Part 1. FINANCE COMMISSION OF TEXAS
Chapter 3. STATE BANK REGULATION
Subchapter B. GENERAL
The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), adopts an amendment to §3.37, concerning the calculation of annual assessment for banks. The amendment is adopted without changes to the proposed text as published in the May 4, 2007, issue of the Texas Register (32 TexReg 2436). The text will not be republished.
Until recently, both state and federal law permitted a well-managed and well-capitalized bank with total assets less than $250 million to be examined under an extended 18-month examination cycle, subject to supervisory discretion to conduct an examination more frequently if warranted. The recently enacted Financial Services Regulatory Relief Act of 2006 increased the total asset threshold to $500 million from $250 million for federal examination purposes, effectively allowing more banks to qualify for the extended 18-month examination cycle under federal law.
The department has taken steps to similarly change the state examination cycle to enable continued, coordinated examinations with federal agencies.
Section 3.37 specifies the assessment rates governing the calculation and payment of fees that the department is authorized to recover for maintaining and operating the department and enforcing applicable provisions of the Finance Code. The strategy underlying bank assessments in §3.37 is risk-based. Well-managed and well-capitalized banks with total assets of less than $250 million that qualify for the 18-month examination cycle currently receive a discount on assessments. A well-managed and well-capitalized bank with total assets of $250 - $500 million that now qualifies for the 18-month examination cycle should also receive a discount on assessments. The adopted amendment to the table in Figure: 7 TAC §3.37 reduces the assessment rate multiplier for these banks from 100% to 87.5%.
The commission received no comments regarding the adopted proposal.
The amendment is adopted pursuant to Finance Code, §§11.301, 31.003(a)(4), and 31.106, which authorize the commission to adopt rules necessary or reasonable to recover the cost of supervision and regulation by imposing and collecting ratable and equitable fees.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 15, 2007.
TRD-200702453
Sarah J. Shirley
General Counsel
Finance Commission of Texas
Effective date: July 5, 2007
Proposal publication date: May 4, 2007
For further information, please call: (512) 475-1300
Chapter 15. CORPORATE ACTIVITIES
Subchapter C. BANK OFFICES
The Finance Commission of Texas (commission) adopts new §15.43, concerning establishment and operation of a remote service unit. New §15.43 is adopted without changes to the proposed text as published in the May 4, 2007, issue of the Texas Register (32 TexReg 2437). The text will not be republished.
The Texas Department of Banking issued Opinion No. 07-01 on February 20, 2007, concluding that a remote service unit is not a "branch" under Texas law. New §15.43 codifies that opinion.
New §15.43 defines a remote service unit as an automated facility, operated by a customer of a bank, that conducts banking functions such as receiving deposits, paying withdrawals, or lending money. The term includes an unmanned or automated teller machine, automated loan machine, and automated device for receiving deposits, and the device may be equipped with a telephone or video device that allows contact with bank personnel. The section excludes a remote service unit from the definition of "branch" in Finance Code, §31.002(a)(8).
The commission received no comments regarding the proposal.
The new section is adopted under Finance Code, §31.003(a), which authorizes the commission to adopt rules to accomplish the purposes of Finance Code, Title 3, Subtitle A, and Finance Code, §31.002(a)(8)(H), which authorizes the commission to adopt rules exempting a banking facility from the definition of "branch." As required by §31.003(b), in adopting the section the finance commission considered the need to promote a stable banking environment, provide the public with convenient, safe, and competitive banking services, preserve and promote the competitive position of state banks with regard to national banks and other depository institutions in this state consistent with the safety and soundness of state banks and the state bank system, and allow for economic development in this state.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 15, 2007.
TRD-200702460
Sarah J. Shirley
General Counsel
Texas Department of Banking
Effective date: July 5, 2007
Proposal publication date: May 4, 2007
For further information, please call: (512) 475-1300
Chapter 91. CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS
Subchapter E. DIRECTION OF AFFAIRS
The Credit Union Commission adopts amendments to §91.501, concerning Eligibility to Hold Office, with non-substantive changes to the proposed text as published in the March 2, 2007, issue of the Texas Register (32 TexReg 1005).
The adopted amendments to §91.501 change the title of the section to "Director Eligibility and Disqualification;" clarify eligibility requirements for serving on the Board of Directors; allow a credit union to develop its own standard application for candidates seeking or appointed to director positions with review by the commissioner; direct each credit union to establish continuing education requirements for its directors; and delineate conduct that is prohibited for persons serving on the Board.
