the applicant has been found by the Commissioner, in accordance with § [ Section ] 53.023, Occupations Code, to be fit to be licensed as a Mortgage Broker;

(7) the applicant has passed an examination approved by the Finance Commission that demonstrates knowledge of the mortgage industry and the role and responsibilities of a mortgage broker;

(8) the applicant is of good moral character, including honesty, trustworthiness, and integrity; [ and ]

(9) the applicant is not in violation of the Mortgage Broker License Act, a rule adopted under this Chapter or any order previously issued to the applicant by the Commissioner; and

(10) provide the Commissioner with satisfactory evidence that:

(A) if the person has not been previously licensed as a mortgage broker or a loan officer under this subchapter, the person has completed 90 classroom hours of education courses approved by the Commissioner under this section; or

(B) if the person has not been previously licensed as a mortgage broker under this subchapter but has been licensed as a loan officer under this subchapter, the person has successfully completed an additional 30 classroom hours of education courses approved by the Commissioner under this section.

(b) Loan Officer Licenses. In order to be issued a license as a Loan Officer, an applicant must establish to the satisfaction of the Commissioner that:

(1) the applicant is an individual of at least 18 years of age;

(2) the applicant is either a United States citizen or a lawfully admitted alien;

(3) the applicant is sponsored by a licensed Mortgage Broker, as evidenced by an appropriately completed Loan Officer Sponsor Certification form;

(4) the applicant has either:

(A) successfully completed at least 60 [ 15 ] hours of education courses approved by the Commissioner; or

(B) successfully completed 30 hours of education courses approved by the Commissioner if the applicant:

(i) has 18 months or more of experience as a mortgage loan officer as evidenced by documentary proof of full-time employment as a mortgage loan officer with a person exempt under §156.202 of the Act; or

(ii) is a person who meets the qualifications of §80.4(a)(4)(B).

[ (B) the applicant has 18 months or more of experience as a mortgage loan officer as evidenced by documentary proof of full-time employment as such with a mortgage broker or a person exempt under Section 156.202 of the Act; or]

[ (C) the applicant is otherwise qualified to be a Mortgage Broker;]

(5) the applicant has not been convicted of any Criminal Offense as defined in paragraph (13) of § [ ( ]80.2 of this Chapter (relating to Definitions) or, if the applicant has been convicted of any such Criminal Offense, the applicant has been found by the Commissioner, in accordance with § [ Section ] 53.023, Occupations Code, to be fit to be licensed as a Loan Officer;

(6) the applicant has passed an examination approved by the Finance Commission that demonstrates knowledge of the mortgage industry and the role and responsibilities of mortgage brokers;

(7) the applicant is of good moral character, including honesty, trustworthiness, and integrity; and

(8) the applicant is not in violation of the Mortgage Broker License Act, a rule adopted under this Chapter or any order previously issued to the applicant by the Commissioner.

(c) Entity Mortgage Broker Licenses. A corporation, limited liability company, or limited partnership may not act as a mortgage broker unless the entity obtains a mortgage broker license. To be eligible to obtain a mortgage broker license the entity must:

(1) designate an individual licensed as a mortgage broker as its designated representative. The designated representative must be:

(A) an officer of the corporation if the entity is a corporation;

(B) a manager of the limited liability company if the entity is a limited liability company; or

(C) if the entity is a limited partnership:

(i) an individual who is a general partner;

(ii) an officer of a general partner that is a corporation; or

(iii) a manager of a general partner that is a limited liability company.

(2) demonstrate to the satisfaction of the Commissioner that the applicant meets the minimum net worth requirements for a mortgage broker or prove to the Commissioner a surety bond in an amount not less than $50,000 as provided in subsection (a)(5) of this section. In the alternative, the Commissioner will accept evidence that mortgage broker who is the designated representative meets the minimum net worth requirements for a mortgage broker.

(d) Designated representative. A mortgage broker may not act as a designated representative at any time while the broker's license is inactive, expired, suspended or revoked.

(e) [ (c) ] Additional Information. The Commissioner may require such additional, clarifying, or supplemental information from any applicant for the issuance or renewal of any license pursuant to the Act as is deemed necessary or advisable to determine that the requirements of the Act have been met.

§80.5.Renewals.

(a) A license may be renewed upon:

(1) submission of a completed application for renewal on the prescribed form (together with any requested additional, clarifying, or supplemental information) together with the payment of the applicable renewal application fee; [ and ]

(2) providing the Commissioner with satisfactory evidence of compliance with the applicable educational requirements or licensing requirements specified in Finance Code §156.208; and [ §156.204 of the Act and §80.4 of this Chapter (relating to Qualifications for Obtaining Licenses). ]

(3) with respect to mortgage broker license renewals, the mortgage broker:

(A) provides the Commissioner with satisfactory evidence that the license holder meets minimum net assets requirements contained in Finance Code §156.205; or

(B) submits to the Commissioner a surety bond issued by a surety authorized to do business in the State of Texas by the Texas Department of Insurance in an amount of not less than $50,000. The bond shall be issued for the full term of the license and may not be cancelled for any reason during the term of the license. The surety bond shall be for the benefit of the Commissioner and any consumer aggrieved by the actions of a licensee. The bond shall be issued on a form approved by the Department of Savings and Mortgage Lending.

(b) A renewal of a license may be denied if: [ not be renewed if the license holder has been convicted of a Criminal Offense, as defined in paragraph (13) of §80.2 of this Chapter (relating to Definitions) unless the Commissioner finds, pursuant to §4(c) of Article 6252-13c of the Texas Civil Statutes, to be fit to be licensed as a Mortgage Broker or Loan Officer. ]

(1) the license holder has been convicted of a criminal offense the Commissioner determines is directly related to the occupation of a mortgage broker or loan officer as provided by Chapter 53 of the Occupations Code;

(2) the license holder is in violation of the Act, this Chapter, or an order of the Commissioner;

(3) the license holder has engaged in conduct evidencing the licensee's lack of good moral character, including the licensee's honesty, trustworthiness, or integrity; or

(4) any other ground provided by statute or this Chapter.

(c) THIS SUBSECTION APPLIES ONLY TO ENTITY LICENSES ISSUED UNDER §80.4 (c) THAT EXPIRE DURING THE PERIOD OF DECEMBER 1, 2009 THROUGH MARCH 31, 2010. [ THIS SUBSECTION (c) APPLIES ONLY TO LICENSES THAT EXPIRE IN THE PERIOD OF DECEMBER 1, 2001, THROUGH MARCH 31, 2002. Mortgage Broker and Loan Officer licenses that expire during the period of December 1, 2001, and March 31, 2002, will not be issued for the usual two-year period. ] Pursuant to §156.208(f) of the Act, these licenses will be assigned a different expiration date in order to spread more evenly license renewals throughout the year. The initial renewal for an entity mortgage broker license to which this subsection applies will be for a term which expires on the expiration date of the license of the mortgage broker who is the designated representative of the entity on the date of renewal. For instance, if the entity license expires on December 15, 2009, and the license of the designated representative expires on May 15, 2010, the initial renewal license shall be for a period beginning on the renewal date and expiring on May 15, 2010. If the license of the designated representative expires during the period covered in this subsection, the licenses may be renewed simultaneously and the renewal will be for a full two-year term. The renewal fee for a renewal term of less than two years shall be prorated by multiplying the renewal fee times a fraction the numerator of which shall be the number of months during the renewal term (rounded to the next highest number of months with respect to a partial month), and the denominator shall be 24. If the prorated amount calculated in this subsection is other than a whole dollar amount, the renewal fee shall be rounded to the closest whole dollar. [ The adjusted expiration date on these licenses will be determined by the last two digits of the license number. Licenses will expire on the same day of the month as the current license, or if a change in the month of expiration makes this impossible, the next preceding day. The last digit will determine the month in which the license expires, 1 corresponding to January, 2 corresponding to February, and so on. The next to last digit of the license number will determine the year in which the license will expire. If the next to last digit is an even number, the license will expire in an even numbered year (2002, 2004, etc.). If the next to last digit is an odd number, the license will expire in an odd numbered year (2003, 2005, etc.). For licenses renewing after the effective date of this system, the term of the initial renewal may, depending on the last two digits of the license number, be for a period of not less than nine months but not more than thirty months. License renewal fees and continuing education requirements will be prorated on a monthly basis so that each license holder pays only that portion of the license fee that is allocable to the number of months during which the license is valid. For example, if license number 1234 expires on December 27, 2001, it will be issued with an expiration date of April 27, 2003. Once a license has been renewed so that it will expire at a date determined by the license number, subsequent renewals will be for a two-year period. Nothing herein will limit the ability of the Commissioner to issue probationary or provisional licenses for terms of less than twenty-four months. ]

§80.6.Sponsorship and termination thereof.

(a) An applicant for a Loan Officer license must be sponsored by a licensed Mortgage Broker. A Loan Officer may not be sponsored by or act for more than one Mortgage Broker at any given time. The Mortgage Broker must acknowledge and accept the responsibilities set forth in the Act, including responsibility for the actions of the Loan Officer, by executing and providing to the Commissioner a Loan Officer Sponsor Certification form [ an Acknowledgment of Sponsoring Broker form ].

(b) If a Loan Officer's license is approved, it will be issued to and must be held by the Sponsoring Mortgage Broker and displayed at the office of the sponsoring Mortgage Broker as specified on the Mortgage Broker's license.

(c) If sponsorship of a Loan Officer terminates, the sponsoring Mortgage Broker and the Loan Officer shall immediately notify the Commissioner, and the sponsoring Mortgage Broker shall return the Loan Officer's license to the Commissioner or the Commissioner's Designee, whereupon that license will become inactive. Sponsorship of a Loan Officer remains in effect until the Commissioner has been notified in writing of the termination of sponsorship [ AND the Loan Officer's license is received by the Commissioner or the Commissioner's Designee ]. Prior to its scheduled expiration, an inactive Loan Officer's license may be reactivated upon designation of a new sponsoring Mortgage Broker, as evidenced by execution and providing to the Commissioner of a Loan Officer Sponsor Certification form [ an Acknowledgement of Sponsoring Broker form ].

(d) Loan officers affiliated with an entity which is licensed as a mortgage broker may be sponsored by the entity or an individual mortgage broker which is affiliated with and does business solely on behalf of the entity.

§80.7.Background checks.

(a) In connection with each application for the issuance of a license to an individual under the Act, the Commissioner shall initiate a background check by obtaining a criminal history on the applicant from the Federal Bureau of Investigation and Department of Public Safety and shall require a fingerprint card or scan and authorization for such additional background checks as the Commissioner may deem necessary or advisable.

(b) The Commissioner shall keep confidential any criminal background information obtained under this subsection and § [ subsection ] 156.206 of the Act and may not release or disclose the information unless:

(1) the information is a public record at the time the Commissioner obtains the information; or

(2) the Commissioner releases the information:

(A) under order from a court;

(B) with the permission of the applicant;

(C) to a person through whom the applicant is conducting or will conduct business; or

(D) to a governmental agency.

(c) Notwithstanding subsection (b) of this section, criminal history record information obtained from the Federal Bureau of Investigation may be released or disclosed only to a governmental entity or as authorized by federal statute, federal rule, or federal executive order.

(d) The provisions of this section shall apply to the background check to be conducted by the Commissioner for exclusive agents of registered financial services companies.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 20, 2007.

TRD-200703754

John Fleming

General Counsel

Texas Department of Savings and Mortgage Lending

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1352

7 TAC §80.12, §80.13

The amended sections are proposed 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 Finance Code , §156.102(a) and (b), which authorize the Commissioner of the Texas Savings and Mortgage Lending Department, subject to review and compliance with the directives of the Finance Commission, to adopt and enforce rules necessary for the intent of or to ensure compliance with the Act.

The section of the Act affected by the proposed amendments 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 proposed amendments relate to the following sections of the Finance Code : §156.002; 156.2011; 156.202; 156.204; 156.208; 156.211; 156.214; 343.103; and 343.105.

§80.12.Display of license Verification; License Record Changes [ certificates; change of address ].

(a) Each application for a license under the Act requires the applicant to indicate the location(s) at which he or she proposes to conduct the licensed activity. A separate license record is required for each specified location. When issued, each license will indicate the location for which it is issued.

(b) Each required license issued pursuant to the Act and this Chapter must be prominently displayed at the location indicated thereon. A Verification of Licensure document will be made available for download and printing on the Department's website. With respect to any such licensed location which is primarily a computer or similar electronic device, if it is not reasonably possible to display any and all required licenses at such location, the person(s) responsible for complying with the requirement for displaying required licenses may comply with such requirement by setting forth the information specified in their license and causing it to be conspicuously displayed on the first computer screen viewed by a prospective Mortgage Applicant after accessing such computer or similar electronic device. If, due to the number of persons required to display such information, more than one screen is required, sequentially accessed screens following the first screen accessed will be deemed to comply with this requirement.

