PART 2. TEXAS DEPARTMENT OF BANKING
CHAPTER 15. CORPORATE ACTIVITIES
The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), adopts new §§15.9 - 15.12; amendments to §15.6 and §15.8; and, repeal of §15.9. These rules concern fees and other provisions of general applicability related to corporate activities. The commission also adopts the repeal of §15.112, concerning waiver of requirements. These adoptions are made without changes to the proposed text as published in the May 2, 2008, issue of the Texas Register (33 TexReg 3509). The text will not be republished.
These new and amended rules implement legislative changes resulting from the passage of House Bill (HB) 1962 and HB 2754, 80th Texas Legislature. The new and amended rules concern the method for protesting bank charter applications, the Banking Commissioner's (commissioner) discretion to convene a hearing in regard to bank charter applications, and the filing of corporate documents under the Texas Business Corporations Act (TBCA) or the Texas Business Organizations Code (TBOC). The new and amended rules make Chapter 15 consistent with the amended statutes.
Chapter 15, Subchapter A, implements Finance Code §§32.001 - 32.008 by setting out details regarding filing fees, corporate filings, and processing applications for bank charters. The amendment to §15.6 arises from that part of HB 2754 which was codified as Finance Code §32.005. Section 15.6(b) specifies that the department will notify the applicant of any protest. Section 15.6(c) is amended to clarify that the commissioner may convene a hearing whether or not a protest is filed, and that if the commissioner does so, the 180 day deadline for acting on an application does not apply. Section 15.6(c) is also amended to refer the reader to new §15.10, which governs procedures for protests.
The amendment to §15.8(a) arises from the Legislature's enactment of the Texas Business Organizations Code (TBOC) in 2003. As part of the state's continuing statutory revision program under Chapter 323 of the Government Code, the TBOC collected and codified the organizational statutes of Texas governing for-profit and non-profit private-sector entities, including the Texas Business Corporation Act, the Texas Miscellaneous Corporation Laws Act, and the Texas Limited Liability Company Act, among others. The TBOC became effective January 1, 2006. In 2007, the Legislature passed HB 1962, part of which is codified as Finance Code §32.008. Finance Code §32.008(a) makes the TBOC generally applicable to banking associations. Finance Code §32.008(d) states that, until January 1, 2010, a bank organized before January 1, 2006 can choose to be governed by the former law, the TBCA. Therefore, §15.8(a) is amended to clarify that, until January 1, 2010, banks organized before January 1, 2006 may file corporate documents pursuant to the TBCA.
The amendment to §15.8(d) adds paragraphs (3) to (5) and makes §15.8(d) consistent with Finance Code §201.103. Finance Code §201.103 authorizes a bank to file a statement with the secretary of state regarding the appointment, change or cancellation of an appointment of an agent to receive process.
New §15.9, like §15.8, arises from the Legislature's enactment of the TBOC in 2003. As stated above, Finance Code §32.008(a) makes the TBOC generally applicable to banking associations. After January 1, 2010, all state banks will be governed by the TBOC. Therefore, §15.9 follows the format of §15.8 and specifies the type of filings a state bank may make in compliance with the TBOC and whether those filings should be made with the secretary of state or the commissioner.
New §15.10 details the procedures for handling protests of applications of new bank charters. These procedures were revised by the Legislature in HB 2754 and are codified as Finance Code §32.005(a) and (b).
New §15.11 details procedures for requesting hearings, clarifies that the commissioner has discretion whether or not to convene a hearing, and states how a hearing shall be conducted. These procedures were revised by the Legislature in HB 2754 and are codified as Finance Code §32.005(c).
New §15.12 was formerly numbered §15.9. The text has been moved so that it remains the last section of Subchapter A for better organization.
The Department received no comments regarding the proposed sections.
SUBCHAPTER A. FEES AND OTHER PROVISIONS OF GENERAL APPLICABILITY
The amendments and new sections are adopted under Finance Code §11.301, which provides that the commission may adopt banking rules as provided by Finance Code §31.003; under Finance Code §31.003(a), which provides that the commission may adopt rules to accomplish the purposes of the banking statutes, including rules necessary or reasonable to implement and clarify banking statutes and to facilitate the fair hearing and adjudication of matters before the commissioner; under Finance Code §32.005, which establishes the procedure for protests and hearings of bank charter applications; under Finance Code §32.008, which authorizes the commission to adopt rules to limit or refine the applicability of general corporate laws to a state bank or to alter or supplement the procedures and requirements of those laws applicable to actions taken under chapter 32 of the Finance Code and permitting a state bank to elect to be governed by the provisions of the TBOC to the extent not inconsistent with Subtitle A of Title 3 of the Finance Code or the proper business of a state bank; and, under Finance Code §201.103, which authorizes Texas financial institutions to file documents with the secretary of state regarding appointments of agents to receive service of process.
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 20, 2008.
TRD-200803177
A. Kaylene Ray
General Counsel
Texas Department of Banking
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 475-1300
The repeal is adopted under Finance Code §11.301, which provides that the commission may adopt banking rules as provided by Finance Code §31.003; under Finance Code §31.003(a), which provides that the commission may adopt rules to accomplish the purposes of the banking statutes, including rules necessary or reasonable to implement and clarify banking statutes and to facilitate the fair hearing and adjudication of matters before the commissioner; under Finance Code §32.005, which establishes the procedure for protests and hearings of bank charter applications; and, under Finance Code §32.008, which authorizes the commission to adopt rules to limit or refine the applicability of general corporate laws to a state bank or to alter or supplement the procedures and requirements of those laws applicable to actions taken under chapter 32 of the Finance Code and permitting a state bank to elect to be governed by the provisions of the TBOC to the extent not inconsistent with Subtitle A of Title 3 of the Finance Code or the proper business of a state bank.
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 20, 2008.
TRD-200803178
A. Kaylene Ray
General Counsel
Texas Department of Banking
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 475-1300
The repeal is adopted under Finance Code §11.301, which provides that the commission may adopt banking rules as provided by Finance Code §31.003; under Finance Code §31.003(a), which provides that the commission may adopt rules to accomplish the purposes of the banking statutes, including rules necessary or reasonable to implement and clarify banking statutes and to facilitate the fair hearing and adjudication of matters before the commissioner; and, under Finance Code §32.008, which authorizes the commission to adopt rules to limit or refine the applicability of general corporate laws to a state bank or to alter or supplement the procedures and requirements of those laws applicable to actions taken under chapter 32 of the Finance Code and permitting a state bank to elect to be governed by the provisions of the TBOC to the extent not inconsistent with Subtitle A of Title 3 of the Finance Code or the proper business of a state bank.
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 20, 2008.
TRD-200803179
A. Kaylene Ray
General Counsel
Texas Department of Banking
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 475-1300
The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), adopts new §§21.9 - 21.12; amendments to §§21.6, 21.8, 21.63, and 21.91; and repeal of §21.9. These rules concern fees and other provisions of general applicability related to trust company corporate activities. These adoptions are made without changes to the proposed text as published in the May 2, 2008, issue of the Texas Register (33 TexReg 3513). The text will not be republished.
These new and amended rules implement legislative changes resulting from the passage of House Bill (HB) 1962 and HB 2754, 80th Texas Legislature. The new and amended rules concern the method for protesting trust charter applications, the Banking Commissioner's (commissioner) discretion to convene a hearing in regard to trust charter applications, and the filing of corporate documents under the Texas Business Corporations Act (TBCA) or the Texas Business Organizations Code (TBOC). The new and amended rules make Chapter 21 consistent with the amended statutes.
Chapter 21, Subchapter A, implements Finance Code §§182.001 - 182.009 by setting out details regarding filing fees, corporate filings, and processing applications for trust charters.
The amendment to §21.6 arises from that part of HB 2754 which was codified as Finance Code §182.005. Section 21.6(b) specifies that the department will notify the applicant of any protest. Section 21.6(c) is amended to clarify that the commissioner may convene a hearing whether or not a protest is filed, and that if the commissioner does so, the 180 day deadline for acting on an application does not apply. Section 21.6(c) is also amended to refer the reader to new §21.10, which governs procedures for protests.
The amendment to §21.8(a) arises from the Legislature's enactment of the Texas Business Organizations Code (TBOC) in 2003. As part of the state's continuing statutory revision program under Chapter 323 of the Government Code, the TBOC collected and codified the organizational statutes of Texas governing for-profit and non-profit private-sector entities, including the Texas Business Corporation Act, the Texas Miscellaneous Corporation Laws Act, and the Texas Limited Liability Company Act, among others. The TBOC became effective January 1, 2006. In 2007, the Legislature passed HB 1962, part of which is codified as Finance Code §182.009. Finance Code §182.009(a) makes the TBOC generally applicable to trust associations. Finance Code §182.009(d) states that, until January 1, 2010, a state trust company organized before January 1, 2006 can choose to be governed by the former law, the TBCA. Therefore, §21.8(a) is amended to clarify that, until January 1, 2010, state trust companies organized before January 1, 2006 may file corporate documents pursuant to the TBCA.
The amendment to §21.8(d) adds paragraphs (3) to (5) and makes §21.8(d) consistent with Finance Code §201.103. Finance Code §201.103 authorizes a financial institution to file a statement with the secretary of state regarding the appointment, change or cancellation of an appointment of an agent to receive process.