The amendments are adopted as a result of the Department's general rule review.
A public hearing on the amendments was held at the Department offices on May 18, 2007 at 8:15 a.m. No oral comments were received at that hearing.
Written comments were received from John Lederer with Credit Union of Texas, from Suzanne Yashewski with the Texas Credit Union League, and from Karen Wilkerson with United Heritage Credit Union. In addition, oral comments were received from Melodie Stegall with the Credit Union Legislative Coalition and from Suzanne Yashewski with the Texas Credit Union League at a public hearing at the Department offices on January 19, 2007.
Two comments concerned the added language on default in subsection (b)(4). Both noted that, under many loan agreements, even one late payment could constitute default. While the proposed additional language is identical to the statute, the Commission has revised the amendment to clarify that a director may not be more than 90 days delinquent on an obligation to the credit union.
Two other comments focused on the new subsection (b)(7) requiring that a director complete and return an application before being elected or before serving. The commenters felt that this amendment could be interpreted to preclude elections from the floor. In response, the Commission has added language incorporating the requirement of subsection (c), which allows 30 days to complete an application where the board member was not nominated by the nominating committee prior to the annual meeting.
Another commenter felt that requiring a director to take an oath of office could be discriminatory. As this is a statutory requirement under §122.053(c), the Commission cannot waive it, but notes that both the rule and the statute allow a director to take and subscribe to an affirmation of office as well. The Commission declines to amend the rule.
Finally, a commenter expressed concern with the amendment to subsection (c) which would allow credit unions to prescribe the director application form. The commenter felt that it would be possible for a credit union to design an application that could discourage certain classes of members from seeking election to the board. In response to this concern, the Commission has retained the commissioner's ability to review any form and to require that changes be made if the application is deemed to be inadequate or discriminatory.
The amended rule is adopted under §15.402 of the Texas Finance Code, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code, §122.054, which directs the Commission to establish qualifications for a director.
The specific section affected by the adopted rule amendments is Texas Finance Code, §122.054.
§91.501.Director Eligibility and Disqualification.
(a) Elective office. No credit union shall adopt or amend its articles of incorporation or bylaws to designate or reserve one or more places on the board of directors for any member representative of any classification that restricts or infringes upon the equal rights of all members to vote for, or seek any position on, the board of directors of the credit union.
(b) Qualifications. No member may be elected to or serve on the board of directors if that member:
(1) has been convicted of any criminal offense involving dishonesty or breach of trust;
(2) is not eligible for coverage by the blanket bond required under the provisions of the Act, or §91.510 of this title (relating to Bond and Insurance Requirements);
(3) has had a final judgment entered against him/her in a civil action upon the grounds of fraud, deceit, or misrepresentation;
(4) has a payment on a voluntary obligation to the credit union that is more than 90 days delinquent or has otherwise caused the credit union to suffer a financial loss;
(5) has been removed from office by any regulatory or government agency as an officer, agent, employee, consultant or representative of any financial institution;
(6) has been personally made subject to an operating directive for cause while serving as an officer, director, or senior executive management person of a financial institution; or has caused or participated in a prohibited activity or an unsafe or unsound condition at a financial institution which resulted in the suspension or revocation of the financial institution's certificate of incorporation, or authority or license to do business;
(7) has failed to complete and return a director application in accordance with subsection (c) of this section; or
(8) refuses to take and subscribe to the prescribed oath or affirmation of office.
(c) Director application. Any member nominated for, or seeking election to, the board of directors shall submit a written application in such form as the credit union may prescribe. The application shall be submitted either to the nominating committee prior to its selection of nominees; or to the board chair within 30 days following the election of a member who was not nominated by the nominating committee or who was appointed by the board to fill a vacancy. The applications of the elected/appointed directors shall be incorporated into and made part of the minutes of the first board meeting following the election/appointment of those directors. Applications of unsuccessful candidates shall be destroyed or returned upon request. The commissioner may review and require that changes be made to any application form, which is deemed inadequate or unfairly discriminates against certain classes of members.
(d) Director education. Directors must develop and maintain a fundamental, ongoing knowledge of the regulations and issues affecting credit union operations to assure a safe and sound institution. A credit union shall, by written board policy, establish appropriate education requirements and provide sufficient resources for elected officials to achieve and maintain professional competence. The policy should be appropriate to the size and financial condition of the credit union and the nature and scope of its operations.