(c) Before the tenth day preceding the effective date of any change in address, a Mortgage Broker shall notify the Commissioner in writing of the proposed new address of that Mortgage Broker or, as applicable, a Loan Officer sponsored by that Mortgage Broker. The request shall be on the form promulgated by the Commissioner and include a $25 processing fee. Prior to conducting business at the new address, the licensee must confirm that the address change has been processed, and must download from the Department's website, print and post the amended Verification of Licensure for each licensee doing business from the new address. [ A new license certificate, reflecting the new address, must be obtained prior to a Mortgage Broker or Loan Officer conducting business at a new address. ]

(d) Before the tenth day following the effective date of any personal name change, a licensee shall notify the Commissioner in writing of the new personal name. The request shall be on the form promulgated by the Commissioner and include supporting documentation as well as a $25 processing fee. Prior to conducting business using the new name, the licensee must confirm that the name change has been processed, and must download from the Department's website, print and post the amended Verification of Licensure for each licensee using the new name.

(e) Before the tenth day preceding the effective date of a new or changed assumed name or DBA, a licensee shall notify the Commissioner in writing of the new name. The request shall be on the form promulgated by the Commissioner and include supporting documentation as well as a $25 processing fee. Prior to conducting business using the new or amended assumed name, the licensee must confirm that the assumed name has been processed, and must download from the Department's website, print and post the amended Verification of Licensure for each licensee using the new or amended assumed name.

§80.13.Books and records.

In order to assure that each licensee will have all records necessary to enable the Commissioner or the Commissioner's designee to investigate complaints and discharge their responsibilities under the Act and this Chapter, each Mortgage Broker and Loan Officer shall maintain records as set forth below. The particular format of records to be maintained is not specified. However, they must be complete, current, legible, readily accessible, and readily sortable. Records maintained for other purposes, such as compliance with other state and federal laws, will be deemed to satisfy these requirements if they include the same information.

(1) Mortgage Application Records. Each Mortgage Broker and each Loan Officer is required to maintain, at the location specified in his or her application, the following books and records:

(A) A Mortgage Loan file for each Mortgage Loan application received; each such file shall contain at least the following:

(i) a copy of the Mortgage Loan application (including any attachments, supplements, or addenda thereto);

(ii) either a copy of the signed closing statement if the Mortgage Loan is closed in the name of the Mortgage Broker or an entity through which the Mortgage Broker is providing mortgage lending services or documentation of the timely denial or other disposition of the application for a Mortgage Loan;

(iii) a copy of the disclosure statement required by the Act and subsection (a) of § [ Section ] 80.9 of this Chapter (relating to Required Disclosures);

(iv) a copy of each item of correspondence, each evidence of any contractual arrangement or understanding (including, but not limited to, any interest rate lock-ins or loan commitments), and all notes and memoranda of conversations or meetings with any Mortgage Applicant or any other party in connection with that Mortgage Loan application or its ultimate disposition.

(v) a copy of the notice to applicants required by Finance Code §343.105.

(B) - (C) (No change.)

(2) - (7) (No change.)

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 20, 2007.

TRD-200703755

John Fleming

General Counsel

Texas Department of Savings and Mortgage Lending

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1352

7 TAC §80.20, §80.21

The amended sections are proposed 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 Finance Code , §156.102(a) and (b), which authorize the Commissioner of the Texas Savings and Mortgage Lending Department, subject to review and compliance with the directives of the Finance Commission, to adopt and enforce rules necessary for the intent of or to ensure compliance with the Act.

The section of the Act affected by the proposed amendments 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 proposed amendments relate to the following sections of the Finance Code : §156.002; 156.2011; 156.202; 156.204; 156.208; 156.211; 156.214; 343.103; and 343.105.

§80.20.Inspections.

(a) The Commissioner, operating through the Department staff and such others as the Commissioner may, from time to time, designate will conduct periodic inspections of mortgage broker and loan officer licensees as the Commissioner deems necessary.

(b) Except when the Department determines that giving advance notice would impair the inspection, the [ The ] Department will give licensees advance notice of each inspection. Such notice will be sent to the licensee's address of record or e-mail address on file with the Department and will specify the date on which the Department's inspectors are scheduled to arrive at the licensee's office. Failure of the licensee to actually receive the notice will not be grounds for delay or postponement of the inspection. The notice will include a list of the documents and records the licensee should have available for the inspector to review.

(c) Inspections will be conducted to determine compliance with the Act and will specifically address whether:

(1) All persons conducting mortgage broker or loan officer activity are properly licensed;

(2) All locations at which such activities are conducted are properly licensed;

(3) All required books and records are being maintained in accordance with [ 7 TAC ] §80.13;

(4) Legal and regulatory requirements applicable to licensees or the licensee's mortgage broker business are being properly followed; and

(5) Such other matters as the Commissioner may deem necessary or advisable to carry out the purposes of the Act

(d) Inspections will be conducted at no additional cost to the licensees.

(e) The inspector will review a sample of Mortgage Loan Files identified by the inspector on the date of inspection and randomly selected from the licensee's Mortgage Transaction Log. The inspector may expand the number of files to be reviewed if, in his or her discretion, conditions warrant.

(f) The inspector may require a licensee, at his or her [ its ] own cost, to make copies of loan files or such other books and records as the inspector deems appropriate for the preparation of or inclusion in the inspection report.

(g) The work papers, compilations, findings, reports, summaries, and other materials, in whatever form, relating to an inspection conducted under this section, shall be maintained as confidential except as required or expressly permitted by law.

(h) Failure of a licensee to cooperate with the inspection or failure to grant the inspector access to books, records, documents, operations, and facilities of the licensee will subject the licensee and any sponsoring broker (if applicable) to enforcement actions by the Commissioner, including, but not limited to, administrative penalties.

(i) Whenever the Department must travel out-of-state to conduct an inspection of a licensee because that licensee maintains required records at a location outside of the state, the licensee will be required to reimburse the Department for the actual cost the Department incurs in connection with such out-of-state travel including, but not limited to, transportation, lodging, meals, employee travel time, telephone and FAX communication, courier service and any other reasonably related costs.

§80.21.Investigations.

(a) The Commissioner may, upon a finding of reasonable cause, investigate a person licensed under the Act to determine whether the person is complying with the Act and these regulations.

(b) The Commissioner may conduct an undercover or covert investigation only if the Commissioner, after due consideration of the circumstances, determines that the investigation is necessary to prevent immediate harm and to carry out [ carryout ] the purposes of the Act.

(c) Reasonable cause will be deemed to exist if the Commissioner has received information from a source he or she has no reason to believe to be other than reliable, including documentary or other evidence or information, indicating facts which a prudent person would deem worthy of investigation as a violation of the Act.

(d) The person who is the designated representative of an entity licensed as a mortgage broker is responsible for all acts and conduct as a mortgage broker performed by or through the business entity. A complaint which names the entity as a mortgage broker as the subject of the complaint but which does not specifically name the designated officer, manager or partner of the business entity, is a complaint against the mortgage broker acting as the designated representative at the time of any alleged violation for the purposes of determining the designated person's involvement in any alleged violation and whether the designated person fulfilled his or her professional responsibilities to the Commissioner and members of the public. A complaint which names a loan officer sponsored by an entity licensed as a mortgage broker but which does not specifically name the designated representative of the entity is a complaint against the mortgage broker who was acting as a designated representative at the time of any alleged violation by the loan officer for the purposes of determining the designated representative's involvement in any alleged violation and whether the designated representative fulfilled his or her professional responsibilities to the Commissioner and members of the public.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 20, 2007.

TRD-200703756

John Fleming

General Counsel

Texas Department of Savings and Mortgage Lending

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1352

7 TAC §80.23

The amended sections are proposed 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 Finance Code , §156.102(a) and (b), which authorize the Commissioner of the Texas Savings and Mortgage Lending Department, subject to review and compliance with the directives of the Finance Commission, to adopt and enforce rules necessary for the intent of or to ensure compliance with the Act.

The section of the Act affected by the proposed amendments 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 proposed amendments relate to the following sections of the Finance Code : §156.002; 156.2011; 156.202; 156.204; 156.208; 156.211; 156.214; 343.103; and 343.105.

§80.23.Annual Reports.

(a) A mortgage broker shall file an annual report containing such information regarding the mortgage broker activity of the licensee and each sponsored loan officer as the Commissioner may require. The annual report shall be submitted on a form promulgated by the Commissioner. The annual report must be filed before March 1 of each year and shall cover the mortgage broker activities for the calendar year immediately preceding the year in which the report is due. [ The Commissioner shall, not more frequently than once during each fiscal year, require each licensed mortgage broker to file an annual report. The Commissioner shall specify the information that each mortgage broker shall provide regarding the mortgage brokerage activity of the licensee and each licensed loan officer under his or her sponsorship. ]

(b) The Commissioner shall prepare and make public a report summarizing the annual reports provided by the licensees but shall treat each individual report and the information contained therein as confidential because of the proprietary and confidential information regarding the business activity of the licensees set forth therein.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 20, 2007.

TRD-200703757

John Fleming

General Counsel

Texas Department of Savings and Mortgage Lending

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1352

7 TAC §80.14

The Finance Commission of Texas ("Finance Commission") proposes to amend 7 TAC §80.14, Approval of Courses. The amendments are proposed in order to implement the provisions of HB 2783 as passed by the 80th Texas Legislature. In addition, the amendments are being proposed to incorporate into rule the Department of Savings and Mortgage Lending's existing standards for approving educational courses which may be used to satisfy the initial educational requirements for the licensing of mortgage brokers and loan officers and for satisfying the continuing education requirements of the Mortgage Broker License Act, Finance Code Chapter 156 (the "Act").

The proposed amendments to §80.14(a) expand the narrative as to the purpose and goals of the educational program, which are to promote and further the purposes of the Act; ensures that applicants and licensees receive the minimal knowledge needed to acquire their licenses and operate in compliance with federal and state laws in conducting mortgage-lending activities; and to provide review and oversight of courses available to mortgage broker and loan officer applicants and licensees.

Existing §80.14(b) is deleted and new §80.14(j) incorporates and expands upon the deleted language. Existing §80.14(c), (d), and (e) are moved to a later place in the rule and are lettered appropriately.

The new provisions proposed in new §80.14(b) incorporate standards for course delivery methods and course content. Appropriate distinctions are made for classroom instruction and online instruction. Particular attention has been devoted to the development and delivery of on-line courses. On-line courses present particular challenges such as how to verify that course content is sufficient for the credit hours sought and how to verify that the applicant or licensee actually completes the course material. The proposed standards address these issues by requiring an interactive component which requires the student to successfully answer questions at specified intervals throughout the course and by requiring that on-line courses have the ability to verify the identity of the student. In order to promote quality content, courses offered by correspondence are required to have a proctored final exam. This helps insure that the student has studied and completed the course material. Proposed §80.14(b) also includes standards for approval of course instructors and standards for seminar courses.

Amended Finance Code §156.214 permits the Department to assess a fee for course approval, and this change is addressed in proposed §80.14(j). The Department may assess up to $200 per course.

Proposed §80.14(c) and (d) establish a classification system for courses as core, ethics, and continuing education. Criteria for determining course content for each class are established. The requirements for core courses and ethics courses are proposed consistent with the requirements of Finance Code §156.204, which sets forth minimum educational requirements for mortgage brokers and loan officers.

Proposed §80.14(e) - (q) formalize by rule the existing procedures the Department uses for course and instructor approvals. One important element is found in subsection (h) which requires periodic review and evaluation of approved course offerings. The Department believes that meaningful student feedback is an important component of monitoring the effectiveness of the educational component.

The Act establishes a Mortgage Broker Advisory Committee to advise the Commissioner and the Finance Commission on the promulgation of forms and regulations and the implementation of the Act. The advisory committee met on July 18, 2007, and discussed the proposed amendments. The amendments as presented to the Finance Commission were recommended for publication by a unanimous vote of the advisory committee.

Danny Payne, Commissioner of the Department of Savings and Mortgage Lending, has determined that for the first five-year period the amended section, as proposed, will be in effect, there will be no fiscal implications for state and local government as a result of enforcing or administering this section, and it will add equal amounts of revenue and costs to the Department.

Mr. Payne estimates that for the first five years the amended section is in effect, the public will benefit by having comprehensive educational standards to enhance the quality of both pre-licensing and post-licensing education for mortgage brokers and loan officers. The industry and educational providers will benefit by having more concrete and more readily accessible standards by which to develop and deliver courses. No difference will exist between the cost of compliance for small business and the cost of compliance for the largest business affected by the amendments.