New §21.9, like §21.8, arises from the Legislature's enactment of the TBOC in 2003. As stated above, Finance Code §182.009(a) makes the TBOC generally applicable to trust associations. After January 1, 2010, all state trust companies will be governed by the TBOC. Therefore, §21.9 follows the format of §21.8 and specifies the type of filings a state trust company may make in compliance with the TBOC and whether those filings should be made with the secretary of state or the commissioner.
New §21.10 details the procedures for handling protests of applications of new trust company charters. These procedures were revised by the Legislature in HB 2754 and are codified as Finance Code §182.005(a) and (b).
New §21.11 details procedures for requesting hearings, clarifies that the commissioner has discretion whether or not to convene a hearing, and states how a hearing shall be conducted. These procedures were revised by the Legislature in HB 2754 and are codified as Finance Code §182.005(c).
New §21.12 was formerly numbered §21.9. The text has been moved so that it remains the last section of Subchapter A for better organization.
The amendments to §21.63 and §21.91 are to correct a typographical error and to delete a reference to a repealed rule, respectively.
The Department received no comments regarding the proposed sections.
SUBCHAPTER A. FEES AND OTHER PROVISIONS OF GENERAL APPLICABILITY
The amendments and new sections are adopted under Finance Code §181.003(a), which provides that the commission may adopt rules to accomplish the purposes of Subtitle F, Trust Companies, including rules necessary or reasonable to implement and clarify Subtitle F and to facilitate the fair hearing and adjudication of matters before the commissioner; under Finance Code §182.005, which establishes the procedure for protests and hearings of trust company charter applications; under Finance Code §182.009, which authorizes the commission to adopt rules to alter or supplement the procedures and requirements of those laws applicable to actions taken under chapter 182 of the Finance Code and permits a state trust company to elect to be governed by the provisions of the TBOC to the extent not inconsistent with subtitle F of Title 3 of the Finance Code or the proper business of a state trust company; and, under Finance Code §201.103, which authorizes Texas financial institutions to file documents with the secretary of state regarding appointments of agents to receive service of process.
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 20, 2008.
TRD-200803180
A. Kaylene Ray
General Counsel
Texas Department of Banking
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 475-1300
The repeal is adopted under Finance Code §181.003(a), which provides that the commission may adopt rules to accomplish the purposes of Subtitle F, Trust Companies, including rules necessary or reasonable to implement and clarify Subtitle F and to facilitate the fair hearing and adjudication of matters before the commissioner; under Finance Code §182.005, which establishes the procedure for protests and hearings of trust company charter applications; under Finance Code §182.009, which authorizes the commission to adopt rules to alter or supplement the procedures and requirements of those laws applicable to actions taken under chapter 182 of the Finance Code and permits a state trust company to elect to be governed by the provisions of the TBOC to the extent not inconsistent with subtitle F of Title 3 of the Finance Code or the proper business of a state trust company; and, under Finance Code §201.103, which authorizes Texas financial institutions to file documents with the secretary of state regarding appointments of agents to receive service of process.
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 20, 2008.
TRD-200803181
A. Kaylene Ray
General Counsel
Texas Department of Banking
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 475-1300
The amendment is adopted under Finance Code §181.003(a), which provides that the commission may adopt rules to accomplish the purposes of Subtitle F, Trust Companies, including rules necessary or reasonable to implement and clarify Subtitle F and to facilitate the fair hearing and adjudication of matters before the commissioner; and, under Finance Code §182.009, which authorizes the commission to adopt rules to alter or supplement the procedures and requirements of those laws applicable to actions taken under chapter 182 of the Finance Code and permits a state trust company to elect to be governed by the provisions of the TBOC to the extent not inconsistent with subtitle F of Title 3 of the Finance Code or the proper business of a state trust company.
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 20, 2008.
TRD-200803182
A. Kaylene Ray
General Counsel
Texas Department of Banking
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 475-1300
The amendment is adopted under Finance Code §181.003(a), which provides that the commission may adopt rules to accomplish the purposes of Subtitle F, Trust Companies, including rules necessary or reasonable to implement and clarify Subtitle F and to facilitate the fair hearing and adjudication of matters before the commissioner; and, under Finance Code §182.009, which authorizes the commission to adopt rules to alter or supplement the procedures and requirements of those laws applicable to actions taken under chapter 182 of the Finance Code and permits a state trust company to elect to be governed by the provisions of the TBOC to the extent not inconsistent with subtitle F of Title 3 of the Finance Code or the proper business of a state trust company.
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 20, 2008.
TRD-200803183
A. Kaylene Ray
General Counsel
Texas Department of Banking
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 475-1300
CHAPTER 84. MOTOR VEHICLE INSTALLMENT SALES
SUBCHAPTER B. INSTALLMENT SALES CONTRACT PROVISIONS
The Finance Commission of Texas (commission) adopts the repeal of 7 TAC §84.209, concerning Model Clauses. The repeal is adopted without changes to the proposal as published in the May 2, 2008, issue of the Texas Register (33 TexReg 3517).
The commission has determined that this rule more effectively belongs in a different location within Chapter 84 in order to better track the organization of Texas Finance Code, Chapter 348. Therefore, this rule is being repealed and a new (relocated) rule is adopted elsewhere in this issue of the Texas Register.
The commission received no written comments on the proposed repeal.
The repeal is adopted under Texas Finance Code, §11.304, which authorizes the commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §348.513 authorizes the commission to adopt rules for the enforcement of the motor vehicle installment sales chapter.
The statutory provisions (as currently in effect) affected by the repeal are contained in Texas Finance Code, Chapter 348.
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 20, 2008.
TRD-200803219
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 936-7621
The Finance Commission of Texas (commission) adopts the repeal of 7 TAC §84.302, concerning Prepaid Maintenance Agreements. The repeal is adopted without changes to the proposal as published in the May 2, 2008, issue of the Texas Register (33 TexReg 3518).
The commission has determined that this rule more effectively belongs in a different location within Chapter 84 in order to better track the organization of Texas Finance Code, Chapter 348. Therefore, this rule is being repealed and a new (relocated) rule is adopted elsewhere in this issue of the Texas Register.
The commission received no written comments on the proposed repeal.
The repeal is adopted under Texas Finance Code, §11.304, which authorizes the commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §348.513 authorizes the commission to adopt rules for the enforcement of the motor vehicle installment sales chapter.
The statutory provisions (as currently in effect) affected by the repeal are contained in Texas Finance Code, Chapter 348.
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 20, 2008.
TRD-200803222
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 936-7621
7 TAC §§84.302 - 84.305, 84.307
The Finance Commission of Texas (commission) adopts new §§84.302 - 84.305 and 84.307, concerning Insurance, with regard to motor vehicle sales finance dealers licensed by the Office of Consumer Credit Commissioner. The commission adopts §§84.302 - 84.304 with changes and §84.305 and §84.307 without changes from the proposal published in the May 2, 2008, issue of the Texas Register (33 TexReg 3518). Sections 84.302 - 84.304 will be republished.
The commission received no written comments on the proposal. The agency has, however, revised several provisions as a result of informal comments received. These revisions are summarized following the particular purpose of the rule to reflect changes made since the proposal.
The new rules (§§84.302 - 84.305) contain new operational provisions regarding insurance. The purpose of the new operational rules is to conform the commission's rules to current practice, to provide clarification for licensees required to comply with the rules, and to provide more specific guidance for the examination process.
Section 84.307 is being relocated and reorganized. The agency believes that the reorganization will benefit licensees in that this rule will be easier to find in a more logical location and order which better tracks the organization of Texas Finance Code, Chapter 348. The relocated rule is substantially similar to the rule being repealed, as found in 7 TAC §84.302, concerning Prepaid Maintenance Agreements. The commission's adopted repeal of this section is published elsewhere in this issue of the Texas Register.
In reference to the relocated rule, the purpose of the rule tracks the original purpose language used when it was originally adopted. Please note that, aside from changes to section number references, the new rule contained in §84.307 is merely being relocated without changes.
The following paragraphs outline the individual purposes of each adopted rule. The relocated rule is listed with its former location "(former §84.XXX)" listed after the new section number.
Section 84.302 describes the basic requirements and types of credit insurance authorized to be sold where a charge for insurance is included in the balance due under a retail installment sales contract for a motor vehicle. The rule is necessary to prescribe these types of insurance and require compliance with the applicable statutes contained in the Texas Insurance Code.
In response to informal comments received, subsection (a) has been added to §84.302 in order to clarify the scope and applicability of the section. Section 84.302(a) outlines that the section only applies "where a charge for insurance is included in the balance due under the retail installment sales contract" and that it "does not apply to insurance sold outside of the retail installment sales transaction." Additionally, the remaining subsections have been relettered accordingly.
Also addressing informal comments, subsection (b) (proposed subsection (a)) has been revised to clarify the optional nature of authorized credit insurance products. The additional sentence in §84.302(b) reads: "The retail seller may but is not required to offer the authorized credit insurance products described in this section."
Section 84.303 outlines the required elements that must be included in a policy or certificate of insurance sent to the retail buyer if a retail seller obtains insurance for which a charge is included in a motor vehicle retail installment sales contract. This rule is necessary to prescribe the specific information required to be disclosed to the retail buyer and to provide for a reasonable time frame in which the information is to be disclosed.
Since the proposal, the first sentence of §84.303 has been revised in order to address informal comments received. The new language clarifies that the policy or certificate of insurance must be sent to the retail buyer "{i}f a retail seller obtains insurance for which a charge is included in a motor vehicle retail installment sales contract . . . ." This revision echoes the applicability provision added to §84.302 as new subsection (a) relating to the inclusion of charges in the balance due under the contract. Also, the word "provide" has been replaced with the phrase "send or cause to be sent" in order to track the statutory language in Texas Finance Code, §348.210.