(e) Prohibited conduct. A director shall not:
(1) Divulge or make use of, except in the performance of office duties, any fact, information, or document not generally available to the membership that is acquired by virtue of serving on the board of the credit union.
(2) Use the director's position to obtain or attempt to obtain special advantage or favoritism for the director, any relative of the director, or any person residing in the director's household.
(3) Accept, directly or indirectly, any gift, fee, or other present that is offered or could be reasonably be viewed as being offered to influence official action or to obtain information that the director has access to by reason of serving on the board of the credit union.
(f) Recall of director. The members of a credit union may remove a director by a vote of two-thirds of those members voting at any special or regular meeting of the members; provided, however, that:
(1) the members voting shall constitute not less than 10% of the membership eligible to vote in the recall election;
(2) all members are given at least 30 days notice of the meeting which shall state the reasons why the meeting has been called; and
(3) the affected director is afforded an opportunity to be heard at such meeting prior to a vote on removal.
(g) Absences. The office of a director becomes vacant upon the convening of a regular board meeting, when a director fails to attend three (3) consecutive regular meetings without due cause, or when a director fails to attend six (6) regular meetings within any twelve-month period following the director's election or appointment. A new individual shall be appointed to fill any vacancies occurring in this manner within sixty days, unless extended by approval of the commissioner.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 18, 2007.
TRD-200702490
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: July 8, 2007
Proposal publication date: March 2, 2007
For further information, please call: (512) 837-9236
The Credit Union Commission adopts amendments to §91.502, concerning director fees and expenses, without changes to the proposed text as published in the March 2, 2007, issue of the Texas Register (32 TexReg 1006).
The adopted amendments define more specifically the limitations on the payment of fees to directors or committee members, clarify that fees may be paid to committee members, and add a new subsection for providing insurance to directors or committee members.
The amendments are adopted as a result of the Department's general rule review.
A public hearing on the amendments was held at the Department offices on May 18, 2007 at 8:15 a.m. No oral comments were received.
Written comments in support of the amendments were received from Karen Wilkerson with United Heritage Credit Union. The commenter urged the Commission to adopt the amendments as presented.
The amendments are adopted under §15.402 of the Texas Finance Code, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code §122.062, which limits the compensation a director may receive for services.
The specific section affected by the adopted rule amendments is Texas Finance Code, §122.062.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 18, 2007.
TRD-200702492
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: July 8, 2007
Proposal publication date: March 2, 2007
For further information, please call: (512) 837-9236
The Credit Union Commission adopts amendments to §91.510, concerning fidelity bond and insurance requirements, with non-substantive changes to the proposed text as published in the March 2, 2007, issue of the Texas Register (32 TexReg 1007).
The amendments remove the minimum coverage and maximum deductible requirements and place responsibility for determining those amounts on the credit union, subject to review by the board of directors. The amendments also make clear that failure to comply with NCUA's fidelity bond requirements could be deemed an unsafe practice under Texas Finance Code §122.255.
The amendments are adopted as a result of the Department's general rule review.
A public hearing on the amendments was held at the Department offices on May 18, 2007, at 8:15 a.m. No oral comments were received.
Written comments were received from Karen Wilkerson with United Heritage Credit Union and from John Lederer with Credit Union of Texas. One commenter supported the amendments and urged the Commission to adopt them as proposed. Another commenter suggested eliminating the term "management" in subsection (a)(1) to clarify that the responsibility for determining the amount of bond coverage resides in both the management and the board. The change has been made as suggested. The commenter also noted a typographical error in subsection (f) which has been corrected.
The amendments are adopted under §15.402 of the Texas Finance Code, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code §122.063, which requires a credit union to provide surety or security bonds for directors, officers, and employees.
The specific section affected by the amended rule is Texas Finance Code §122.063.
§91.510.Bond and Insurance Requirements.
(a) Fidelity bond. Each credit union shall purchase and maintain a blanket fidelity bond covering the officers, directors, employees, committee members, and its agents, against loss caused by dishonesty, burglary, robbery, larceny, theft, holdup, forgery or alteration of instruments, misplacement or mysterious disappearance. All carriers writing credit union blanket bonds must be authorized by the Insurance Commissioner for the state of Texas as an acceptable fidelity on bonds in this state.
(1) Subject to approval by the credit union's board of directors, the amount of coverage to be required for each credit union shall be determined by the credit union, based on its assessment of the level that would be safe and sound in view of the credit union's potential exposure to risk.