Comments on proposed amendments may be submitted in writing to Danny Payne, Commissioner, Texas Savings and Mortgage Lending Department, 2601 North Lamar, Suite 201, Austin, Texas 78705-4294, or e-mailed to smlinfo@sml.state.tx.us, no later than 30 days from the date that these proposed rules are published in the Texas Register .

The amended section is proposed 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 Finance Code , §156.102(a) and (b), which authorize the Commissioner of the Texas Department of Savings and Mortgage Lending, subject to review and compliance with the directives of the Finance Commission, to adopt and enforce rules necessary for the intent of or to ensure compliance with the Act.

The section of the Act affected by the proposed 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 proposed amendment relates to the following sections of the Finance Code: §§156.204; 156.208; and 156.214.

§80.14.Approval of Courses.

(a) The Department's education program is established to promote and further the purposes of the Act; ensures that applicants and licensees receive the minimal knowledge needed to acquire their licenses and operate in compliance with federal and state laws in conducting mortgage-lending activities; and provides review and oversight of courses available to mortgage broker and loan officer applicants and licensees. In order to be approved by the Commissioner [ commissioner ], a person or entity providing a course to meet the educational requirements of the Act must establish that the subject matter of such course will specifically promote or further the purposes of the Act. Courses of a general business nature will generally not be approved. Courses directed towards an understanding of mortgage lending processes, markets, and legal requirements are encouraged.

(b) Types of course delivery methods and standards:

(1) Classroom and classroom-equivalent.

(A) Classroom.

(i) A class must consist of at least five students, unless otherwise approved by the Department prior to the start of the class.

(ii) The training site must be easily accessible and secure for the safety of the student, and must comply with all applicable state and federal laws, including, but not limited to, the Americans with Disabilities Act of 1990.

(iii) The instructor must be approved by the Department and be a disinterested third party, i.e., an individual who is not related to a student by blood, adoption, or marriage as a parent, child, grandparent, sibling, niece, nephew, aunt, uncle, or first cousin; and is not an employee or employer of the student.

(iv) No more than a 10 minute break is allowed for every 50 minutes of instruction.

(v) One hour of classroom instruction (including break) equals one credit hour.

(B) Classroom-equivalent.

(i) A class must consist of at least five students, unless otherwise approved by the Department prior to the start of the class.

(ii) In circumstances involving remote presentations, the students and the instructor do not need to be in the same location. In the case of presenting recorded or text materials, the instructor making the live course presentation does not have to be the same instructor included on the recorded presentation or who prepared the text materials.

(iii) A disinterested third party attendant, an instructor, or a disinterested third party using visual observation technology must visually monitor attendance either inside or at all exits to the course presentation area at all times during the course presentation.

(iv) Question and answer and discussion periods must be provided by an instructor making a live presentation of the course to students in the same room or via real-time live audio or audio-visual connection which shall allow for immediate student inquiries and responses with the presenting instructor, or an instructor who is present for the entire remote, recorded, or computer-based course presentation to students in the same room which shall allow for immediate inquiries and responses of students to the instructor.

(v) The course pace is set by the instructor and does not allow for independent completion of the course by students.

(vi) The instructor must be approved by the Department and be a disinterested third party, i.e., an individual who is not related to a student by blood, adoption, or marriage as a parent, child, grandparent, sibling, niece, nephew, aunt, uncle, or first cousin; and is not an employee or employer of the student.

(vii) No more than a 10 minute break is allowed for every 50 minutes of instruction.

(viii) One hour of classroom instruction (including break) equals one credit hour.

(2) Correspondence.

(A) Courses may include textbook, audio, video, computer-based instruction, or any combination of these in an independent study setting designed in such a manner as to insure that the course cannot be completed by the typical enrollee in less time than the period for which the course is certified to the Department.

(B) Provides for a written final examination of at least six questions for each one hour of credit approved (up to a maximum of 100 questions per course) that reasonably evaluates the student's understanding of the course content. At least 70% of the questions must be answered correctly for the student to be awarded a course completion certificate. At least two versions of the final examination must be available with the second examination provided to a student who fails at the first attempt. Anyone not passing the examination after the second attempt must retake the course before being offered a re-examination opportunity.

(C) Multiple choice questions must have at least four appropriate potential responses and for which "all of the above" or "none of the above" is not an appropriate option. No "true/false" questions are acceptable.

(D) Common industry best-practices guidelines will be used in reviewing and approving questions.

(E) A proctored final examination must be administered under controlled conditions to positively identify students at a location and by an official approved by the Department prior to the course material being presented to the students. Proctors must be approved by the Department and be a disinterested third party, that is an individual who is not related to a student by blood, adoption, or marriage as a parent, child, grandparent, sibling, niece, nephew, aunt, uncle, or first cousin; and is not an employee or employer of the student.

(F) A minimum standard of 12,000 words (200 words-per-minute times 60 minutes) equals one credit hour.

(3) Online.

(A) Courses may be internet, CD-ROM, DVD, or other computer-based presentations.

(B) Sessions may not have more than one student at any one presentation of the course.

(C) The course must be designed in such a manner as to insure that the course cannot be completed by the typical enrollee in less time than the period for which the course is certified to the Department.

(D) Each course must have an interactive electronic component that:

(i) Provides for at least four interactive multiple choice (question with four possible answers) inquiry periods during each hour of the course, one of which shall be at the end of the course. Inquiry periods shall occur at regular and relatively evenly-spaced intervals between each period. Inquiry periods shall cover material presented in that section of the course.

(ii) Requires answering 70% of the test questions for each period correctly to demonstrate mastery of the current section, including the final section, before the student is allowed by the program to proceed to the next section or complete the course.

(iii) Identifies all incorrect responses and informs the student of the correct response with an explanation of the correct answer.

(iv) Generates a different set of test questions for the section, which may be repeated as necessary on a random or rotating basis if the student does not achieve the 70% correct response rate necessary to advance to the next section.

(v) Is capable of generating at least two separate sets of test questions for each inquiry period.

(vi) Includes a minimum of six questions for every one hour of instructor credit approved.

(vii) Provides for a method to directly transmit the final course completion results or a printed course completion receipt to the provider for issuance of a completion certificate.

(viii) Has a means to reasonably authenticate the student's identity on an hourly basis, including upon entering, during, and exiting the course.

(4) Seminar. A seminar is a one-time event which must meet the requirements of a classroom course, and is presented at particular events such as conventions and organizational meetings.

[ (b) In order to have an educational course approved by the Commissioner, the person or entity providing the course must provide to the Commissioner a written request for approval, using the prescribed form (together with any required or appropriate supplemental material) and such other information as the Commissioner may reasonably request. ]

(c) The Department classifies all of its approved courses into the following three types:

(1) Core.

(A) Assists in the preparation of an applicant for taking and passing the Texas pre-licensing examination as required by the Act for new mortgage broker and loan officer applicants;

(B) If taken in a classroom or classroom-equivalent setting, meets the educational requirements for new mortgage broker and loan officer applicants; and

(C) Meets the educational requirements for renewing mortgage broker and loan officer licensees.

(2) Ethics.

(A) If taken in a classroom or classroom-equivalent setting, meets the educational requirements for new mortgage broker and loan officer applicants. The total number of hours necessary is determined by the Commissioner with a minimum of two hours required.

(B) Meets the educational requirements for renewing mortgage broker and loan officer licensees.

(3) Continuing education. These courses meet the general educational requirements for renewing mortgage broker and loan officer licensees.

(d) Approved subject matter. Course types are determined based on the material presented in the course.

(1) Core courses must focus on topics covered by the Texas pre-licensing examination, specifically:

(A) Equal Credit Opportunity Act (ECOA) and Regulation B;

(B) Real Estate Settlement Procedures Act (RESPA) and Regulation X;

(C) Truth in Lending Act (TILA) and Regulation Z;

(D) Mortgage Broker License Act (MBLA) and Regulation;

(E) General loan terms, knowledge or market practices;

(F) Application and pre-qualification process;

(G) Role of the mortgage broker and loan officer;

(H) Secondary market or federal loan program terminology;

(I) Texas home equity;

(J) Predatory lending;

(K) Deceptive trade practices; or

(L) General mortgage-related math.

(2) Ethics courses must deal with the usage and customs among members of the mortgage lending industry, involving their moral and professional duties toward clients, lenders, borrowers, and one another. All ethics courses must include a minimum of five discussion questions designed to engage attendees in conversation regarding ethical issues facing them as mortgage lending professionals.

(3) Continuing education courses may include overviews of one or more of the subjects listed under core subject matter, general industry-related information, and other topics relevant to mortgage brokers and loan officers. Courses that may be approved include, but are not limited to:

(A) Loan origination;

(B) Loan processing;

(C) Appraisal process;

(D) Underwriting;

(E) Credit analysis; and

(F) Finance.

(e) To receive approval to issue certificates for continuing education credit for special events and luncheons prior to the event, the sponsor of the activity must provide the Department an outline of the topics discussed and the date(s) of the activity. The Department may also grant continuing education credit on a case-by-case basis to individuals receiving college credit for courses taken in pursuit of degrees. Individuals requesting consideration must provide the Department proof of successfully completing the course and a description and syllabus of the course.

(f) The Department has the discretion of granting credit to those hours that specifically relate to the subject matter. For example, a provider may conduct a 15-hour course, but the Department will grant only four hours of credit for the portion of the class that directly relates to the pertinent subject matter.

[(f) The Mortgage Broker License Act requires that each licensee complete at least fifteen hours of continuing education courses during the term of his or her current license. The Mortgage Broker License Act further requires that at least eight of the fifteen hours relate to residential mortgage lending.]

[(1) Courses which relate to residential mortgage lending and satisfy the eight hour requirement are those courses covering the following subject matters provided that the courses meet the other requirements of the Department's rules:]

[(A) courses related to ethics in origination of residential mortgage loans;]

[(B) courses relating to the state and federal laws governing residential mortgage lending including the Mortgage Broker License Act and the Department's rules, the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. Section 2601 et seq.), the Truth in Lending Act (15 U.S.C. Section 1601 et seq.), the Equal Credit Opportunity Act (15 U.S.C. Section 1691 et seq.), the Texas Constitution, statutes, and official interpretations relating to home equity loans; and]

[(C) courses relating to predatory lending and deceptive trade practices in residential mortgage lending.]

[(2) The remaining seven hours may be satisfied by taking courses which cover any of the following subjects provided that the courses meet the other requirements of the Department's rules: courses that are related to finance, financial consulting, lending, real estate contracts, discrimination laws, or real property conveyances.]

(g) To be approved as an instructor, the instructor must document that he or she has adequate instructional training and subject matter expertise to properly convey the approved course material as approved by the Department. Any change to the status of a course instructor must be provided immediately to the Department. No course may be offered without the prior approval of the instructor.

(h) Once a course is approved and offered to the public, the Department may monitor the course to insure it is being instructed as it was originally presented for approval, and that both the course and the instructor are meeting the needs of the attendees. In order to accomplish this, the Department will conduct random audits and review student evaluations.

(1) The provider shall keep the Department informed regarding scheduling information of a classroom course, i.e., where and when a course will be offered, and permanent access to courses that are presented online via the internet. Any resulting audit will be documented and any negative feedback, regardless of the source, will be discussed with the provider.

(2) The provider shall distribute a Department-developed student evaluation to each attendee or user of the course. The evaluation will ask the student to complete the evaluation and mail or fax it directly to the Department; the provider should not collect forms and submit them to the Department on the students' behalf. The evaluations will be reviewed, and the Department will provide feedback as necessary to the provider. The Department's course evaluation form cannot be submitted by the provider, and providers cannot substitute their own form in place of the Department's form.

(3) The provider must provide to the Department a completed course attendance roster within five business days following the end of a course. The roster must include the name of the course, the course number, the dates the course was offered, and the name, contact information, and pass/fail indication for each attendee.

(i) Periodically the Commissioner will issue information to applicants, licensees, and providers on subjects believed to be relevant and necessary. Providers should remain informed of these notices by periodically reviewing the Department's website (www.sml.state.tx.us).

(j) All requests for review and approval of a course, including instructor(s), must be submitted using the Department's prescribed approval form, with the required processing fee not to exceed $200 per one-time review of the course. An applicable fee schedule shall be available and provided upon request. No fee will be required for courses provided and approved by a duly organized trade association the purpose of which is primarily to represent residential mortgage originators. The provider will be notified in writing of the decision of the Department to approve or deny the course. Resubmission of a reformatted course following a denial constitutes a new submission and must include the applicable fee.

(k) All requests must be mailed or hand-delivered to the Department and, in addition to the applicable fee, must include the following:

(1) Complete course material, textbooks, handouts, or other learning materials;

(2) Complete course instructor manual;

(3) Time course outline by chapter and/or subject matter;

(4) If applicable, tests and/or examinations given to the student during the course, and answers to the questions;

(5) If classroom-equivalent, correspondence or online course, how the course meets standards identified for the specific delivery type described above;

(6) Instructor(s) resume(s); and

(7) Sample of course completion certificate issued to attendee.