Section 84.304 requires that if a retail buyer provides a holder with equivalent property insurance coverage that names the holder as a loss payee, the holder must cancel any equivalent property insurance.
In response to an informal comment, the word "already" has been added before the word "purchased" in the first sentence of §84.304. The addition of "already" serves to clarify the prior purchase of insurance through the holder.
Section 84.305 provides that if a holder arranges for collateral protection insurance and assesses a charge for the insurance to the retail buyer, the holder must comply with Texas Finance Code, Chapter 307.
Section 84.307 (former §84.302) outlines the methods of disclosure on a retail installment sales contract for prepaid maintenance agreements sold in connection with motor vehicles. Prepaid maintenance agreements that are required or otherwise included with the sale of a motor vehicle must be disclosed as a component of the cash price. Those agreements sold on a voluntary basis may be disclosed under two methods specified in the rule.
As noted earlier, §84.307 is merely being relocated without changes to the rule text that has been in place since August 2006. The agency has not experienced any problems with this section and believes that its continuation is important. When originally drafted, this section was intended to aid dealers in the disclosure of prepaid maintenance agreements. Additionally the section was designed to target subterfuges and devices using prepaid maintenance agreements that attempted to evade the statutory requirements of Chapter 348. In particular, the agency was concerned about concealing hidden finance charges in required prepaid maintenance agreements. Some informal concerns have been expressed about this section and the agency's use of the section. The rule informs the industry that the agency may review the sale of prepaid maintenance agreements to determine whether the sale includes a hidden finance charge. The review of a prepaid maintenance agreement would be a totality of the circumstances review; this is the typical type of analysis used for any type of subterfuge.
These new sections are adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §348.513 grants the Finance Commission the authority to adopt rules to enforce the motor vehicle installment sales chapter. These rules affect Texas Finance Code, Chapter 348.
§84.302.Authorized Credit Insurance.
(a) This section only applies to a motor vehicle retail installment sales transaction under Texas Finance Code, Chapter 348 where a charge for insurance is included in the balance due under the retail installment sales contract. This section does not apply to insurance sold outside of the retail installment sales transaction.
(b) Authorized credit insurance includes credit life, credit accident and health insurance, credit involuntary unemployment insurance, and dual-interest gap insurance. The retail seller may but is not required to offer the authorized credit insurance products described in this section.
(c) Credit life insurance, credit accident and health insurance, and involuntary unemployment insurance written in connection with a Texas Finance Code, Chapter 348 motor vehicle retail installment sales contract must be decreasing term insurance.
(d) Credit life insurance and credit accident and health insurance must be written in compliance with Texas Insurance Code, Chapters 1131 and 1153, and any regulations issued by the Texas Department of Insurance under the authority of those provisions.
(e) Involuntary unemployment insurance must be written in compliance with Texas Insurance Code, Chapter 3501, and any regulations issued by the Texas Department of Insurance under the authority of that chapter.
(f) Dual-interest gap insurance, authorized by Texas Finance Code, §348.208(b)(4), must be written at rates and on forms set and filed in accordance with Texas Insurance Code, Chapters 2251 and 2301, and any regulations issued by the Texas Department of Insurance under the authority of those provisions.
(g) Credit insurance must be procured from an insurance company authorized to do business in this state. Surplus lines insurance companies are not authorized to offer credit insurance on a Chapter 348 motor vehicle retail installment sales contract.
(h) Debt cancellation, debt suspension, and gap waiver agreements are not credit insurance. Debt cancellation, debt suspension, and gap waiver agreements are not authorized to be sold or written with a Chapter 348 motor vehicle retail installment sales contract.
§84.303.Provision of Policy or Certificate.
If a retail seller obtains insurance for which a charge is included in a motor vehicle retail installment sales contract under Texas Finance Code, Chapter 348, the retail seller must send or cause to be sent to the retail buyer, within 30 days of the date of the contract, a properly executed policy or certificate of insurance. The policy or certificate of insurance must clearly set forth:
(1) the amount of the premium;
(2) the kind of insurance provided;
(3) the coverage of the insurance; and
(4) all terms, including options, limitations, restrictions and conditions of the insurance that has been purchased.
§84.304.Evidence of Equivalent Insurance.
If a retail buyer provides a holder with evidence of property insurance coverage that names the holder as a loss payee and that is equivalent to insurance already purchased through the holder, the holder must promptly cancel any equivalent property insurance or collateral protection insurance. The refund of any unearned insurance premium must be applied to the balance of the contract or refunded to the retail buyer.
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 20, 2008.
TRD-200803210
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 936-7621
7 TAC §§84.501, 84.503, 84.504
The Finance Commission of Texas (commission) adopts new §§84.501, 84.503, and 84.504, concerning Holder's Rights, Duties, and Limitations, with regard to motor vehicle sales finance dealers licensed by the Office of Consumer Credit Commissioner. The commission adopts these sections with changes from the proposal published in the May 2, 2008, issue of the Texas Register (33 TexReg 3520).
The commission received one written comment on the proposal from McGinnis, Lochridge & Kilgore, L.L.P. on behalf of GMAC LLC. Overall, the comment is supportive of the rules, stating: "GMAC supports effective regulation of the industry, and the proposals provide a number of revisions that will facilitate compliance. GMAC's comments are limited to two subsections of section 84.501, with respect to which it submits that further modifications are needed." The specific comments are addressed following the individual purpose of the provision at issue. Additionally, the agency has revised several provisions as a result of informal comments received. These revisions are summarized following the particular purpose of the rule to reflect changes made since the proposal.
The new rules contain new operational provisions regarding payoff statements, and collection practices and contacts. The purpose of the rules is to conform the commission's rules to current practice, to provide clarification for licensees required to comply with the rules, and to provide more specific guidance for the examination process. The following paragraphs outline the individual purposes of each adopted rule.
Section 84.501 requires a holder to give a retail buyer a payoff statement on written request of the retail buyer. This provision is necessary to enable a retail buyer to prepay the debt at any time in accordance with Chapter 348. The rule also outlines the content of the payoff statement and what is considered to be a reasonable time in which to give a payoff statement for different types of accounts.
Due to informal comments received, §84.501 has experienced several changes that will be addressed concerning each subsection having revisions. The official comment received relates to §84.501(j) and (k).
The first change is the addition of new subsection (a) containing definitions to be used throughout the section. Section 84.501(a)(1) clarifies that the use of the term "holder" in the section means "[a] holder with the legal authority to release the security interest, or the holder's designee who has the legal authority to release the security interest." Holders without the legal authority to release the lien are excluded from the requirements of §84.501. "Calendar days" has also been defined in §84.501(a)(2) to include "[e]very day of the week with the exclusion of legal public holidays as defined by 5 U.S.C. §6103." This definition is intended to help alleviate delivery time constraints surrounding legal public holidays. As a result of new subsection (a), the remaining subsections have been relettered accordingly.
In the subsection relating to requesting a statement, §84.501(e) (proposed subsection (d)), the second and third sentences have been revised in order to streamline the wording. Concerning the use of websites and email for requests, the following sentence has been added: "A website address or email address is presumed to be reasonably accessible, unless the retail buyer objects in writing." In order to address large businesses having many locations and methods of contact, revisions have been made to allow the use of "contact information included in the most recent communication from the holder related to payments or the contact information for that holder shown in the retail installment sales contract." Thus, subsection (e) as presented for adoption states that the retail buyer may first submit a request to the location designated by the holder, but if no location has been designated, the retail buyer may use the most recent contact information or that shown on the contract, and lastly, the retail buyer may "submit the request to any physical address or mailing address of holder."
In the subsection regarding content of the payoff statement, §84.501(g) (proposed subsection (f)), the phrase "for use in connection with the payoff statement" has been added to paragraphs (2) and (3) to address the concerns of large businesses having many locations and methods of contact. Additions to paragraph (6) clarify that the payoff amount is "as of the stated date of the payoff statement," that the creditor must indicate if the amount is subject to change, and that the statement may "include a description of the daily accrual of finance charges and known and identified subsequent events." These changes are intended to provide the holder and retail buyer with the most clarity concerning the content of the payoff statement.
In §84.501(h) and (i) (proposed subsections (g) and (h)), in each respective first sentence, the phrase "or buyer's designee" has been added after "retail buyer." Concerning subsection (h) relating to delivery of a payoff statement, the following sentence has been added: "A payoff statement or statement of payments given by email or by website address from which the statement may be printed satisfies the writing requirement of this subsection." This addition is to clarify that holders may utilize electronic delivery methods to give written statements when the statements may be printed. This revision provides holders greater flexibility and prompt delivery options for written statements.
Regarding the subsection relating to reasonable time period, §84.501(j) (proposed subsection (i)), the official comment received states that the references to litigation and bankruptcy should be removed from paragraph (1), which requires that statements be given in five calendar days for accounts in litigation, bankruptcy or repossession status. The commenter states: "Since accounts involved in litigation and bankruptcy would already be subject to procedural rules of the respective courts and would be supervised by the courts, GMAC believes that it would be a better practice to allow the courts to determine what constitutes a reasonable time for furnishing the statements."