(2) Each credit union may maintain bond coverage in addition to that provided by the insurance underwriter industry's standard forms, through the use of endorsements, riders, or other forms of supplemental coverage, if, in the judgment of the credit union's board of directors, additional coverage is warranted.
(3) The commissioner may require additional coverage of any credit union when, in his opinion, the fidelity bond in force is insufficient to provide adequate fidelity coverage. It shall be the duty of the board of directors to obtain the additional coverage within 30 days after the date of written notice of the findings by the commissioner.
(b) Cancellation. A fidelity bond must include a provision requiring written notification by the fidelity to the commissioner prior to cancellation of any or all coverages set out in the bond which includes a brief statement of cause for termination.
(c) Other insurance. Each credit union shall, subject to approval by the board, purchase appropriate insurance coverages to insure the credit union and its assets against loss or damage by fire, liability, casualty or any other insurance risks.
(d) Board review. The board of directors of each credit union shall formally approve the credit union's bond and insurance coverages. In deciding whether to approve the coverages, the board shall review the adequacy of the standard coverage and the need for supplemental coverage. Documentation of the board's approval shall be included as part of the minutes of the meeting at which the board approves coverages. Additionally, the board of directors shall review the credit union's bond and insurance coverages at least annually to assess the continuing adequacy of coverage.
(e) Review by fidelity company. Credit unions which are analyzed by a fidelity company shall notify the commissioner of the analysis within 30 days of the review commencement. The report of the review is to be provided to the commissioner upon request. The confidentiality of the report shall be preserved in the same manner afforded a report of examination conducted by the department.
(f) Insuring organization's bond requirements. A credit union shall also comply with all bond requirements imposed by an insuring organization as a condition to maintain insurance on share and deposit accounts. Any credit union that fails to meet the minimum fidelity bond specifications contained within Part 741.201 of the NCUA Rules and Regulations may be deemed to be engaged in an unsafe practice pursuant to Finance Code §122.255.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 18, 2007.
TRD-200702489
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: July 8, 2007
Proposal publication date: March 2, 2007
For further information, please call: (512) 837-9236
The Credit Union Commission adopts amendments to §91.516, concerning audits and verifications, with non-substantive changes to the proposed text as published in the March 2, 2007, issue of the Texas Register (32 TexReg 1008).
The adopted amendments clarify the timing and conditions of audits of credit unions. The amendments also provide that the commissioner can require a credit union to obtain a verification of members' accounts under certain conditions and more clearly define the conditions under which the commissioner can require an opinion audit.
The amendments are adopted as a result of the Department's general rule review.
A public hearing on the amendments was held at the Department offices on May 18, 2007 at 8:15 a.m. No oral comments were received.
Written comments were received from Karen Wilkerson with United Heritage Credit Union and from John Lederer with Credit Union of Texas. One commenter supported the amendments, urging the Commission to adopt them as proposed. Another commenter expressed concern that stating the requirement of an audit in terms of a calendar year could allow a credit union to conduct an audit early in one year and late in another year with two annual meetings intervening. Accurate financial reporting is essential to a credit union's safety and soundness. To help ensure accurate and reliable financial reporting, the Commission believes that each credit union should establish and maintain an auditing program that is performed as of year-end. Since Texas Finance Code, §122.102, requires that a summary of the audit be reported to the members at the next annual meeting, the Commission has reinserted "annual" before "audit" in this section and has reiterated that a summary of the audit be reported at the next annual meeting.
The amendments are adopted under §15.402 of the Texas Finance Code, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code, §122.102 which requires credit unions to observe accounting principles prescribed by the Commission and authorizes the Commission to adopt a rule requiring verification of members' accounts.
The specific section affected by the adopted rule amendments is Texas Finance Code, §122.102.
§91.516.Audits and Verifications.
(a) Audit requirements. At least once every calendar year, the board of directors shall obtain or cause to be performed an annual audit of the credit union which must cover the period elapsed since the last audit period, a summary of which must be reported to the members at the next membership meeting. The audit must be conducted in accordance with generally accepted auditing standards by a licensee of the Texas State Board of Public Accountancy or as permitted under the provisions of part 715 of the National Credit Union Administration's Rules and Regulations (12 CFR, Chapter VII, Part 715).
(b) Definitions.
(1) A record-keeping deficiency is serious if the commissioner reasonably believes that the board of directors and management of the credit union have not timely met financial reporting objectives and established practices and procedures sufficient to safeguard members' assets.