(l) [ (c) ] A course is not approved until and unless the Commissioner [ commissioner ] issues written approval.

(m) [ (d) ] It is the responsibility of each person or entity providing any such courses to obtain such other licenses, permits, and approvals as may be required by applicable law. It is the responsibility of the person or entity providing any such courses to take all steps necessary to assure that the instruction and materials reflect current legal and regulatory requirements and that the course materials and presentation conform to the presentation to the Commissioner [ commissioner ] for approval.

(n) [ (e) ] Unless the approval of the Commissioner [ commissioner ] indicates otherwise, approval of a course is valid for two years [ one year ]. Approval of a course may be terminated by the Commissioner [ commissioner ] at any time without need of any prior notice if the Commissioner [ commissioner ] finds that a course is not being conducted in accordance with the purposes of the Act. The provider can submit a request for an extension of the course prior to its expiration using company letterhead if there are no changes to the course as last approved, along with the applicable fee. If there are substantial changes, the provider should resubmit a new request for course review, along with the applicable fee.

(o) The Mortgage Broker License Act requires that each licensee complete at least 15 hours of continuing education courses during the term of his or her current license. The Mortgage Broker License Act further requires that at least eight of the fifteen hours relate to residential mortgage lending, defined as core courses by the Department. The remaining seven hours may be satisfied by taking courses which cover any of the following subjects provided that the courses meet the other requirements of the Department's rules: courses that are related to finance, financial consulting, lending, real estate contracts, discrimination laws, or real property conveyances, which are defined as continuing education courses.

(p) Following the completion of any course, the provider must issue a certificate of completion indicating on the certificate the following details:

(1) Provider name as submitted to the Department;

(2) Course name as submitted to and approved by the Department;

(3) Course number assigned by the Department;

(4) Student's full and legal name;

(5) Hours completed;

(6) Date completed;

(7) Type of course and delivery type; and

(8) Name and signature of course completion verifier in the employ of the provider.

(q) Providers may not advertise that their course has been approved by the Department until they have received written confirmation from the Department of the certification of their course. Providers may advertise submitted courses by indicating the course is pending approval. No credit hours will be accepted for any class attended by an applicant or licensee that was not approved at the time of attendance. In addition, advertisements shall not be misleading as to the course content or requirements for successful completion, and must clearly state whether the provider is offering the course for classroom, classroom-equivalent, correspondence, and/or online delivery, or as a one-time seminar.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 20, 2007.

TRD-200703749

John Fleming

General Counsel

Texas Department of Savings and Mortgage Lending

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 475-1352

Chapter 87. TAX REFUND ANTICIPATION LOANS

Subchapter A. REGISTRATION PROCEDURES

7 TAC §§87.102 - 87.107

The Finance Commission of Texas (commission) proposes new Chapter 87, Subchapter A, §§87.102 - 87.107, concerning Tax Refund Anticipation Loans Registration Procedures.

In general, the purpose of new §§87.102 - 87.107 is to establish registration procedures as required under Texas Finance Code, Chapter 351, Tax Refund Anticipation Loans (Acts 2007, 80th Legislature, Chapter 135), as enacted by the Texas Legislature in House Bill 1344 (HB 1344). The proposed rules provide procedures for filing an application for a tax refund anticipation loan registration, processing procedures, procedures for relocation of a registered location, the fees associated with the registration, the designation of applications and notices as public records, and annual renewal procedures. The agency plans to propose a rule regarding the grounds for revocation at a future meeting of the commission.

Section 87.102 describes the procedure for filing a new application for a tax refund anticipation loan registration, including instructions regarding what forms to use, what information is necessary on the application, and what information must be filed with the application.

In conjunction with the filing requirements under §87.102, the agency considered the submission of an applicant's disclosure forms, but instead plans to confirm that disclosures meet legal requirements through a series of detailed questions asked as part of the application process. The agency believes that these questions will serve as an appropriate mechanism to ensure that applicant disclosures are in compliance with state law. Thus, comprehensive questions concerning an applicant's disclosure forms will be included as part of the Application for Registration of Tax Refund Anticipation Loan Facilitator.

Section 87.103 outlines how an application for a tax refund anticipation loan registration is processed, including a description of when an application is complete.

Section 87.104 describes the procedures for relocating the registered location, outlining the information to be included in a notice to the commissioner.

Section 87.105 sets out the fees for new registered locations, registration amendments, and annual assessments.

Section 87.106 describes how registration applications and notices are public records, citing the relevant provisions within the Texas Government Code.

Section 88.107 describes the procedures for annual renewal, including the payment of fees by December 1.

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 rules.

Commissioner Pettijohn has also determined that for each year of the first five years the rules are in effect the public benefit anticipated as a result of the new rules will be enhanced compliance with the credit laws.

Additional economic costs will be incurred by a person required to comply with this proposal. The registration fees as outlined by new §87.105 constitute the potential anticipated costs for registered tax refund anticipation loan facilitators, with a fee of $50 to process new applications. The fixed cost of an annual assessment will be $50 per registered location. Other potential, but not required, fees could result from registration amendments ($25 each). It is anticipated that there will be no adverse economic effect on small businesses as compared to the effect on large businesses.

Compliance with these rules is optional prior to January 1, 2008. Tax refund anticipation loan facilitators under this chapter should apply for registration no later than January 1, 2008.

Comments on the proposed new rules may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207 or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed new rules are published in the Texas Register . At the conclusion of the 31st day after the proposed new rules are published in the Texas Register , no further written comments will be considered or accepted by the commission.

These new sections are proposed under Texas Finance Code, §351.003, Registration of Facilitators (Acts 2007, 80th Legislature, Chapter 135), which authorizes the Finance Commission to adopt rules to prescribe procedures for the registration of and collection of processing fees from facilitators of tax refund anticipation loans.

The statutory provisions affected by the proposed new sections will be contained in Texas Finance Code, Chapter 351, Tax Refund Anticipation Loans (Acts 2007, 80th Legislature, Chapter 135, effective September 1, 2007).

§87.102.Filing of New Application.

(a) New application. An application for issuance of a new tax refund anticipation loan facilitator registration must be submitted as prescribed by the commissioner at the date of filing and in accordance with the commissioner's instructions. The commissioner may accept the use of prescribed alternative formats in order to accept approved electronic submissions.

(b) Required information. The application must include the following required forms and filings. All questions must be answered.

(1) Application for Registration of Tax Refund Anticipation Loan Facilitator.

(A) Each location in this state at which e-file providers authorized by the Internal Revenue Service file tax returns on behalf of borrowers for whom the facilitator acts to allow the making of a tax refund anticipation loan must be separately registered.

(B) The person responsible for the day-to-day operation of the applicant's proposed business location must be named.

(2) Assumed names. For any applicant that does business under an assumed name as that term is defined in Texas Business and Commerce Code, §36.02(7), the applicant must provide all assumed names used.

§87.103.Processing of Application.

Complete application. An application is complete when it:

(1) conforms to the rules and the commissioner's published instructions;

(2) all fees have been paid; and

(3) all requests for additional information have been satisfied.

§87.104.Relocation of Registered Location.

A registered tax refund anticipation loan facilitator may move the business office from the registered location to any other location by giving notice of intended relocation to the commissioner. The notice must include the present address of the registered location, the contemplated new address of the registered location, and the approximate date of relocation.

§87.105.Fees.

(a) New registrations. A $50 fee is assessed each time an application for a new registration under this chapter is filed and is non-refundable.

(b) Registration amendments. A fee of $25 must be paid each time a registered facilitator seeks to amend a registration by changing the assumed name of the registrant or relocating an office.

(c) Annual assessments. An annual fixed fee of $50 is required for each registered tax refund anticipation loan location. The agency may provide a discount or credit to an assessment as necessary to appropriately allocate and recover the requisite costs of administration.

§87.106.Applications and Notices as Public Records.

Once a registration application or notice is filed with the Office of Consumer Credit Commissioner (OCCC), it becomes a "state record" under Texas Government Code, §441.180(11), and "public information" under Government Code, §552.002. Under Government Code, §§441.190, 441.191 and 552.004, the original applications and notices must be preserved as "state records" and "public information" unless destroyed with the approval of the director and librarian of the State Archives and Library Commission under Government Code, §441.187. Under Government Code, §441.191, the OCCC may not return any original documents associated with a tax refund anticipation loan facilitator application or notice to the applicant or registered facilitator. An individual may request copies of a state record under the authority of the Texas Public Information Act, Government Code, Chapter 552.

§87.107.Annual Renewal.

Not later than December 1, a registered tax refund anticipation loan facilitator may renew its registration by providing the following:

(1) the fees required by §87.105(c) of this title (relating to Fees); and

(2) any other information required by the commissioner.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 17, 2007.

TRD-200703685

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: September 30, 2007

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

Subchapter A. GENERAL PROVISIONS

7 TAC §89.101, §89.102

The Finance Commission of Texas (commission) proposes new 7 TAC Chapter 89, §89.101 and §89.102, concerning Property Tax Lenders. The proposed new rules contained in 7 TAC §89.101 and §89.102 outline Subchapter A, concerning General Provisions.

In general, the purpose of the proposed new rules is to establish application and licensing procedures as required under Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220), as enacted by the Texas Legislature in House Bill 2138 (HB 2138). The proposed new rules also address applicability issues. The individual purposes of each rule are provided below.

Section 89.101 outlines the purpose, scope, and applicability of the chapter. In particular, §89.101(d) clarifies that the exemption from other licensing as provided in Texas Finance Code, §351.051(d), is limited to authorized property tax lending. In other words, in order to conduct property tax lending under Chapter 351, a person is not required to have a license under Chapter 156, Chapter 342, or any other provision of the Finance Code. A person may, however, still need another license to conduct other regulated activity, as Chapter 156, Chapter 342, and any other chapter of the Finance Code, or other law, would apply independently of Chapter 351.

Section 89.102 provides general definitions to be used throughout the chapter.

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

Commissioner Pettijohn has also determined that, for each year of the first five years the proposed new rules are in effect, the public benefit anticipated as a result of the new rules will be enhanced compliance with the credit laws.

There is no anticipated cost to persons who are required to comply with the new rules as proposed. It is anticipated that there will be no adverse economic effect on small businesses as compared to the effect on large businesses. There will be no effect on individuals required to comply with the new rules as proposed.

Compliance with these rules is optional prior to March 1, 2008. Property tax lenders under this chapter should apply for licensure no later than March 1, 2008.

Comments on the proposed new rules may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207 or by e-mail to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed new rules are published in the Texas Register . At the conclusion of the 31st day after the proposed new rules are published in the Texas Register , no further written comments will be considered or accepted by the commission.

These new sections are proposed under Texas Finance Code, §351.007 (Acts 2007, 80th Leg., ch. 1220), which authorizes the Finance Commission to adopt rules to ensure compliance with the "Property Tax Lender License Act."

The statutory provisions affected by the proposed new sections will be contained in Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220, eff. Sept. 1, 2007).

§89.101.Purpose, Scope, and Applicability.

(a) Purpose. The purpose of this chapter is to assist in the administration and enforcement of Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220).

(b) Scope. This chapter applies to all persons engaged in the business of making, transacting, or negotiating property tax loans subject to Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act." As such, this chapter only applies to lenders in the business of making, transacting or negotiating property tax loans that:

(1) are secured by a special lien against property transferred from a taxing unit to the property tax lender; and

(2) may be further secured by the lien or security interest created by a deed of trust, security deed, or other security instrument.

(c) License required for authorized property tax lending. Texas Finance Code, Chapter 351, authorizes a property tax lender to engage in the business of making, transacting, or negotiating property tax loans, as provided in subsection (b) of this section. Texas Finance Code, §351.051 (Acts 2007, 80th Leg., ch. 1220) and this chapter require that property tax lenders hold a license in order to conduct authorized property tax lending under Chapter 351.

(d) Exemption from other licensing limited to authorized property tax lending. Texas Finance Code, §351.051(d) (Acts 2007, 80th Leg., ch. 1220) provides that a property tax lender licensed under Chapter 351 is not required to be licensed under Chapter 156, Chapter 342, or any other provision of the Finance Code in order to conduct authorized property tax lending under Chapter 351. If a person engages in regulated activity otherwise subject to Chapter 156, Chapter 342, any other chapter of the Finance Code, or other law, the other chapter or law pertaining to the type of regulated activity conducted would apply independently of Chapter 351.

(e) License not required. National banks and federally-chartered thrifts and credit unions, wherever located, and federally-insured state banks, state thrifts and state credit unions with offices located outside of Texas may make property tax loans to Texas residents without obtaining a property tax lender license from the OCCC under Texas Finance Code, §351.051 et seq .