Texas Finance Code, §348.408 states: "The holder of a retail installment contract who gives the retail buyer or the buyer's designee outstanding balance information relating to the contract is bound by that information and shall honor that information for a reasonable time." The statute does not create any exceptions, including the one sought by the commenter. The commission does not have the authority to make an exception that goes beyond the statutory requirement. Furthermore, the five-day timeline is the same as that required under 15 U.S.C. §1615, the federal payoff rule for precomputed consumer credit accounts. The federal rule does not contain any exclusion for litigation, bankruptcy, or otherwise. Thus, the commission declines to allow an exception for litigation or bankruptcy accounts as requested by the commenter.
Although the commission is unable to add a specific litigation/bankruptcy exception as outlined in the preceding paragraphs, other revisions have been made to §84.501(j) that the commission believes will help alleviate the commenter's concerns. In the first sentence of subsection (j), the word "presumptively" has been added before reasonable time, coordinating with new paragraph (5), which states: "The reasonable time periods defined by this subsection are presumed to be reasonable and may only be rebutted by a showing of good cause." The rule provides a rebuttable presumption for good cause in the absence of a statutory exception for bankruptcy or litigation. This rebuttable presumption provides the creditor with an opportunity to show the need for more than five calendar days under complex circumstances. Also, as stated under new subsection (a) containing definitions, calendar days has been modified to exclude legal public holidays. This revision has also been added to §84.501(j)(1) to reinforce the definition of calendar days in the context of the reasonable time period subsection.
In response to informal comments received, revisions have been made to paragraph (3) and paragraph (4) has been added to §84.501(j). The changes to paragraph (3) serve to clarify the wording by adding the use of "the holder" and the phrase "determine the proper account" relating to verifying the requester's identity. New paragraph (4) is similar to the legal service concept known as "the mailbox rule," stating: "The holder's response is timely if placed in first-class U.S. mail, given by facsimile or email, or otherwise transmitted within the reasonable time period."
Regarding the subsection relating to how long a payoff statement is binding, §84.501(k) (proposed subsection (j)), the official comment requests the addition of delivery via website to subsection (k)(1). The commenter states: "GMAC now provides most payoff statements on its website, and delivery of the statement via a holder's website is in the same category of promptness as delivery via hand-delivery, facsimile, or email. . . . . The proposed modification would clarify that furnishing a payoff statement via a holder's website would be subject to the 10 day period of §84.501(k)(1) rather than the 15 day period of §84.501(k)(2)." The commission agrees with this revision and has added "or website" after "email" in subsection (k)(1) for this adoption.
In order to address informal comments received, the phrase "from the date the payoff statement is given" has been added to the end of §84.501(k)(1) and (2) to further clarify when a payoff statement is binding.
Additionally, throughout §84.501 all uses and variants of the verb "provide" have been replaced with the verb "give" in order best track the statutory language contained in Texas Finance Code, §348.408 relating to payment in full. Although Texas Finance Code, §348.405 relating to statement of payments offers an alternative verb, §348.405 and §348.408 both use forms of "give" in connection with giving the information to the retail buyer. Thus, in addition to replacing "provide," other terminology such as "respond to an inquiry for" and "processing" has also been replaced with the proper form of "give" to maintain consistency throughout the section.
Section 84.503 addresses the allowable collection practices of motor vehicle sales finance licensees, including a prohibition on the use of any physical force or violence against any person or property.
In response to informal comments received, the phrase "or other applicable law" has been added to the end of §84.503(a) to reflect the possible applicability of laws outside of Texas. Regarding violence against property, the end of subsection (b) has been clarified to read: "or use any violence or other force that results in harm or damage to property." This revised phrase is intended to encompass actions such as breaking a lock or damaging a vehicle, but would not include a peaceful towing where the vehicle is not harmed or damaged.
Section 84.504 outlines who may be contacted regarding a debt subject to Texas Finance Code, Chapter 348, and when a licensee may communicate with a retail buyer. The rule limits the communication restrictions according to each particular retail buyer and that buyer's specific debt under a motor vehicle retail sales installment contract. The rule prohibits the use of any simulated legal process and the misrepresentation of the identity of the licensee.
Due to informal comments received, §84.504 has experienced several revisions, some of which are echoed in more than one subsection. For example, in order to reflect the restriction of collection contacts in relation to a specific retail buyer and particular account, language to that effect has been added to subsections (a) and (d). Also, as some buyers or co-buyers often have the same telephone number or physical address (e.g., husband and wife), the term "deliberate communication" has been added to subsection (a) and the corresponding term "knowingly" has been added to subsection (d) to accommodate accidental contact with an objecting buyer when an attempt is made to contact a non-objecting buyer. Finally, some additional changes in wording have been made to §84.504(a) and (d) to improve clarity and coordinate with the revisions outlined in this paragraph.
In subsection (b), the phrase related to a guarantor now reads "or guarantor of the obligation" and the phrase "or a refund" has been inserted before "involving the debtor or motor vehicle" in order to provide more accurate wording. The phrase associated with an executor or administrator of a will has been deleted, but new language has been added at the end of the subsection that more broadly addresses executors and administrators for estates with or without a will, as well as other parties that may be contacted for payment. Thus, the end of §84.504(b) now reads: "any person who may be or is legally obligated to pay all or a portion of the debt, or a guardian, executor, administrator, attorney, agent, or representative of any of the foregoing."
Subsection (e) has been revised in order to best reflect the proper context of a collection contact, to more accurately describe the restricted information, and to better outline the parties that may lawfully receive the information pertaining to a debt or obligation. Regarding the collection context, the following phrase has been added after "jurisdiction": "in connection with the collection of amounts due under a motor vehicle retail installment sales contract." Continuing on after the preceding new phrase, the information is appropriately narrowed so that "a licensee may not communicate nonpublic personal information pertaining to a debt or obligation . . . ." And finally, in order to best describe the parties that may lawfully receive this information, after "the attorney of the creditor," the end of the first sentence of §84.504(e) now reads as follows: "a guardian, executor, or administrator, or any party that may lawfully receive the information under the Gramm Leach Bliley Act, 15 U.S.C. §6801, et seq. , and its implementing regulations, or the Fair Credit Reporting Act, 15 U.S.C. §1681, et seq., and its implementing regulations, or other law or regulation."
New subsection (f) has been added to §84.504 in order to address contacts made "directly relating to a pending court or arbitration proceeding." Subsection (f) further states: "Subsections (a), (b), (d), and (e) of this section do not apply to providing a notice required by law or contract." As a result, proposed subsections (f) and (g) have been relettered as subsections (g) and (h) respectively.
Regarding the prohibition of identity misrepresentation, in §84.504(h) (proposed subsection (g)), the phrase "nor shall a licensee or licensee's agent misrepresent the identity of the licensee" has been replaced with the following sentences: "A licensee or a licensee's agent must not use any fictitious name unless the name used is an established or recognized trade name of the licensee or the licensee's agent. The preceding sentence does not apply to individual employees or representatives of the licensee, so long as the licensee maintains a system to determine the identity of the person contacting the obligor." The first sentence permits the use of established or recognized trade names to enable more prompt recognition by retail buyers without constituting misrepresentation. As authorized by Texas Finance Code, §392.304(a)(6) and (c), the second sentence clarifies that a licensee is not required to disclose the names and addresses of its employees.
The new sections are adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §348.513 grants the Finance Commission the authority to adopt rules to enforce the motor vehicle installment sales chapter. These rules affect Texas Finance Code, Chapter 348.
§84.501.Payoff Statement or Statement of Payments.
(a) Definitions. For purposes of this section, the following terms will have the following meanings:
(1) Holder--A holder with the legal authority to release the security interest, or the holder's designee who has the legal authority to release the security interest.
(2) Calendar days--Every day of the week with the exclusion of legal public holidays as defined by 5 U.S.C. §6103.
(b) Payoff statement. On the written request of the retail buyer or the buyer's designee, a holder must give a payoff statement to the person making the request within a reasonable time.
(c) Statement of payments. On the written request of the retail buyer or the retail buyer's designee, a holder must give a statement of the dates and amounts of payments and the total amount unpaid under the contract to the person making the request within a reasonable time.
(d) Delinquent accounts. A holder must give the information required by this section even if at the time the inquiry is made the account is delinquent.
(e) Requesting statement. A holder may designate a location where the person requesting a payoff statement or statement of payments may submit a request for the statement. The designation may include a mailing address, physical address, telephone number, website address, email address, or another point of contact reasonably accessible to the retail buyer or buyer's designee. A mailing address and telephone number are presumed to be reasonably accessible. A website address or email address is presumed to be reasonably accessible, unless the retail buyer objects in writing. If the holder does not designate a location where the retail buyer or buyer's designee may request a payoff statement or statement of payments, the retail buyer or buyer's designee may submit the written request using the contact information included in the most recent communication from the holder related to payments or the contact information for that holder shown in the retail installment sales contract. If the holder has not provided contact information in either manner described by the preceding sentences, the retail buyer or buyer's designee may submit the request to any physical address or mailing address of the holder.
(f) Verification of retail buyer. The holder may require the retail buyer to provide certain specified information (full name of the retail buyer, social security number, account number, unique password given to the retail buyer) to verify the requester's identity before giving the payoff statement or statement of payments.