(2) A serious recordkeeping deficiency is persistent when it continues beyond a usual, expected or reasonable period of time.
(c) Verification obligation. The board of directors shall, at least once every two years, cause the share, deposit, and loan accounts to be verified against the records of the credit union as prescribed in §715.8 of the National Credit Union Administration's Rules and Regulations (12 CFR, Chapter VII, Part 715).
(d) Remedies. The commissioner may compel a credit union to obtain an audit and/or a verification of members' accounts, performed by an independent person, for any year in which any of the following three conditions is present:
(1) the credit union has not obtained an annual audit or caused an audit/verification to be performed;
(2) the credit union has obtained an audit/verification or performed an audit/verification which does not meet the specified requirements; or
(3) the credit union has experienced serious and persistent recordkeeping deficiencies.
(e) Opinion audit required. The commissioner may compel a credit union to obtain an opinion audit performed in accordance with Generally Accepted Auditing Standards by an independent person who is licensed by the state for any year in which the credit union has experienced persistent serious recordkeeping deficiencies. The objective of such an audit is to obtain an unqualified opinion on the credit union's financial statements.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 18, 2007.
TRD-200702493
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: July 8, 2007
Proposal publication date: March 2, 2007
For further information, please call: (512) 837-9236
The Credit Union Commission adopts amendments to §91.610, concerning safe deposit box facilities, without changes to the proposed text as published in the March 2, 2007, issue of the Texas Register (32 TexReg 1008).
The amendments remove duplicate language and make grammatical and technical corrections to the language of the rule.
The amendments are adopted as a result of the Department's general rule review.
A public hearing on the amendments was held at the Department offices on May 18, 2007, at 8:15 a.m. No oral comments were received.
Written comments in support of the amendments were received from Karen Wilkerson with United Heritage Credit Union. The commenter urged the Commission to adopt the amendments as presented.
The amendments are adopted under §15.402 of the Texas Finance Code, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code §125.508, which sets out requirements for key imprinting.
The specific section affected by the amended rule is Texas Finance Code §125.508.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 18, 2007.
TRD-200702488
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: July 8, 2007
Proposal publication date: March 2, 2007
For further information, please call: (512) 837-9236
Subchapter A. INSURANCE REQUIREMENTS
The Credit Union Commission adopts new §95.110, concerning enforcement, penalty, and appeal, with a non-substantive change to the proposed text as published in the March 2, 2007, issue of the Texas Register (32 TexReg 1009). The change corrects a typographical error in subsection (a).
The adopted new rule addresses the actions the commissioner may take in the event the commissioner determines an insuring organization is operating in an unsafe or unsound manner or violating any applicable laws or regulations.
The new rule is adopted as a result of the Department's general rule review and in response to comments from the Texas Department of Insurance.
A public hearing on the new rule was held at the Department offices on May 18, 2007 at 8:15 a.m. No oral comments were received.
One written comment in support of the new rule was received from Karen Wilkerson with United Heritage Credit Union. The commenter urged the Commission to adopt the rule as presented.
The new rule is adopted under §15.402 of the Texas Finance Code, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code and under Texas Finance Code, §15.404, which authorizes the commissioner to administer and enforce the statutes and rules, §122.257 which permits the commissioner to issue a cease and desist order, and §122.260, which authorizes the commissioner to assess administrative penalties.
The specific sections affected by the adopted new rule are Texas Finance Code, §§15.404, 122.257, and 122.260.
§95.110.Enforcement; Penalty; and Appeal.
(a) The commissioner may issue a cease and desist order, generally in accordance with Finance Code §122.257(b), (c), (d) and (e), to an officer, employee, director, and/or the insuring organization itself, if the commissioner determines from examination or other credible evidence that the insuring organization has or is operating in an unsafe or unsound manner, or violated or is violating any applicable Texas law or rule of the commission, including causing a credit union to operate in an unsafe or unsound condition as defined by Finance Code §121.002(11)(C). If the insuring organization does not comply with the order, the commissioner may assess an administrative penalty as authorized by Finance Code §122.260, as well as institute procedures to revoke the authority to provide primary share insurance coverage in this state.
(b) An insuring organization may file a notice of appeal of a cease and desist order in accordance with §93.401 of this title (relating to Finality and Request for SOAH Hearing).
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 18, 2007.
TRD-200702491
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: July 8, 2007
Proposal publication date: March 2, 2007
For further information, please call: (512) 837-9236