§89.102.Definitions.

Words and terms used in this chapter that are defined in Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220), have the same meanings as defined in Chapter 351. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Commissioner--The Consumer Credit Commissioner of the State of Texas.

(2) Date of consummation--The date of closing or execution of a loan contract.

(3) Licensee--Any person who has been issued a property tax lender license pursuant to Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220).

(4) Making a loan--The act of making a loan is either the determination of the credit decision to provide the loan, or the act of funding the loan or transferring money from the lender to the borrower. A person whose name appears on the loan documents as the payee of the note is considered to have "made" the loan.

(5) Negotiating a loan--The process of submitting and considering offers between a borrower and a lender with the objective of reaching agreement on the terms of a loan. The act of passing information between the parties can, by itself, be considered "negotiation" if it was part of the process of reaching agreement on the terms of a loan. "Negotiation" involves acts which take place before an agreement to lend or funding of a loan actually occurs.

(6) OCCC--The Office of Consumer Credit Commissioner of the State of Texas.

(7) Transacting a loan--Any of the significant events associated with the lending process through funding, including the preparation, negotiation and execution of loan documents and the transfer of money by the lender to the borrower or to a third party on the borrower's behalf. This also includes the act of arranging a loan.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 17, 2007.

TRD-200703686

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: September 30, 2007

For further information, please call: (512) 936-7610

7 TAC §§89.201 - 89.206

The Finance Commission of Texas (commission) proposes new 7 TAC, Chapter 89, §§89.201 - 89.206, concerning Property Tax Lenders. The new rules contained in 7 TAC §§89.201 - 89.206 outline Subchapter B, concerning Authorized Activities.

In general, the purpose of the new rules is to establish application and licensing procedures as required under Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220), as enacted by the Texas Legislature in House Bill 2138 (HB 2138). The proposed rules address authorized activities. The individual purposes of each rule are provided below.

Section 89.201 provides for the responsibility of licensees for the acts of their agents.

Section 89.202 requires that each officer, director, employee, and agent of a licensee have a working knowledge of the laws and regulations applicable to the licensee's business.

Section 89.203 outlines transactions that are considered to constitute a "device, subterfuge, or pretense" under Texas Finance Code, §351.051(b), and attempted evasion of the applicability of 7 TAC, Chapter 89.

Section 89.204 defines particular terms applicable to licensees with multiple licenses, and also outlines situations in which multiple licenses are required.

Section 89.205 outlines situations where licenses are required to conduct loans by mail, refers the reader to §89.204 for definitions, and provides that loans conducted via the Internet are considered to be loans by mail.

Section 89.206 provides the procedures for an individual to apply for an exemption from licensing as a qualifying individual under Texas Finance Code, §351.051(c)(2). Upon receipt of an individual's signed, dated, and notarized affidavit containing the required information, the agency will issue a certificate of exemption to the individual.

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 rules.

Commissioner Pettijohn has also determined that for each year of the first five years the rules are in effect the public benefit anticipated as a result of the new rules will be enhanced compliance with the credit laws.

There is no anticipated cost to persons who are required to comply with the new rules as proposed. It is anticipated that there will be no adverse economic effect on small businesses as compared to the effect on large businesses. There will be no effect on individuals required to comply with the new rules as proposed.

Compliance with these rules is optional prior to March 1, 2008. Property tax lenders under this chapter should apply for licensure no later than March 1, 2008.

Comments on the proposed new rules may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207 or by email to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed new rules are published in the Texas Register . At the conclusion of the 31st day after the proposed new rules are published in the Texas Register , no further written comments will be considered or accepted by the commission.

These new sections are proposed under Texas Finance Code §351.007 (Acts 2007, 80th Leg., ch. 1220), which authorizes the Finance Commission to adopt rules to ensure compliance with the "Property Tax Lender License Act."

The statutory provisions affected by the proposed new sections will be contained in Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220, eff. Sept. 1, 2007).

§89.201.Responsibility for Acts of Agents.

A licensee is responsible for the acts and omissions of its officers, directors, employees, and agents in the conduct of the licensee's business.

§89.202.Knowledge of Laws and Regulations Required.

Each officer, director, employee, and agent of a licensee shall have a working knowledge of Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220), its implementing regulations, and other pertinent state and federal statutes and regulations that apply to the licensee's business.

§89.203.Attempted Evasion of Applicability of Chapter.

A "device, subterfuge, or pretense to evade the application" of this chapter, as used in Texas Finance Code, §351.051(b) (Acts 2007, 80th Leg., ch. 1220) refers to any transaction that in form may appear on its face to be something other than a property tax loan, but in substance meets the definition of a property tax loan as defined in Texas Finance Code, §351.002(2) (Acts 2007, 80th Leg., ch. 1220).

§89.204.Multiple Licenses.

(a) Definitions. The words "made," "negotiated," and "collected" as used in Texas Finance Code, §351.052(b) (Acts 2007, 80th Leg., ch. 1220) are to be construed as follows.

(1) Made or Make--Loans are "made" by the office or offices where either the credit decision is made or the cash advance is disbursed.

(2) Negotiated or Arranged; Negotiate or Arrange--Loans are "negotiated" or "arranged" in the office or offices that received any information preliminary to a credit decision on a prospective borrower or received the executed application, agreement, or other necessary loan documentation.

(3) Collected or Collect--Loans are "collected" in the office or offices from which attempts are made to collect past-due payments from the borrowers under a loan. The mere receipt and accounting of payments does not constitute "collection."

(b) Application. Any office making, negotiating, arranging, servicing, holding, or collecting loans must be licensed. For example, if a lender receives and reviews loan applications at one office, makes the loan decision at another office, funds the loan at a third, and collects past-due payments from another, all of these offices must be licensed. On the other hand, an office that merely receives, records, accounts for, and processes payments need not be licensed.

§89.205.Loans by Mail.

(a) Definitions. The words "make," "negotiate," "arrange," and "collect" as used in Texas Finance Code, §351.053(b) (Acts 2007, 80th Leg., ch. 1220) are to be construed according to the definitions contained in §89.204(a) of this title (relating to Multiple Licenses).

(b) Application. Any office, wherever located, making, negotiating, arranging, or collecting loans by mail must be licensed. For example, if a lender receives and reviews loan applications at one office, makes the loan decision at another office, funds the loan at a third, and collects past-due payments from another, all of these offices involved in lending by mail must be licensed. On the other hand, an office that merely receives, records, accounts for, and processes payments need not be licensed.

(c) Internet loans. For purposes of Texas Finance Code, §351.053(b), a loan made, negotiated, arranged, or collected by or through the Internet is considered a "loan by mail."

§89.206.Application for Exemption.

(a) For an individual to apply for exemption from licensing under this chapter as a qualifying individual under Texas Finance Code, §351.051(c)(2) (Acts 2007, 80th Leg., ch. 1220), the individual must provide a signed, dated, and notarized affidavit containing the following:

(1) the individual's name and address;

(2) the individual's social security number;

(3) the anticipated date of the property tax loan;

(4) a description of the property by street address, and if applicable, legal description; and

(5) a sworn statement that the individual is someone who:

(A) is making a property tax loan from the individual's own funds to a spouse, former spouse, or persons in the lineal line of consanguinity of the individual lending the money; or

(B) makes five or fewer property tax loans in any consecutive 12-month period from the individual's own funds.

(b) Upon receipt of an affidavit fulfilling the requirements of subsection (a) of this section, the commissioner will issue a certificate of exemption to the individual.

(c) Individuals applying for exemption under Texas Finance Code, §351.051(c)(2) must submit an application according to this section for each property tax loan transaction.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 17, 2007.

TRD-200703688

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: September 30, 2007

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

7 TAC §§89.301 - 89.311

The Finance Commission of Texas (commission) proposes new 7 TAC, Chapter 89, §§89.301 - 89.311, concerning Property Tax Lenders. The new rules contained in 7 TAC §§89.301 - 89.311 outline Subchapter C, concerning Application Procedures.

In general, the purpose of the new rules is to establish application and licensing procedures as required under Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220), as enacted by the Texas Legislature in House Bill 2138 (HB 2138). The individual purposes of each rule are provided below.

Section 89.301 defines particular terms, including "principal party." The definition of "principal party" contains a breakdown by entity type, outlining individuals considered to be principal parties for each type of legal business entity.

Section 89.302 describes the procedures for filing a new application for a property tax lender license, including instructions regarding what information is necessary on the application and what information must be filed with the application.

Section 89.303 describes the procedures for filing an application for transfer of a property tax lender license, including the filing requirements and a definition of "transfer of ownership." "Transfer of ownership" is broken down by entity type and situation to outline the circumstances when a transfer will be required.

Section 89.304 outlines what action a licensee must take when it changes the proportion of ownership in or the form of the licensed entity, and lists the time frame within which the licensee must notify the commissioner.

Section 89.305 requires each applicant to supplement its application upon request by the agency.

Section 89.306 requires each applicant, upon discovery of new or changed information, to supplement its application within 10 calendar days of discovery of the new or changed information.

Section 89.307 outlines how an application for a property tax lender license is processed, including a description of when an application is complete, as well as an explanation of what may occur if an applicant fails to complete an application. In addition, this section describes the hearings process that occurs if the applicant contests the denial of its application.

Section 89.308 describes the procedures for relocating a licensed office, including deadlines for notification.

Section 89.309 describes how a licensee may change its license status, including changing a license from active to inactive status and activating an inactive license. This section also clarifies the procedures for a licensee to voluntarily surrender its license, resulting in cancellation, as well as when a license will expire.

Section 89.310 sets out the fees for new licenses, license transfers, fingerprint processing, license amendments, license duplication, costs of hearings, and annual assessments.

Section 89.311 states that, upon filing with the Office of Consumer Credit Commissioner, an application for a property tax lender license or a notice submitted by an applicant or licensee becomes a state record and public information subject to the Texas Public Information Act.

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 rules.

Commissioner Pettijohn has also determined that for each year of the first five years the rules are in effect the public benefit anticipated as a result of the new rules will be enhanced compliance with the credit laws.

Additional economic costs will be incurred by a person required to comply with this proposal. The license fees outlined by new §89.310 constitute the potential anticipated costs for licensees, with a fee of $200 to process new applications, and a fingerprint processing fee of $40 per individual. The fixed cost of an annual assessment will be $430 per active license. Other potential, but not required, fees could result from license transfers ($200 for the first transfer; $50 for each additional transfer filed simultaneously), license amendments ($25 each), license duplicates ($10 each), and any cost of hearings. The potential cost of hearings is unpredictable due to the widely varying legal and factual issues involved. It is anticipated that there will be no adverse economic effect on small businesses as compared to the effect on large businesses.

Compliance with these rules is optional prior to March 1, 2008. Property tax lenders under this chapter should apply for licensure no later than March 1, 2008.

Comments on the proposed new rules may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207 or by email to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed new rules are published in the Texas Register . At the conclusion of the 31st day after the proposed new rules are published in the Texas Register , no further written comments will be considered or accepted by the commission.

These new sections are proposed under Texas Finance Code §351.007 (Acts 2007, 80th Leg., ch. 1220), which authorizes the Finance Commission to adopt rules to ensure compliance with the "Property Tax Lender License Act."

The statutory provisions affected by the proposed new sections will be contained in Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220, eff. Sept. 1, 2007).

§89.301.Definitions.

Words and terms used in this chapter that are defined in Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220), have the same meanings as defined in Chapter 351. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Net assets--The total value of acceptable assets used or designated as readily available for use in the business, less liabilities, other than those liabilities secured by unacceptable assets. Unacceptable assets include, but are not limited to, goodwill, unpaid stock subscriptions, lines of credit, notes receivable from an owner, property subject to the claim of homestead or other property exemption, and encumbered real or personal property to the extent of the encumbrance. Generally, assets are available for use if they are readily convertible to cash within 10 business days.

(2) Principal party--An adult individual with a substantial relationship to the proposed lending business of the applicant. The following individuals are considered to be principal parties:

(A) proprietors, including spouses with community property interest;

(B) general partners;

(C) officers of privately-held corporations, to include the chief executive officer or president, the chief operating officer or vice president of operations, the chief financial officer or treasurer, and those with substantial responsibility for lending operations or compliance with Texas Finance Code, Chapter 351;

(D) directors of privately-held corporations;

(E) individuals associated with publicly-held corporations designated by the applicant as follows:

(i) officers as provided by subparagraph (C) of this paragraph (as if the corporation was privately-held); or

(ii) three officers or similar employees with significant involvement in the corporation's activities governed by Texas Finance Code, Chapter 351. One of the persons designated shall be responsible for assembling and providing the information required on behalf of the applicant and shall sign the application for the applicant;

(F) voting members of a limited liability corporation;

(G) trustees and executors; and

(H) individuals designated as a principal party where necessary to fairly assess the applicant's financial responsibility, experience, character, general fitness, and sufficiency to command the confidence of the public and warrant the belief that the business will be operated lawfully and fairly as required by the commissioner.