(g) Content of payoff statement. The payoff statement must, at a minimum, contain the following information:
(1) the name of the holder;
(2) the address of the holder for use in connection with the payoff statement;
(3) the telephone number of the holder for use in connection with the payoff statement;
(4) the account number or other identifying number of the retail buyer, if applicable;
(5) the date of the payoff statement;
(6) the amount necessary to payoff the account as of the stated date of the payoff statement. If the amount is subject to change after the stated date, the creditor must indicate that fact. The payoff statement may also include a description of the daily accrual of finance charges and known and identified subsequent events;
(7) a statement that specifies how and where to tender the payoff amount to the holder; and
(8) the last date upon which the payoff terms will be honored as specified by subsection (k) of this section.
(h) Delivery of payoff statement or statement of payments. The holder may give the payoff statement or statement of payments to the retail buyer or buyer's designee over the telephone or by mail, email, website address, or other means. If requested by the retail buyer or buyer's designee, the payoff statement or statement of payments must be given in writing. A payoff statement or statement of payments given by email or by website address from which the statement may be printed satisfies the writing requirement of this subsection.
(i) Cost of payoff statement or statement of payments. The retail buyer or buyer's designee is entitled to one written payoff statement or written statement of payments free of charge during a six-month period. The charge for each additional written payoff statement or written statement of payments may not exceed $1.00. A holder may not charge a fee for a payoff statement or statement of payments unless the holder gives the statement in writing.
(j) Reasonable time period. In the case of a motor vehicle retail installment sales contract made under Texas Finance Code, Chapter 348, a presumptively reasonable time in which to give a payoff statement or statement of payments is:
(1) for accounts in litigation, bankruptcy, or repossession status, five (5) calendar days, excluding legal public holidays as defined by 5 U.S.C. §6103; or
(2) for all other accounts not meeting the requirements of paragraph (1) of this subsection, two (2) business days.
(3) The reasonable time period in which to give the payoff statement or statement of payments does not begin to run unless the retail buyer or buyer's designee provides the holder the information necessary for the holder to determine the proper account and verify the requester's identity.
(4) The holder's response is timely if placed in first-class U.S. mail, given by facsimile or email, or otherwise transmitted within the reasonable time period.
(5) The reasonable time periods defined by this subsection are presumed to be reasonable and may only be rebutted by a showing of good cause.
(k) Payoff statement binding. Pursuant to Texas Finance Code, §348.408, a holder who gives the retail buyer or the buyer's designee outstanding balance information in a payoff statement is bound by that information and must honor that information for a reasonable time.
(1) If the holder gives the payoff statement to the retail buyer or buyer's designee by hand-delivery, facsimile, email, or website, a reasonable time is 10 calendar days from the date the payoff statement is given.
(2) If the holder gives the payoff statement to the retail buyer or buyer's designee by first-class mail, registered or certified mail, or any other delivery method not specified by paragraph (1) of this subsection, a reasonable time is 15 calendar days from the date the payoff statement is given.
§84.503.Collection Practices.
(a) In attempting to collect money due on a motor vehicle retail installment sales contract or to take possession of any property securing a motor vehicle installment sales contract, a licensee or the licensee's agent must not use any means other than appeals to reason or lawful remedies authorized under the laws of this state or other applicable law.
(b) A licensee or the licensee's agent must not use any physical force or violence against any person or use any violence or other force that results in harm or damage to property.
§84.504.Collection Contacts.
(a) A licensee or the licensee's agent has the right to contact any person in order to secure information concerning a retail buyer, unless any person other than the retail buyer, the retail buyer's spouse, a member of the retail buyer's household, a co-buyer, endorser, surety, or guarantor of the obligation, objects to any contact by a licensee or the licensee's agent. Any objection must specify the retail buyer and the account in question to the licensee or the licensee's agent involved in the collection. Upon receipt of the objection, the licensee or agent must cease and desist from any further deliberate communication with the person objecting relative to the specific retail buyer and account in question.
(b) A licensee or the licensee's agent must not solicit the payment of all or any part of any debt subject to Texas Finance Code, Chapter 348 from any person other than the retail buyer, a co-buyer, endorser, surety, or guarantor of the obligation, retail buyer's designee, trustee, insurance company or service contract provider paying a claim or a refund involving the debtor or motor vehicle, any party having a lawful right or claim to the motor vehicle, any person who may be or is legally obligated to pay all or a portion of the debt, or a guardian, executor, administrator, attorney, agent, or representative of any of the foregoing.
(c) Without the prior written consent of the retail buyer given directly to the licensee or the express permission of a court of competent jurisdiction, a licensee may not communicate with a retail buyer in connection with the collection of amounts due under a motor vehicle retail installment sales contract at any unusual time. In the absence of any knowledge to the contrary, a licensee can assume that the convenient time for communicating with a retail buyer is after 8:00 a.m. and before 9:00 p.m., local time at the retail buyer's location.
(d) A licensee may not knowingly communicate with a retail buyer in connection with the collection of amounts due under a motor vehicle retail installment sales contract at the retail buyer's place of employment if the licensee has received written notification from the retail buyer or the retail buyer's employer to cease communications with the retail buyer while at the place of employment regarding the specific retail buyer and account in question. The licensee may require the retail buyer or retail buyer's employer to place the objection in writing. The objection, if required, should specify the name or names of retail buyers subject to the objection. The prohibition on contact under this subsection may be overridden by court order.
(e) Without the prior written consent of the retail buyer given directly to the licensee or the express permission of a court of competent jurisdiction, in connection with the collection of amounts due under a motor vehicle retail installment sales contract, a licensee may not communicate nonpublic personal information pertaining to a debt or obligation unless the person receiving the information is the retail buyer, the retail buyer's attorney, the retail buyer's designee, a co-buyer, endorser, surety, or guarantor of the obligation, a consumer reporting agency, another creditor, the attorney of the creditor, a guardian, executor, or administrator, or any party that may lawfully receive the information under the Gramm Leach Bliley Act, 15 U.S.C. §6801, et seq., and its implementing regulations, or the Fair Credit Reporting Act, 15 U.S.C. §1681, et seq., and its implementing regulations, or other law or regulation. Unless notified pursuant to subsection (a) of this section, this prohibition does not apply to a licensee seeking information about the location of the retail buyer.
(f) Subsections (a) - (e) of this section do not apply to a communication or contact directly relating to a pending court or arbitration proceeding. Subsections (a), (b), (d), and (e) of this section do not apply to providing a notice required by law or contract.
(g) In attempting to collect money due on a contract or to take possession of any property securing a motor vehicle retail installment sales contract, a licensee or the licensee's agent must not use any simulated legal process, simulated legal document, or legal form designed to suggest that legal proceedings have been commenced or completed when in fact they have not.
(h) In attempting to collect money due on a motor vehicle retail installment sales contract, to take possession of any property securing a motor vehicle retail installment sales contract, or to secure information concerning a motor vehicle retail installment sales contract, a licensee or the licensee's agent must not impersonate or attempt to impersonate any law enforcement officer or other agent of federal, state, or local governments. A licensee or a licensee's agent must not use any fictitious name unless the name used is an established or recognized trade name of the licensee or the licensee's agent. The preceding sentence does not apply to individual employees or representatives of the licensee, so long as the licensee maintains a system to determine the identity of the person contacting the obligor.
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 20, 2008.
TRD-200803211
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 936-7621
The Finance Commission of Texas (commission) adopts new §§84.703 - 84.706, concerning Examinations, with regard to motor vehicle sales finance dealers licensed by the Office of Consumer Credit Commissioner. The commission adopts §84.704 and §84.705 with changes and §84.703 and §84.706 without changes from the proposed text as published in the May 2, 2008, issue of the Texas Register (33 TexReg 3522).
The commission received no written comments on the proposal. The agency has, however, revised several provisions as a result of informal comments received. These revisions are summarized following the particular purpose of the rule to reflect changes made since the proposal.
The new rules contain new operational provisions regarding examination procedures. The purpose of the rules is to conform the commission's rules to current practice, to provide clarification for licensees required to comply with the rules, and to provide more specific guidance for the examination process. The following paragraphs outline the individual purposes of each adopted rule.
Section 84.703 authorizes the commissioner to require a licensee to review records and make corrections, if an examination reveals that a licensee is engaging in a pattern or practice that appears to be a systemic violation of the law. The rule is necessary to ensure that transactions comply and that records are being maintained with the applicable law.
Section 84.704 provides the procedures for correcting violations of law or errors on accounts. The rule is necessary to provide a uniform procedure for curing violations of law and correcting entries on accounts. The rule includes procedures for cash refunds and for refunds made by check, money order, or other negotiable instrument.
In response to informal comments received, §84.704 has experienced revisions to improve clarity and accuracy, including the addition of new subsections (f) and (g). The first clarification changes are found in subsection (a), where language has been added to accommodate accelerated balances or past due amounts. Thus, the first sentence of §84.704(a) now reads: "Any amount due a retail buyer because of a correction of an error or a violation may be credited to an amount due under the motor vehicle retail installment sales contract or to the next payment or payments on the existing account of the retail buyer." The corresponding introductory phrase "If the credit is applied to payments not yet due" has also been added to the second sentence of subsection (a).
In §84.704(b)(2), the third sentence now reads: "The licensee must also maintain sufficient information that could be used to determine whether the check, money order, or other negotiable instrument was successfully negotiated." This clarification in wording is intended to address the fact that most banks no longer return cancelled checks, but that the bank may be contacted to obtain information to trace the successful negotiation of a check.
In the second sentence of subsection (c) of §84.704, the phrase "give the retail buyer" has been replaced with "deduct from the precomputed balance." This revision clarifies how the credit of precomputed finance charge is applied. Also, calculation-related changes have been made to §84.704(e), resulting in the last phrase reading as follows: "the licensee must refund or credit to the account the amount due to the retail buyer for the error correction or adjustment in addition to the amount of accrued time price differential on the correction or adjustment amount."