§89.302.Filing of New Application.

An application for issuance of a new property tax lender license must be submitted in a format prescribed by the commissioner at the date of filing and in accordance with the commissioner's instructions. The commissioner may accept the use of prescribed alternative formats in order to accept approved electronic submissions. Appropriate fees must be filed with the application, and the application must include the following:

(1) Required application information. All questions must be answered.

(A) Application for Property Tax lender License.

(i) Location. A physical street address must be listed for the applicant's proposed lending address. A post office box or a mail box location at a private mail-receiving service generally may not be used. If the address has not yet been determined or if the application is for an inactive license, then the application must so indicate.

(ii) Responsible person. The person responsible for the day-to-day operations of the applicant's proposed offices must be named.

(iii) Signature(s). Electronic signatures will be accepted in a manner approved by the commissioner.

(I) If the applicant is a proprietor, each owner must sign.

(II) If the applicant is a partnership, each general partner must sign.

(III) If the applicant is a corporation, an authorized officer must sign.

(IV) If the applicant is a limited liability company, an authorized member or manager must sign.

(V) If the applicant is a trust or estate, the trustee or executor, as appropriate, must sign.

(B) Disclosure of Owners and Principal Parties.

(i) Proprietorships. The applicant must disclose who owns and who is responsible for operating the business. All community property interest must also be disclosed. If the business interest is owned by a married individual as separate property, documentation establishing or confirming separate property status must be provided.

(ii) General partnerships. Each partner must be listed and the percentage of ownership stated. If a general partner is wholly or partially owned by a legal entity and not a natural person, a narrative or diagram must be included that lists the names and titles of all meeting the definition of "managerial official," as contained in Texas Business Organizations Code, §1.002, and a description of the ownership of each legal entity must be provided. General partnerships that register as limited liability partnerships should provide the same information as that required for general partnerships.

(iii) Limited partnerships. Each partner, general and limited, must be listed and the percentage of ownership stated.

(I) General partners. The applicant should provide the complete ownership, regardless of percentage owned, for all general partners. If a general partner is wholly or partially owned by a legal entity and not a natural person, a narrative or diagram must be included that lists the names and titles of all meeting the definition of "managerial official," as contained in Texas Business Organizations Code, §1.002, and a description of the ownership of each legal entity must be provided.

(II) Limited partners. The applicant should provide a complete list of all limited partners owning 5% or more of the partnership.

(III) Limited partnerships that register as limited liability partnerships. The applicant should provide the same information as that required for limited partnerships.

(iv) Corporations. Each officer and director must be named. Each shareholder holding 5% or more of the voting stock must be named if the corporation is privately-held. If a parent corporation is the sole or part owner of the proposed business, a narrative or diagram must be included that describes each level of ownership of 5% or greater.

(v) Limited liability companies. Each "manager," "officer," and "member" owning 5% or more of the company, as those terms are defined in Texas Business Organizations Code, §1.002, and each agent owning 5% or more of the company must be listed. If a member is a legal entity and not a natural person, a narrative or diagram must be included that describes each level of ownership of 5% or greater.

(vi) Trusts or estates. Each trustee or executor, as appropriate, must be listed.

(vii) All entity types. If a parent entity is a different type of legal business entity than the applicant, the parent entity's owners and principal parties should be disclosed according to the parent's entity type.

(C) Application Questionnaire. All applicable questions must be answered. Questions requiring a "yes" answer must be accompanied by an explanatory statement and any appropriate documentation requested.

(D) Appointment of Statutory Agent and Consent to Service. The appointment of statutory agent and consent to service must be provided by each applicant. The statutory agent is the person or entity to whom any legal notice may be delivered. The agent must be a Texas resident and list an address for legal service. If the statutory agent is a natural person, the address must be a physical residential address. If the applicant is a corporation or a limited liability company, the statutory agent should be the registered agent on file with the Texas Secretary of State. If the statutory agent is not the same as the registered agent filed with the Secretary of State, then the applicant must submit certified minutes appointing the new agent.

(E) Personal Affidavit. Each individual meeting the definition of "principal party" as defined in §89.301 of this title (relating to Definitions) or who is a person responsible for day-to-day operations must provide a personal affidavit. All requested information must be provided.

(F) Personal Questionnaire. Each individual meeting the definition of "principal party" as defined in §89.301 of this title or who is a person responsible for day-to-day operations must provide a personal questionnaire. Each question must be answered. If any question, except question 1, is answered "yes," an explanation must be provided.

(G) Employment History. Each individual meeting the definition of "principal party" as defined in §89.301 of this title or who is a person responsible for day-to-day operations must provide an employment history. Each principal party should provide a continuous 10-year history, with no gaps, accounting for time spent as a student, unemployed, or retired. The employment history must also include the individual's association with the entity applying for the license.

(H) Statement of Experience. Each applicant should provide a statement setting forth the details of the applicant's prior experience in the lending or credit granting business. If the applicant or its principal parties do not have significant experience in the same type of credit business as planned for the prospective licensee, the applicant must provide a written statement explaining the applicant's relevant business experience or education, why the commissioner should find that the applicant has the requisite experience, and how the applicant plans to obtain the necessary knowledge to operate lawfully and fairly.

(I) Business Operation Plan. Each applicant must provide a brief narrative explaining the type of lending operation that is planned. This narrative should discuss each of the following topics:

(i) the source of customers;

(ii) the purpose(s) of loans;

(iii) the size of loans;

(iv) the source of working capital for planned operations;

(v) whether the applicant will only be arranging or negotiating loans for another lender or financing entity;

(vi) if the applicant will only be arranging or negotiating loans for another lender or financing entity, the lender must also provide:

(I) a list of the lenders for whom the applicant will be arranging or negotiating loans;

(II) whether the loans will be collected at the location where the loans are made; or

(III) if the loans will not be collected at the location where the loans are made, the identification of the person or firm that will be servicing the loans, including the location at which the loans will be serviced, and a detailed description of the process to be utilized in collections.

(J) Financial Statement and Supporting Financial Information.

(i) All entity types. The financial statement must be dated no earlier than 60 days prior to the date of application. Applicants may also submit audited financial statements dated within one year prior to the application date in lieu of completing the Supporting Financial Information. All financial statements must be certified as true, correct, and complete.

(ii) Sole proprietorships. Sole proprietors must complete all sections of the Personal Financial Statement and the Supporting Financial Information, or provide a personal financial statement that contains all of the same information requested by the Personal Financial Statement and the Supporting Financial Information. The Personal Financial Statement and Supporting Financial Information must be as of the same date.

(iii) Partnerships. A balance sheet for the partnership itself as well as each general partner must be submitted. In addition, the information requested in the Supporting Financial Information must be submitted for the partnership itself and each general partner. All of the balance sheets and Supporting Financial Information documents for the partnership and all general partners must be as of the same date.

(iv) Corporations and limited liability companies. Corporations and limited liability companies must file a balance sheet that complies with generally accepted accounting principles (GAAP). The information requested in the Supporting Financial Information must be submitted. The balance sheet and Supporting Financial Information must be as of the same date. Financial statements are generally not required of related parties, but may be required by the commissioner if the commissioner believes they are relevant. The financial information for the corporation or limited liability company applicant should contain no personal financial information.

(v) Trusts and estates. Trusts and estates must file a balance sheet that complies with generally accepted accounting principles (GAAP). The information requested in the Supporting Financial Information must be submitted. The balance sheet and Supporting Financial Information must be as of the same date. Financial statements are generally not required of related parties, but may be required by the commissioner if the commissioner believes they are relevant. The financial information for the trust or estate applicant should contain no personal financial information.

(K) Assumed Name Certificates. For any applicant that does business under an "assumed name" as that term is defined in Texas Business & Commerce Code, §36.02(7), an Assumed Name Certificate must be filed as provided in this subparagraph.

(i) Unincorporated applicants. Unincorporated applicants using or planning to use an assumed name must file an assumed name certificate with the county clerk of the county where the proposed business is located in compliance with Texas Business & Commerce Code, §36.10, as amended. An applicant must provide a copy of the assumed name certificate that shows the filing stamp of the county clerk or, alternatively, a certified copy.

(ii) Incorporated applicants. Incorporated applicants using or planning to use an assumed name must file an assumed name certificate in compliance with Texas Business & Commerce Code, §36.11, as amended. Evidence of the filing bearing the filing stamp of the Texas Secretary of State must be submitted or, alternatively, a certified copy.

(2) Other required filings.

(A) Fingerprints.

(i) For all persons meeting the definition of "principal party" as defined in §89.301 of this title, a complete set of legible fingerprints must be provided. All fingerprints should be submitted in a format prescribed by the OCCC and approved by the Texas Department of Public Safety and the Federal Bureau of Investigation.

(ii) For limited partnerships, if the Disclosure of Owners and Principal Parties under paragraph (1)(B)(iii)(I) of this section does not produce a natural person, the applicant must provide a complete set of legible fingerprints for individuals who are associated with the general partner as principal parties.

(iii) For entities with complex ownership structures that result in the identification of individuals to be fingerprinted who do not have a substantial relationship to the proposed applicant, the applicant may submit a request to fingerprint three officers or similar employees with significant involvement in the proposed business. The request should describe the relationship and significant involvement of the individuals in the proposed business. The agency may approve the request, seek alternative appropriate individuals, or deny the request.

(iv) For individuals who have previously been licensed by the OCCC and principal parties of entities currently licensed, fingerprints are not required.

(v) For individuals who have previously submitted fingerprints to another state agency (e.g., Texas Department of Savings and Mortgage Lending), fingerprints are still required to be submitted to the OCCC, as per Texas Finance Code, §14.152. Fingerprints cannot be disclosed to others, except as authorized by Texas Government Code, §560.002, as amended.

(B) Loan forms. The applicant must provide information regarding all loan forms it intends to use.

(i) Custom forms. If a custom loan form is to be prepared, a preliminary draft or proof that is complete as to format and content and which indicates the number and distribution of copies to be prepared for each transaction must be submitted.

(ii) Stock forms. If an applicant purchases or plans to purchase stock forms from a supplier, the applicant must include a statement that includes the supplier's name and address and a list identifying the forms to be used, including the revision date of the form, if any.

(C) Entity documents.

(i) Partnerships. A partnership applicant must submit a complete and executed copy of the partnership agreement. This copy must be signed and dated by all partners. If the applicant is a limited partnership or a limited liability partnership, provide evidence of filing with the Texas Secretary of State.

(ii) Corporations. A corporate applicant, domestic or foreign, must provide the following documents:

(I) a complete copy of the articles of incorporation and any amendments;

(II) a copy of the relevant portions of the bylaws addressing the required number of directors and the required officer positions for the corporation;

(III) a copy of the minutes of corporate meetings that record the election of all current officers and directors as listed on the Disclosure of Owners and Principal Parties, or a certification from the secretary of the corporation identifying the current officers and directors as listed on the Disclosure of Owners and Principal Parties;

(IV) if the statutory agent is not the same as the registered agent filed with the Texas Secretary of State:

(-a-) a copy of the minutes of corporate meetings that record the election of the statutory agent; or

(-b-) a certification from the secretary of the corporation identifying the statutory agent; and

(V) a certificate of good standing from the Texas Comptroller of Public Accounts.

(iii) Publicly-held corporations. In addition to the items required for corporations, a publicly-held corporation must file the most recent 10K or 10Q for the applicant or for the parent company.

(iv) Limited liability companies. A limited liability company applicant, domestic or foreign, must provide the following documents:

(I) a complete copy of the articles of organization;

(II) a copy of the relevant portions of the operating agreement or regulations addressing responsibility for operations;

(III) a copy of the minutes of company meetings that record the election of all current officers and directors as listed on the Disclosure of Owners and Principal Parties, or a certification from the secretary of the company identifying the current officers and directors as listed on the Disclosure of Owners and Principal Parties;

(IV) if the statutory agent is not the same as the registered agent filed with the Texas Secretary of State:

(-a-) a copy of the minutes of company meetings that record the election of the statutory agent; or

(-b-) a certification from the secretary of the company identifying the statutory agent; and

(V) a certificate of good standing from the Texas Comptroller of Public Accounts.

(v) Trusts. A copy of the relevant portions of the instrument that created the trust addressing management of the trust and operations of the applicant must be filed with the application.

(vi) Estates. A copy of the instrument establishing the estate must be filed with the application.

(vii) Foreign entities. In addition to the items required by this section, a foreign entity must provide:

(I) a certificate of authority to do business in Texas, if applicable; and

(II) a statement of where records of Texas loan transactions will be kept. If these records will be maintained at a location outside of Texas, the applicant must acknowledge responsibility for the travel costs associated with examinations in addition to the usual assessment fee or agree to make all the records available for examination in Texas.

(viii) Formation document alternative. As an alternative to the entity-specific formation document applicable to the applicant's entity type (e.g., for a corporation, articles of incorporation), an applicant may submit a "certificate of formation" as defined in Texas Business Organizations Code, §1.002, if the certificate of formation provides the entity formation information required by this section for that entity type.

(D) Bond. The commissioner may require a bond under Texas Finance Code, §351.102 (Acts 2007, 80th Leg., ch. 1220), when the commissioner finds that it would serve the public interest. When a bond is required, the commissioner shall give written notice to the applicant. Should a bond not be submitted within 40 calendar days of the date of the commissioner's notice, any pending application may be denied.

(3) Subsequent applications (branch offices). If the applicant is currently licensed and filing an application for a new office, the applicant must provide the information that is unique to the new location, including the Application for Property Tax lender License, Application Questionnaire, Disclosure of Owners and Principal Parties, and a new Financial Statement as provided in paragraph (1)(J) of this section. The person responsible for the day-to-day operations of the applicant's proposed new location must file a Personal Affidavit, Personal Questionnaire, and Employment History, if not previously filed. Other information required by this section need not be filed if the information on file with the OCCC is current and valid.

§89.303.Transfer of License.

(a) Definition. As used in this chapter, a "transfer of ownership" does not include a change in proportionate ownership as defined in §89.304 of this title (relating to Change in Form or Proportionate Ownership). Transfer of ownership includes the following:

(1) an existing owner of a sole proprietorship relinquishes that owner's entire interest in a license or an entirely new entity has obtained an ownership interest in a sole proprietorship license;

(2) any purchase or acquisition of control of a licensed general partnership, in which a partner relinquishes that owner's entire interest or a new general partner obtains an ownership interest;

(3) any change in ownership of a licensed limited partnership interest:

(A) in which a limited partner owning 10% or more relinquishes that owner's entire interest;

(B) in which a new limited partner obtains an ownership interest of 10% or more;

(C) in which a general partner relinquishes that owner's entire interest; or

(D) in which a new general partner obtains an ownership interest (transfer of ownership occurs regardless of the percentage of ownership exchanged of the general partner);

(4) any change in ownership of a licensed corporation:

(A) in which a new stockholder obtains 10% or more of the outstanding voting stock in a privately-held corporation;

(B) in which an existing stockholder owning 10% or more relinquishes that owner's entire interest in a privately-held corporation;

(C) any purchase or acquisition of control of 51% or more of a company which is the parent or controlling stockholder of a licensed privately-held corporation; or

(D) any stock ownership changes that result in a change of control (i.e., 51% or more) for a licensed publicly-held corporation;

(5) any change in the membership interest of a licensed limited liability company:

(A) in which a new member obtains an ownership interest of 10% or more;

(B) in which an existing member owning 10% or more relinquishes that member's entire interest; or

(C) in which a purchase or acquisition of control of 51% or more of any company which is the parent or controlling member of a licensed limited liability company occurs;

(6) any acquisition of a license by gift, devise, or descent; and

(7) any purchase or acquisition of control of a licensed entity whereby a substantial change in management or control of the business occurs, despite not fulfilling the requirements of subsection (a)(1) - (6) of this section, and the commissioner has reason to believe that proper regulation of the licensee dictates that a transfer must be processed.

(b) Approval of transfer. No property tax lender license may be sold, transferred or assigned without written approval by the commissioner.

(c) Filing requirements. An application for transfer of a property tax lender license must be submitted in a format prescribed by the commissioner at the date of filing and in accordance with the rules and instructions. The commissioner may accept the use of prescribed alternative formats in order to accept approved electronic submissions. Appropriate fees must be filed with the transfer application, and the application for transfer must include the following:

(1) Required application information.

(A) New licensees filing transfers. The information required for new license applications under §89.302 of this title (relating to Filing of New Application) must be submitted by new licensees filing transfers. The instructions in §89.302 of this title are applicable to these filings. In addition, evidence of transfer of ownership as described in subsection (c)(2) of this section must also be submitted.

(B) Existing licensees filing transfers. If the applicant is currently licensed and filing a transfer, the applicant must provide the information that is unique to the transfer event, including the Application for Property Tax lender License, Application Questionnaire, Disclosure of Owners and Principal Parties, and a new Financial Statement as provided in paragraph (1)(J) of §89.302 of this title. The instructions in §89.302 of this title are applicable to these filings. The person responsible for the day-to-day operations listed on the Application for Property Tax lender License for the transfer event must file a Personal Affidavit, Personal Questionnaire, and Employment History, if not previously filed. Other information required by §89.302 of this title need not be filed if the information on file with the OCCC is current and valid. In addition, evidence of transfer of ownership as described in subsection (c)(2) of this section must also be submitted.

(2) Evidence of transfer of ownership. Documentation evidencing the transfer of ownership must be filed with the application and should include one of the following:

(A) a copy of the asset purchase agreement when only the assets have been purchased;

(B) a copy of the stock purchase agreement or other evidence of acquisition if voting stock of a corporate licensee has been purchased or otherwise acquired;

(C) any document that transferred ownership by gift, devise, or descent, such as a probated will or a court order; or

(D) any other documentation evidencing the transfer event.

(d) Permission to operate. No business under the license shall be conducted by any license transferee until the application has been received, all applicable fees have been paid, and a request for permission to operate has been approved. In order to be considered, a permission to operate must be in writing. Additionally, the transferor must grant the license transferee the authority to operate under the transferor's license pending approval of the license transferee's new license application. The transferor must accept full responsibility to any customer and to the OCCC for the licensed business for any acts of the license transferee in connection with the operation of the lending business. The permission to operate must be submitted before the license transferee takes control of the licensed operation. The agreement shall set a definite period of time for the license transferee to operate under the transferor's license. A request for permission to operate may be denied even if it contains all of the required information. Two companies may not simultaneously operate under a single license. If the OCCC grants a permission to operate, the transferor must cease operating under the authority of the license.

(e) Application filing deadline. Applications filed in connection with transfers of ownership may be filed in advance but must be filed no later than 10 calendar days following the actual transfer.

§89.304.Change in Form or Proportionate Ownership.

(a) Organizational form. When any licensee or parent of a licensee desires to change the organizational form of its business (e.g., from corporation to limited partnership), the licensee must advise the commissioner in writing of the change within 10 calendar days by filing the appropriate transfer application documents as provided in §89.303 of this title (relating to Transfer of License). In addition, the licensee must submit a copy of the relevant portions of the organizational document for the new entity (e.g., articles of conversion and partnership agreement) addressing the ownership and management of the new entity.

(b) Merger. A merger of a licensee is a change of ownership that results in a new or different surviving entity and requires the filing of a transfer application pursuant to §89.303 of this title. A merger of the parent entity of a licensee that leads to the creation of a new entity or results in a different surviving parent entity requires a transfer application pursuant to §89.303 of this title. Mergers or transfers of other entities with a beneficial interest beyond the parent entity level only require notification within 10 calendar days.

(c) Proportionate ownership.

(1) A change in proportionate ownership that results in the exact same owners still owning the business, and does not meet the requirements described in paragraph (2) of this subsection, does not require a transfer. Such a proportionate change in ownership does not require the filing of a transfer application, but does require notification when the cumulative ownership change to a single entity or individual amounts to 5% or greater. No later than 10 calendar days following the actual change, the licensee is required to notify the commissioner in writing of the change in proportionate ownership. This subsection does not apply to a publicly-held corporation that has filed with the OCCC the most recent 10K or 10Q filing of the licensee or the publicly-held parent corporation, although a transfer application may be required under §89.303 of this title.

(2) A proportionate change in which an owner that previously held under 10% obtains an ownership interest of 10% or more, requires a transfer under §89.303 of this title.

§89.305.Amendments to Pending Application.

Upon request, each applicant must provide information supplemental to that contained in the applicant's original application documents.

§89.306.Reportable Actions After Application.

Any action, fact, or information that would require a materially different answer than that given in the original license application and which relates to the qualifications for license must be reported within 10 calendar days after the person has knowledge of the action, fact or information.

§89.307.Processing of Application.

(a) Initial review. A response to an application will ordinarily be made within 14 calendar days of receipt stating that the application is complete and accepted for filing or stating that the application is incomplete and specifying the information required for acceptance.

(b) Complete application. An application is complete when:

(1) it conforms to the rules and published instructions;

(2) all fees have been paid; and

(3) all requests for additional information have been satisfied.

(c) Failure to complete application. If a complete application has not been filed within 30 calendar days after notice of deficiency has been sent to the applicant, the application may be denied.

(d) Hearing. Whenever an application is denied, the affected applicant has 30 calendar days from the date the application was denied to request in writing a hearing to contest the denial. This hearing shall be conducted pursuant to the Administrative Procedure Act, Texas Government Code, Chapter 2001, and §9.1 et seq . of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings), before an administrative law judge who will recommend a decision to the commissioner. The commissioner will then issue a final decision after review of the recommended decision.

(e) Denial. If an application has been denied, the assessment fee shall be refunded to the applicant. The investigation fee and the fingerprint processing fee in §89.310 of this title (relating to Fees) shall be forfeited.

(f) Processing time.

(1) A license application will ordinarily be approved or denied within a maximum of 60 calendar days after the date of filing of a completed application.

(2) When a hearing is requested following an initial license application denial, the hearing shall be held within 60 calendar days after a request for a hearing is made unless the parties agree to an extension of time. A final decision approving or denying the license application shall be made after receipt of the proposal for decision from the administrative law judge.

(3) Exceptions. More time may be taken where good cause exists, as defined by Texas Government Code, §2005.004, for exceeding the established time periods in paragraphs (1) and (2) of this subsection.

§89.308.Relocation of Licensed Offices.

(a) Notice to commissioner. A licensee may move the licensed office from the licensed location to any other location by paying the appropriate fees and giving notice of intended relocation to the commissioner not less than 30 calendar days prior to the anticipated moving date. Notification must be filed on the Amendment to Property Tax lender License or an approved electronic submission as prescribed by the commissioner. The notice must include the contemplated new address of the licensed office, the approximate date of relocation, a copy of the notice to debtors, and the applicable fee as outlined in §89.310 of this title (relating to Fees).

(b) Notice to debtors. Written notice of a relocation of an office must be mailed to all debtors of record at least five calendar days prior to the date of relocation. Any licensee failing to give the required notice shall waive all default charges on payments coming due from the date of relocation to 15 calendar days subsequent to the mailing of notices to debtors. Notices shall identify the licensee, provide both old and new addresses, provide both old and new telephone numbers, and state the date relocation is effective. The notice to debtors can be waived or modified by the commissioner when it is in the public interest. A request for waiver or modification must be submitted in writing for approval. The commissioner may approve notification to debtors by signs in lieu of notification by mail, if in the commissioner's opinion, no debtors will be adversely affected.

§89.309.License Status.

(a) Inactivation of active license. A licensee may cease operating under a property tax lender license and choose to inactivate the license. A license may be inactivated by giving notice of the cessation of operations not less than 30 calendar days prior to the anticipated inactivation date. Notification must be filed on the Amendment to Property Tax lender License or an approved electronic submission as prescribed by the commissioner. The notice must include the new mailing address for the license, the effective date of the inactivation, and the fee for amending the license. A licensee must continue to pay the yearly renewal fees for an inactive license as outlined in §89.310 of this title (relating to Fees), or the license will expire.

(b) Activation of inactive license. A licensee may activate an inactive license by giving notice of the intended activation not less than 30 calendar days prior to the anticipated activation date. Notification must be filed on the Amendment to Property Tax lender License or an approved electronic submission as prescribed by the commissioner. The notice must include the contemplated new address of the licensed office, the approximate date of activation, and the fee for amending the license as outlined in §89.310 of this title.

(c) Voluntary surrender of license. Subject to §89.407(b) of this title (relating to Effect of Revocation, Suspension, or Surrender of License), a licensee may voluntarily surrender a license by providing written notice of the cessation of operations, a request to surrender the license, and by submitting the license certificate. A voluntary surrender will result in cancellation of the license.

(d) Expiration. A license will expire on December 31 unless a fee is paid by the due date for license renewal. A licensee that pays the annual assessment fee will automatically be renewed even though a new license may not be issued.

§89.310.Fees.

(a) New licenses.

(1) Investigation fees. A $200 non-refundable investigation fee is assessed each time an application for a new license is filed.

(2) Assessment fees. An assessment fee of $430 per active license and $125 per inactive license is assessed each time an application for a new license is filed. This assessment fee will be refunded if the application is not approved.

(b) License transfers. An applicant must pay a $200 non-refundable investigation fee for the first license transfer and a $50 non-refundable investigation fee on each additional license transfer filed simultaneously.