Regarding the two new subsections, §84.704(f) has been added to provide flexibility for the multitude of unforeseen situations that may arise, so that the commissioner may make adjustments where the stated correction of errors or violations provisions would not be feasible. New subsection (g) provides that if a licensee corrects a violation in compliance with instructions on an examination report, that correction will satisfy the requirements of §84.704. Section 84.704(g) also requires that documentation be maintained for all corrections made under the section.
Section 84.705 details the procedures for handling unclaimed funds that are due to a retail buyer. The rule provides procedures that conform to Texas Property Code, Chapter 72.
Section 84.705 has been revised to address informal comments received. In subsection (b), the phrase "with respect to a specific retail buyer" has been added after "necessary" in the last sentence to provide clarification.
Subsections (c) and (d) of §84.705 have experienced revisions in order to reflect the possible applicability of laws outside of Texas. Thus, in subsection (c) after "in this state," the phrase "or other appropriate state or governmental entity if the address is not in this state" has been added. The corresponding phrase "or must be paid to the appropriate state or other governmental entity under the time period provided by the other state's or entity's applicable law" has been added to the end of subsection (d). Also, some additional changes in wording have been made to §84.705(c) and (d) to improve clarity and consistency, and to coordinate with the revisions outlined in this paragraph.
Section 84.706 provides for a fee in addition to the assessment fee that may be charged to licensees who require an expedited follow-up examination due to noncompliance issues. The rule is necessary to permit the agency to recover the direct and indirect costs associated with conducting follow-up examinations.
The new sections are adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §348.513 grants the Finance Commission the authority to adopt rules to enforce the motor vehicle installment sales chapter. These rules affect Texas Finance Code, Chapter 348.
§84.704.Correction of Errors or Violations.
(a) Any amount due a retail buyer because of a correction of an error or a violation may be credited to an amount due under the motor vehicle retail installment sales contract or to the next payment or payments on the existing account of the retail buyer. If the credit is applied to payments not yet due, the licensee must notify the retail buyer in writing of the date and amount of the next payment due after this credit has been given.
(b) In lieu of crediting an existing account, a refund may be made directly to the retail buyer by cash, check, money order, or other negotiable instrument. The licensee must maintain sufficient records that the refund was made.
(1) Cash refunds. If the refund is made directly to the retail buyer in cash, the licensee must obtain a signed or authenticated acknowledgment from the retail buyer. The signed or authenticated acknowledgment must contain the following information:
(A) the retail buyer's full name;
(B) the retail buyer's account number (the account number upon which the refund was made);
(C) the amount of the refund; and
(D) a statement that the retail buyer received the refund in cash and that the licensee has not instructed or required the retail buyer to repay the cash refund.
(2) Refunds made by check, money order, or other negotiable instrument. If the refund is made directly to the retail buyer by check, money order, or other negotiable instrument, the licensee must, at a minimum, mail the refund to the last known address of the retail buyer by first-class mail. The licensee must maintain a complete paper or electronic copy of the check, money order, or other negotiable instrument. The licensee must also maintain sufficient information that could be used to determine whether the check, money order, or other negotiable instrument was successfully negotiated. If the check or money order is drawn from an account that is not under the licensee's control, sufficient information will include the name of the bank or company upon which the refund check or money order is drawn, the account number upon which the refund check or money order is drawn, the amount of the check or money order, check or money order number, and routing or tracking number of the check or money order.
(c) If the error correction or adjustment to an account is related to an improper charge or proceeds improperly held by the licensee on which time price differential has been precomputed (regular transaction using sum of the periodic balances method or scheduled installment earnings method), the licensee may alternatively credit the final maturing installment or installments of the contract. In addition to the error correction or adjustment, a licensee must also deduct from the precomputed balance the proportionate amount of time price differential originally charged on the amount being credited.
(d) If the licensee applies the refund to an existing account of the licensee, the licensee may be required to refund the amount due a retail buyer plus the amount of accrued time price differential on the correction or adjustment amount or a proportionate amount of time price differential originally charged on the amount being credited. If more than half of the precomputed time balance (regular transaction using the sum of the periodic balances method or scheduled installment earnings method) has been paid before applying the credit to the account, the licensee may be required to refund the proportionate amount of time price differential originally charged on the amount being credited.
(e) If the error correction or adjustment is made to an account where the time price differential charge is earned using the true daily earnings method, the licensee must refund or credit to the account the amount due to the retail buyer for the error correction or adjustment in addition to the amount of accrued time price differential on the correction or adjustment amount.
(f) The commissioner may make adjustments or exceptions to the requirements under this section for unusual situations or when necessary to achieve an appropriate, practical, and workable result.
(g) If the licensee corrects a violation of law in compliance with any instructions on any examination report, that correction will satisfy the requirements of this section with respect to the violation being corrected. Documentation must be maintained regarding all corrections made under this section.
§84.705.Unclaimed Funds.
(a) Escheat suspense account. The licensee must transfer any amounts due a retail buyer not paid within one year (i.e., unclaimed funds) to an escheat suspense account. The transfer must be noted on the account record of the retail buyer.
(b) Required information. Evidence of a bona fide attempt to pay a refund to a retail buyer must be kept in the records of the retail buyer. The licensee must place with the records of the retail buyer any information received by the licensee that indicates the retail buyer has died leaving no will or heirs or has left the community and the retail buyer's whereabouts are unknown. If deemed necessary with respect to a specific retail buyer, a licensee may be required to send the unclaimed funds by registered or certified mail to the last known address of the retail buyer.
(c) Use of unclaimed funds. Use of unclaimed funds within the business is not prohibited until such time as paid to the retail buyer, to the estate of the retail buyer, to the State of Texas if the last known address of the retail buyer as shown on the records of the holder is in this state, or other appropriate state or governmental entity if the address is not in this state; however, funds transferred to an escheat suspense account must not be commingled with the funds of the business.
(d) Escheat to state. At the end of three (3) years, the unclaimed funds must be paid to the State of Texas Comptroller of Public Accounts, Treasury Division, as required by Texas Property Code, §72.101, or must be paid to the appropriate state or other governmental entity under the time period provided by the other state's or entity's applicable law.
(e) Record retention. The records of the escheat suspense account must be retained for a period of 10 years.
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 20, 2008.
TRD-200803214
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 936-7621
The Finance Commission of Texas (commission) adopts new §84.808, concerning Retail Installment Sales Contract Provisions, with regard to motor vehicle sales finance dealers licensed by the Office of Consumer Credit Commissioner. The commission adopts §84.808 with changes from the proposal published in the May 2, 2008, issue of the Texas Register (33 TexReg 3524).
The commission received no written comments on the proposal.
Section 84.808 is being relocated and reorganized. The agency believes that the reorganization will benefit licensees in that these rules will be easier to find in a more logical location and order which better tracks the organization of Texas Finance Code, Chapter 348. The relocated rule is substantially similar to the rule being repealed, as found in 7 TAC §84.209, concerning Model Clauses. The commission's adopted repeal of this section is published elsewhere in this issue of the Texas Register.
Concerning new (relocated) §84.808, the rule (along with recently relocated §§84.801 - 84.807 and §84.809) implements the provisions of Texas Finance Code, §341.502, which require contracts under Chapter 342 or 348, whether in English or in Spanish, to be written in plain language. Use of the model clauses is optional; however, should a licensee choose not to use the model clauses, or a contract comprised of model clauses, then the licensee's non-standard contract must be submitted to the agency in accordance with the provisions of 7 TAC §84.802.
The purpose of this relocated rule tracks the original purpose language used when the rule was originally adopted. Please note that, aside from changes to section number references, the new rule in §84.808 is being relocated with one citation correction.
The following paragraph outlines the purpose of the adopted rule. The relocated rule is listed with its former location "(former §84.XXX)" listed after the new section number.
Section 84.808 (former §84.209) contains the model clauses. These clauses are the administrative interpretation of a plain language version of typical contract provisions. Some model clauses are required by state and federal statutes and regulations depending on the circumstances of a particular transaction. Established model contract provisions encourage uniformity and provide benefits to consumers by making contracts easier to understand. A creditor is not limited to the contract provisions contained in these rules and retains flexibility to design contract forms suitable for the creditor's use. These multi-purpose contract provisions are intended for use by franchised dealers, independent dealers, holders of motor vehicle retail installment sales contracts, and individuals who sell less than five motor vehicles per year.
Since the proposal, §84.808 has experienced one technical correction. In §84.808(19) regarding the Consumer Credit Commissioner notice, the citation has been corrected by replacing former "§1.901" with current "§86.101."
The new section is adopted under Texas Finance Code, §11.304, which authorizes the Finance Commission to adopt rules to enforce Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §348.513 grants the Finance Commission the authority to adopt rules to enforce the motor vehicle installment sales chapter. This rule affects Texas Finance Code, Chapter 348.
§84.808.Model Clauses.
The following model clauses provide the plain language equivalent of provisions found in contracts subject to Texas Finance Code, Chapter 348.
(1) Identification of parties. This information identifies the parties to the contract.
(A) The model identification clause lists the name and address of the creditor, the date of the contract, and the name and address of the buyer. At the creditor's option, a creditor may include an account number or contract number. The model clause reads:
Figure: 7 TAC §84.808(1)(A) (.pdf)
(B) The Buyer is referred to as "I" or "me." The Seller is referred to as "you" or "your."