(c) Fingerprint processing. The non-refundable fee to investigate each principal party's fingerprint record is $40 per individual.

(d) License amendments. A fee of $25 must be paid each time a licensee amends a license by rendering a license inactive, activating an inactive license, changing the assumed name of the licensee, or relocating an office.

(e) License duplicates. The fee for a license duplicate is $10.

(f) Costs of hearings. The commissioner may assess the costs of an administrative appeal pursuant to Texas Finance Code, §14.207 for a hearing afforded under §89.307(d) of this title (relating to Processing of Application), including the cost of the administrative law judge, the court reporter, and agency staff representing the OCCC at a hearing.

(g) Annual assessments.

(1) An annual assessment fee is required for each active license consisting of:

(A) a fixed fee of $430; and

(B) a volume fee based upon the lending activity conducted and the volume of business that consists of an amount that is $0.03 per each $1,000 advanced for license holders whose regulated operations occur within Texas Finance Code, Chapter 351 (Acts 2007, 80th Leg., ch. 1220), in accordance with the most recent annual report filing required by Texas Finance Code, §351.164 (Acts 2007, 80th Leg., ch. 1220).

(2) An annual assessment fee of $125 is required for each inactive license.

(3) The maximum annual assessment fee for each licensed entity shall not average more than $1,000 per active licensed location.

§89.311.Applications and Notices as Public Records.

Once a license application or notice is filed with the OCCC, it becomes a "state record" under Texas Government Code, §441.180(11), and "public information" under Government Code, §552.002. Under Government Code, §§441.190, 441.191 and 552.004, the original applications and notices must be preserved as "state records" and "public information" unless destroyed with the approval of the director and librarian of the State Archives and Library Commission under Government Code, §441.187. Under Government Code, §441.191, the OCCC may not return any original documents associated with a property tax lender license application or notice to the applicant or licensee. An individual may request copies of a state record under the authority of the Texas Public Information Act, Government Code, Chapter 552.

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 17, 2007.

TRD-200703689

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: September 30, 2007

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

7 TAC §§89.401 - 89.409

The Finance Commission of Texas (commission) proposes new 7 TAC, Chapter 89, §§89.401 - 89.409, concerning Property Tax Lenders. The new rules contained in 7 TAC §§89.401 - 89.409 outline Subchapter D, concerning License.

In general, the purpose of the new rules is to establish application and licensing procedures as required under Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220), as enacted by the Texas Legislature in House Bill 2138 (HB 2138). The proposed rules also address authorized activities. The individual purposes of each rule are provided below.

Section 89.401 discusses the authorized activities of licensed lenders operating multiple branches.

Section 89.402 explains the requirement for displaying licenses.

Section 89.403 describes the agency's procedure for providing delinquent notices to licensees who have failed to pay an annual assessment fee.

Section 89.404 requires each licensee to file an annual report by March 31 for the prior calendar year.

Section 89.405 describes the effect of criminal history information on applicants and licensees, including what information must be provided on arrests, charges, indictments, and convictions. As per Texas Occupations Code, §53.022, subsection (c) of the rule outlines the factors the agency will consider in determining whether a conviction relates to the occupation of being a property tax lender.

Section 89.406 is a companion rule to §89.405. Section 89.406 describes the crimes directly related to the fitness for holding a license, as well as mitigating factors that will be considered, as per Texas Occupations Code, §53.023.

Section 89.407 details the effect of a license revocation, suspension, or surrender upon the authority to collect existing contracts.

Section 89.408 prescribes the process for a new application after a former licensee has surrendered its license or had a license revoked.

Section 89.409 provides the procedure for returning license certificates upon the reissuance of a license.

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 rules.

Commissioner Pettijohn has also determined that for each year of the first five years the rules are in effect the public benefit anticipated as a result of the new rules will be enhanced compliance with the credit laws.

There is no anticipated cost to persons who are required to comply with the new rules as proposed. It is anticipated that there will be no adverse economic effect on small businesses as compared to the effect on large businesses. There will be no effect on individuals required to comply with the new rules as proposed.

Compliance with these rules is optional prior to March 1, 2008. Property tax lenders under this chapter should apply for licensure no later than March 1, 2008.

Comments on the proposed new rules may be submitted in writing to Laurie Hobbs, Assistant General Counsel, Office of Consumer Credit Commissioner, 2601 North Lamar Boulevard, Austin, Texas 78705-4207 or by email to laurie.hobbs@occc.state.tx.us. To be considered, a written comment must be received on or before the 31st day after the date the proposed new rules are published in the Texas Register . At the conclusion of the 31st day after the proposed new rules are published in the Texas Register , no further written comments will be considered or accepted by the commission.

These new sections are proposed under Texas Finance Code §351.007 (Acts 2007, 80th Leg., ch. 1220), which authorizes the Finance Commission to adopt rules to ensure compliance with the "Property Tax Lender License Act."

The statutory provisions affected by the proposed new sections will be contained in Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220, eff. Sept. 1, 2007).

§89.401.Branch Networks.

For purposes of Texas Finance Code, §351.151(b) (Acts 2007, 80th Leg., ch. 1220), an authorized lender with multiple licensed offices is authorized to make, negotiate, arrange, and collect loans from any of its licensed locations. Any action relating to a single account may occur at different licensed locations as long as every action is made by a licensed branch operated by the same licensed lender.

§89.402.License Display.

Licenses must be prominently displayed in a licensee's office in a conspicuous location visible to the general public.

§89.403.Notice of Delinquency in Payment of Annual Assessment Fee.

For purposes of Texas Finance Code, §351.155 (Acts 2007, 80th Leg., ch. 1220), notice of delinquency in the payment of an annual assessment fee is given upon the mailing of the delinquency notice, enclosed in a postpaid, properly addressed envelope, in a post office or official depository under the care and custody of the United States Postal Service.

§89.404.Annual Report.

Each licensee must file the required annual report by March 31 for the prior year's calendar loan activity on forms prescribed by the commissioner and must comply with all instructions relating to submitting the report.

§89.405.Effect of Criminal History Information on Applicants and Licensees.

(a) Criminal history information. Upon submission of an application for a license, a principal party of an applicant for a license is investigated by the commissioner. In submitting an application for a license, a principal party of an applicant for a license is required to provide fingerprint information to the commissioner. Fingerprint information is forwarded to the Texas Department of Public Safety and to the Federal Bureau of Investigation to obtain criminal history record information. The commissioner will continue to receive information on new criminal activity reported after the fingerprints have been processed. In the case of a new application or if the commissioner finds a fact or condition that existed or, had it existed the license would have been refused, the commissioner may use the criminal history record information obtained from law enforcement agencies, or other criminal history information provided by the applicant or other sources, to issue a denial or initiate an enforcement action. Criminal history information relates to the OCCC's assessment of good moral character and the information gathered is relevant to the licensing or enforcement action decision as described below.

(b) Information on arrests, charges, indictments, and convictions. In responding to the information requests in the application, all arrests, charges, indictments, and convictions must be disclosed. The applicant must, to the extent possible, secure and provide to the commissioner reliable documents or testimony evidencing the information required to make a determination under subsection (d) of this section, including the recommendations of the prosecution, law enforcement, and correctional authorities. The applicant must also furnish proof in such form as may be required by the commissioner that the principal party of the applicant has maintained a record of steady employment, has supported the principal party's dependents, and has otherwise maintained a record of good conduct. At a minimum, the principal party must furnish proof that all outstanding court costs, supervision fees, fines, and restitution as may have been ordered have been paid. Failure to disclose arrests, charges, indictments, and convictions reflects negatively on an applicant's honesty and moral character.

(c) Factors in determining whether conviction relates to occupation of property tax lender. In determining whether a criminal offense directly relates to the duties and responsibilities of holding a license, the commissioner shall consider the following factors, as specified in Texas Occupations Code, §53.022:

(1) the nature and seriousness of the crime;

(2) the relationship of the crime to the purposes for requiring a license to engage in the occupation;

(3) the extent to which a license might offer an opportunity to engage in further criminal activity of the same type as that in which the principal party previously had been involved; and

(4) the relationship of the crime to the ability, capacity, or fitness required to perform the duties and discharge the responsibilities of a license holder.

(d) Effect of criminal conviction on applicant or licensee.

(1) Effect of criminal convictions involving moral character. The commissioner may deny an application for a license, or suspend or revoke a license, if the applicant or licensee has a principal party who has been convicted of any felony or of a crime involving moral character that is reasonably related to the applicant's or licensee's fitness to hold a license or to operate lawfully and fairly within Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220). For purposes of this section, the crimes listed below are considered to be crimes involving moral character:

(A) Fraud, misrepresentation, deception, or forgery;

(B) Breach of trust or other fiduciary duty;

(C) Dishonesty or theft;

(D) Assault;

(E) Violation of a statute governing lending of this or another state;

(F) Failure to file a required report with a governmental body, or filing a false report;

(G) Attempt, preparation, or conspiracy to commit one of the preceding crimes; or

(H) Attempt, preparation, or conspiracy to evade Texas Finance Code, Chapter 351 and its provisions.

(2) Effect of other criminal convictions. The commissioner may deny an application for a license, or revoke an existing license if a principal party of the applicant or licensee has been convicted of a crime that directly relates to the duties and responsibilities of a property tax lender who originates or obtains loans written under Texas Finance Code, Chapter 351. Adverse action by the commissioner in response to a crime specified in this section is subject to mitigating factors and rights of the applicant or licensee, as found in §89.406 of this title (relating to Crimes Directly Related to Fitness for License; Mitigating Factors).

§89.406.Crimes Directly Related to Fitness for License; Mitigating Factors.

(a) Crimes directly related to fitness for license. Originating or obtaining loans made under Texas Finance Code, Chapter 351, Property Tax Lenders, known as the "Property Tax Lender License Act" (Acts 2007, 80th Leg., ch. 1220), involves or may involve making representations to borrowers regarding the terms of the loan, maintaining loan accounts, collecting due amounts in a legal manner, and foreclosing on real property in compliance with state and federal law. Consequently, a crime involving the misrepresentation of costs or benefits of a product or service, the improper handling of money or property entrusted to the individual, a crime involving failure to file a governmental report or filing a false report, or a crime involving the use or threat of force against another person, is a crime directly related to the duties and responsibilities of a license holder and may be grounds for denial, suspension, or revocation.

(b) Mitigating factors. In determining whether a conviction for a crime renders an applicant or a licensee unfit to be a license holder, the commissioner shall consider, in addition to the factors listed in §89.405 of this title (relating to Effect of Criminal History Information on Applicants and Licensees), the following factors, as specified in Texas Occupations Code, §53.023:

(1) the extent and nature of the principal party's past criminal activity;

(2) the age of the principal party at the time of the commission of the crime;

(3) the time elapsed since the principal party's last criminal activity;

(4) the conduct and work activity of the principal party prior to and following the criminal activity;

(5) the principal party's rehabilitation or rehabilitative effort while incarcerated or after release, or following the criminal activity if no time served; and

(6) the principal party's current circumstances relating to the present fitness of the applicant or licensee, evidence of which may include letters of recommendation from prosecution, law enforcement, and correctional officers who prosecuted, arrested, or had custodial responsibility for the principal party, the sheriff or chief of police in the community where the principal party resides, and other persons in contact with the convicted principal party.

§89.407.Effect of Revocation, Suspension, or Surrender of License.

(a) Effect on existing contracts. Revocation, suspension, or surrender of a license does not affect a preexisting contract between a lender and a borrower, except no interest may be charged or received by the lender following the revocation, suspension, or surrender of its license. Alternatively, a lender whose license is revoked or suspended may transfer or sell its accounts to a licensed property tax lender who may continue to charge or receive the contracted rate of interest within the authority of Texas Finance Code, §351.001, et seq . (Acts 2007, 80th Leg., ch. 1220).

(b) Surrendering to avoid administrative action. A licensee may not surrender a license after an administrative action has been initiated without the written agreement of the OCCC.

§89.408.Application Process After Surrender or Revocation.

To obtain a license after surrender or revocation, the former licensee is required to file an application for a new license pursuant to the procedures set forth in §89.302 of this title (relating to Filing of New Application).

§89.409.License Reissuance.

In the event of reissuance of a license for any reason, the licensee shall return to the OCCC the license certificate that was held prior to the reissuance. Should the licensee be unable to return the license certificate to the OCCC, the licensee must provide a written statement to that effect, including the reason for inability to return it (e.g. lost, destroyed).

This agency hereby certifies that the proposal has been reviewed by legal counsel and found to be within the agency's legal authority to adopt.

Filed with the Office of the Secretary of State on August 17, 2007.

TRD-200703690

Leslie L. Pettijohn

Commissioner

Office of Consumer Credit Commissioner

Earliest possible date of adoption: September 30, 2007

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