(2) Assignment of contract. The model clause regarding assignment of contract reads: "This contract may be transferred by the Seller."
(3) Buyer's affirmation and promise to pay. The model clause regarding buyer's affirmation and promise to pay reads: "The credit price is shown below as the "Total Sales Price." The "Cash Price" is also shown below. By signing this contract, I choose to purchase the motor vehicle on credit according to the terms of this contract. I agree to pay you the Amount Financed, Finance Charge, and any other charges in this contract. I agree to make payments according to the Payment Schedule in this contract. If more than one person signs as a buyer, I agree to keep all the promises in this agreement even if the others do not."
(4) Inspection acknowledgment. The model clause regarding inspection acknowledgment reads: "I have thoroughly inspected, accepted, and approved the motor vehicle in all respects."
(5) Identification of motor vehicle. The motor vehicle identification information provision should contain the following information about the motor vehicle: the seller's stock number; the manufacturer's year model; the manufacturer's make; the manufacturer's model type or number; the vehicle identification number; the license plate number (if applicable); a new/used designation; and the primary purpose designation. The seller's stock number and the license number are both optional; the omission will not make a contract non-standard. The motor vehicle identification information provision may include additional information about the vehicle including, odometer reading, color, the designation as a heavy commercial vehicle, and key code. If the creditor includes this additional information about the motor vehicle, the change will not make the provision a non-standard provision. The model clause regarding identification of the motor vehicle reads:
Figure: 7 TAC §84.808(5) (.pdf)
(6) Trade-in vehicle description. The model clause regarding trade-in vehicle description reads:
Figure: 7 TAC §84.808(6) (.pdf)
(7) Truth in Lending Act disclosure. The model clause regarding Truth in Lending Act disclosure reads:
Figure: 7 TAC §84.808(7) (.pdf)
(8) Itemization of amount financed. The creditor drafting the contract is given considerable flexibility regarding the itemization of amount financed disclosure so long as the itemization of amount financed disclosure complies with the Truth in Lending Act. As an example, a creditor may disclose the manufacturer's rebate either as: a component of the downpayment; or a deduction from the cash price of the motor vehicle. The model contract provision for the itemization of the amount financed discloses the manufacturer's rebate as a component of the downpayment. If the creditor elected to disclose the manufacturer's rebate as a deduction from the cash price of the motor vehicle, the cash price component of the itemization of amount financed would be amended to reflect the dollar amount of the manufacturer's rebate being deducted from the cash price of the motor vehicle.
(A) The model clause regarding itemization of amount financed-sales tax advance reads:
Figure: 7 TAC §84.808(8)(A) (.pdf)
(B) The model clause regarding itemization of amount financed-sales tax deferred reads:
Figure: 7 TAC §84.808(8)(B) (.pdf)
(C) Plate transfer fee. Under Texas Transportation Code, §502.453, the creditor may charge under the itemization of amount financed a $5.00 fee for transferring license plates and receiving new registration insignia. The creditor may document the plate transfer fee in the Other Charges section with the following language: "to State for Plate Transfer Fee."
(D) Compliance fee prohibited. Under Texas Transportation Code, §503.0631(f), the creditor is prohibited from assessing an itemized charge under the itemization of amount financed for costs associated with complying with the temporary tag database.
(9) Documentary fee.
(A) The following notice satisfies the requirements of Texas Finance Code, §348.006 if printed in a size equal to at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous and within reasonable proximity to the place at which the fee is disclosed. The parenthetical phrase may be inserted at the dealer's option or the disclosure may be made without the parenthetical phrase if the dealer does not charge an amount in excess of $50 for either ordinary motor vehicles or heavy commercial vehicles or if the contract form is not used for heavy commercial vehicles. The model clause is contained in the Itemization of Amount Financed. The documentary fee clause reads: "A documentary fee is not an official fee. A documentary fee is not required by law, but may be charged to buyers for handling documents and performing services relating to the closing of a sale. A documentary fee may not exceed $50 (for a motor vehicle contract or a reasonable amount agreed to by the parties for a heavy commercial vehicle contract). This notice is required by law."
(B) The following notice is a sufficient Spanish translation of the documentary fee disclosure required by Texas Finance Code, §348.006. The parenthetical phrase may be inserted at the dealer's option or the disclosure may be made without the parenthetical phrase if the dealer does not charge an amount in excess of $50 for either ordinary motor vehicles or heavy commercial vehicles or if the contract form is not used for heavy commercial vehicles. The Spanish translation may read: "Un honorario de documentación no es un honorario oficial. Un honorario de documentación no es requerido por la ley, pero puede ser cargada al comprador como gastos de manejo de documentos y para realizar servicios relacionados con el cierre de una venta. Un honorario de documentación no puede exceder $50 (un contrato de vehículo automotor o una cantidad razonable acordada por las partes para un contrato de vehículo comercial pesado). Esta notificación es requerida por la ley." Or "Un cargo documental no es un cargo oficial. La ley no exige que se imponga un cargo documental. Pero èste podría cobrarse a los compradores por el manejo de la documentación y la prestación de servicios en relación con el cierre de una venta. Un cargo documental no puede exceder de $50 para (un contrato de vehículo automotor o una cantidad razonable acordada por las partes para un contrato de vehículo comercial pesado). Esta notificación se exige por ley."
(10) Deferred downpayments. The creditor has considerable flexibility in disclosing the deferred downpayments. The model provision discloses the deferred downpayments by placing the information, the due date and dollar amount of the deferred downpayments, in several boxes. If a creditor uses this model provision, the creditor would enter the due date and dollar amount of each deferred downpayment in the appropriate boxes. As an alternative to this model provision, a creditor may disclose the deferred downpayments in the Payment Schedule of the Amount Financed in the federal disclosure box. If a creditor elects this option, the due date and the dollar amount of the deferred downpayment must be shown. If the total amount of the deferred downpayment is not satisfied by the date of the second regularly scheduled installment, the deferred downpayment must be included in the Payment Schedule. As another alternative, the creditor may disclose the deferred downpayment amount in the Payment Schedule. The model clause regarding deferred downpayments reads:
Figure: 7 TAC §84.808(10) (.pdf)
(11) Required physical damage insurance. The creditor may chose to omit the statement of the retail buyer's right to obtain substitute coverage from another source. The model clause regarding required physical damage insurance reads:
Figure: 7 TAC §84.808(11) (.pdf)
(12) Optional insurance coverages. The model clause regarding optional insurance coverages reads:
Figure: 7 TAC §84.808(12) (.pdf)
(13) Optional credit life and accident and health insurance. The model clause regarding optional credit life and accident and health insurance reads:
Figure: 7 TAC §84.808(13) (.pdf)
(14) Liability insurance. If liability insurance coverage is not included in the contract, any of the following notices are sufficient to satisfy the requirements of Texas Finance Code, §348.205 if printed in a size equal to at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous:
(A) "THIS CONTRACT DOES NOT INCLUDE INSURANCE COVERAGE FOR PERSONAL LIABILITY AND PROPERTY DAMAGE CAUSED TO OTHERS."
(B) "UNLESS A CHARGE FOR LIABILITY INSURANCE IS INCLUDED IN THE ITEMIZATION OF AMOUNT FINANCED, LIABILITY INSURANCE COVERAGE FOR BODILY INJURY AND PROPERTY DAMAGE CAUSED TO OTHERS IS NOT INCLUDED IN THIS CONTRACT."
(C) "UNLESS A CHARGE FOR LIABILITY INSURANCE IS INCLUDED IN THE ITEMIZATION OF AMOUNT FINANCED, ANY INSURANCE REFERRED TO IN THIS CONTRACT DOES NOT INCLUDE COVERAGE FOR PERSONAL LIABILITY AND PROPERTY DAMAGE CAUSED TO OTHERS."
(15) Prohibition against oral modifications. The contract may include a provision barring oral modifications of the contract. A unilateral change to a contract may nevertheless occur as prescribed by the procedures in Texas Finance Code, Chapter 349, Subchapter C. The model clause regarding prohibition against oral modifications reads:
Figure: 7 TAC §84.808(15) (.pdf)
(16) Finance charge earnings methods:
(A) Regular transaction using sum of the periodic balances method.
(i) Sales tax advance. At the creditor's option a creditor may choose one of the following model clauses regarding sales tax advance:
(I) "You figure the Finance Charge using the add-on method as defined by the Texas Finance Commission Rule. Add-on Finance Charge is calculated on the full amount of the unpaid principal balance and added as a lump sum to the unpaid principal balance for the full term of the contract." Or
(II) "The Finance Charge will be calculated by using the add-on method. Add-on Finance Charge is calculated on the full amount of the unpaid principal balance and added as a lump sum to the unpaid principal balance for the full term of the contract. The add-on Finance Charge is calculated at a rate of $____ per $100.00."
(ii) Deferred sales tax. The model clause regarding deferred sales tax reads: "The Finance Charge will be calculated by using the add-on method. Add-on Finance Charge is calculated on the full amount of the unpaid principal balance subject to a finance charge and added as a lump sum to the unpaid principal balance subject to a Finance Charge for the full term of the contract. The add-on Finance Charge is calculated at a rate of $____ per $100.00."
(B) True daily earnings method.
(i) Sales tax advance. At the creditor's option a creditor may choose one of the following model clauses regarding sales tax advance:
(I) "You figure the Finance Charge using the true daily earnings method as defined by the Texas Finance Code. Under the true daily earnings method, the Finance Charge will be figured by applying the daily rate to the unpaid portion of the Amount Financed for the number of days the unpaid portion of the Amount Financed is outstanding. The daily rate is 1/365th of the Annual Percentage Rate. The unpaid portion of the Amount Financed does not include late charges or returned check charges." Or
(II) If a retail seller requires a retail buyer to purchase credit life or credit accident and health insurance and the sales tax is not deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You will figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance. The daily rate is 1/365th of the contract rate. The unpaid principal balance does not include the late charges or returned check charges."
(ii) Deferred sales tax: If a retail seller requires a retail buyer to purchase credit life or credit accident and health insurance and the sales tax is deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You will figure the Finance Charge by applying the true daily earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance subject to a Finance Charge. The daily rate is 1/365th of the contract rate. The unpaid principal balance subject to a finance charge does not include the late charges, sales tax, or returned check charges."
(C) Scheduled installment earnings method.
(i) Sales tax advance. At the creditor's option a creditor may choose one of the following model clauses regarding sales tax advance:
(I) "You figure the Finance Charge using the scheduled installment earnings method as defined by the Texas Finance Code. Under the scheduled installment earnings method, the Finance Charge is figured by applying the daily rate to the unpaid portion of the Amount Financed as if each payment will be made on its scheduled payment date. The daily rate is 1/365th of the Annual Percentage Rate. The unpaid portion of the Amount Financed does not include late charges or returned check charges." Or
(II) If a retail seller requires a retail buyer to purchase credit life or credit accident and health insurance and the sales tax is not deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You will figure the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance. You based the Finance Charge, Total of Payments, and Total Sale Price as if all payments were made as scheduled. The unpaid principal balance does not include the late charges or returned check charges."
(ii) Deferred sales tax. If a retail seller requires a retail buyer to purchase credit life or credit accident and health insurance and the sales tax is deferred, the contract rate disclosure should read: "The contract rate is _____%. This contract rate may not be the same as the Annual Percentage Rate. You figured the Finance Charge by applying the scheduled installment earnings method as defined by the Texas Finance Code to the unpaid portion of the principal balance subject to a Finance Charge. You based the Finance Charge, Total of Payments, and Total Sale Price as if all payments were made as scheduled. The unpaid principal balance subject to a Finance Charge does not include the late charges, sales tax, or returned check charges."
(17) Consumer warning. The following notices satisfy the requirements of Texas Finance Code §348.102(d) if printed in at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous.
(A) For contracts using the sum of the periodic balances method (Rule of 78s) or the scheduled installment earnings method, the notice may read:
(i) "NOTICE TO THE BUYER--I WILL NOT SIGN THIS CONTRACT BEFORE I READ IT OR IF IT CONTAINS ANY BLANK SPACES. I AM ENTITLED TO A COPY OF THE CONTRACT I SIGN. UNDER THE LAW, I HAVE THE RIGHT TO PAY OFF IN ADVANCE ALL THAT I OWE AND UNDER CERTAIN CONDITIONS MAY OBTAIN A PARTIAL REFUND OF THE FINANCE CHARGE. I WILL KEEP THIS CONTRACT TO PROTECT MY LEGAL RIGHTS." Or
(ii) "NOTICE TO THE BUYER--THE BUYER SHOULD NOT SIGN THIS CONTRACT BEFORE READING IT OR IF IT CONTAINS ANY BLANK SPACES. THE BUYER IS ENTITLED TO A COPY OF THE SIGNED CONTRACT. UNDER THE LAW, THE BUYER HAS THE RIGHT TO PAY OFF IN ADVANCE ALL THAT THE BUYER OWES AND UNDER CERTAIN CONDITIONS MAY OBTAIN A PARTIAL REFUND OF THE FINANCE CHARGE. THE BUYER SHOULD KEEP THIS CONTRACT TO PROTECT ITS LEGAL RIGHTS."
(B) For contracts using the true daily earnings method, the notice may read: "NOTICE TO THE BUYER--I WILL NOT SIGN THIS CONTRACT BEFORE I READ IT OR IF IT CONTAINS ANY BLANK SPACES. I AM ENTITLED TO A COPY OF THE CONTRACT I SIGN. UNDER THE LAW, I HAVE THE RIGHT TO PAY OFF IN ADVANCE ALL THAT I OWE AND UNDER CERTAIN CONDITIONS MAY SAVE A PORTION OF THE FINANCE CHARGE. I WILL KEEP THIS CONTRACT TO PROTECT MY LEGAL RIGHTS."
(18) Buyer's acknowledgment of contract receipt.
(A) The following acknowledgments conform to the requirements of Texas Finance Code, §348.112 if they appear directly above the place for the buyer's signature in at least 10-point type that is boldfaced, capitalized, underlined, or otherwise set out from surrounding written material so as to be conspicuous. A creditor may choose the most appropriate option:
(i) If the buyer's signature is dated. If this clause is chosen, the copy must be mailed within a reasonable period of time. A reasonable period of time would ordinarily be three days, excluding Sundays and holidays. The model acknowledgment may read: "I AGREE TO THE TERMS OF THIS CONTRACT. WHEN I SIGN THE CONTRACT, I WILL RECEIVE THE COMPLETED CONTRACT. IF NOT, I UNDERSTAND THAT A COPY WILL BE MAILED TO ME WITHIN A REASONABLE TIME."
(ii) If the buyer's signature is not dated. The model acknowledgment may read: "I AGREE TO THE TERMS OF THIS CONTRACT. I CONFIRM THAT BEFORE I SIGNED THIS CONTRACT, YOU GAVE IT TO ME, AND I WAS FREE TO TAKE IT AND REVIEW IT. I RECEIVED THE COMPLETED CONTRACT ON ___________ (MO.) (DAY) (YR.)."
(iii) If the buyer's signature is not dated. If this clause is chosen, the copy must be mailed within a reasonable period of time. The model acknowledgment may read: "I SIGNED THIS CONTRACT ON _________ AND A COPY WILL BE MAILED TO ME WITHIN A REASONABLE TIME."
(iv) If the buyer's signature is not dated but the contract contains the date of the transaction. The model acknowledgment may read: "I AGREE TO THE TERMS OF THIS CONTRACT AND ACKNOWLEDGE RECEIPT OF A COMPLETED COPY OF IT. I CONFIRM THAT BEFORE I SIGNED THIS CONTRACT, YOU GAVE IT TO ME, AND I WAS FREE TO TAKE IT AND REVIEW IT."
(B) Acceptance of contract receipt. The model clause regarding acceptance of contract receipt reads:
Figure: 7 TAC §84.808(18)(B) (.pdf)
(19) Consumer Credit Commissioner notice. The following notice satisfies the requirements of Texas Finance Code, §14.104 and §86.101 of this title (relating to Consumer Notifications). The telephone number of the retail seller, creditor, or holder may be printed in conjunction with the name and address of the retail seller, creditor, or holder elsewhere on the contract or agreement provided the notice required by Texas Finance Code, §14.104 is amended to direct the reader's attention to the area of the contract where the telephone number may be found. The consumer credit commissioner notice reads: "To contact (insert authorized business name of retail seller, creditor or holder as appropriate) about this account, call (insert telephone number of retail seller, creditor, or holder as appropriate). This contract is subject in whole or in part to Texas law which is enforced by the Consumer Credit Commissioner, 2601 N. Lamar Blvd., Austin, Texas 78705-4207; (800) 538-1579; www.occc.state.tx.us, and can be contacted relative to any inquiries or complaints."
(20) Finance charge refund method. If a contract uses the finance charge refunding method of the sum of the periodic balances or the scheduled installment earnings method, the finance charge refund provision reads: "If I prepay in full, I may be entitled to a refund of part of the Finance Charge." On contracts using the true daily earnings method, this finance charge refund provision should not be disclosed because it is not applicable.
(A) Contracts using the sum of the periodic balances method.
(i) Name of method. The model clause to identify the method of refunding finance charge reads: "You will figure the Finance Charge refund by using the sum of the periodic balances method as defined by the Texas Finance Commission rule."
(ii) Optional description of method. The creditor may include the following additional description of the method. The model clause reads: "You will figure the Finance Charge refund using the sum of the periodic balances method as defined by the Texas Finance Commission rule. The Finance Charge Refund will be computed upon the entire Finance Charge minus the Acquisition Cost. I will not get a refund if it is less than $1.00."
(iii) Optional description of method for use in contracts for heavy commercial vehicles. At the creditor's option, a contract for a heavy commercial vehicle, as defined in the Texas Finance Code, may include the following description of the method. The model clause reads: "You will figure the Finance Charge refund using the sum of the periodic balances method as defined by the Texas Finance Commission rule. The Finance Charge refund will be computed based upon the entire Finance Charge calculated using the sum of the periodic balances method. Then you will subtract the Acquisition Cost from that amount. I will not get a refund if it is less than $1.00."
(B) Contracts using the scheduled installment earnings method.
(i) Name of method. The model clause to identify the method of refunding finance charge reads: "You will figure the Finance Charge refund by the scheduled installment earnings method as defined by the Texas Finance Commission rule."
(ii) Optional description of method. The creditor may include the following additional description of the method: "You will figure my refund by deducting earned finance charges from the Finance Charge. You will figure earned finance charges by applying a daily rate to the unpaid principal balance as if I paid all my payments on the date due. If I prepay between payment due dates, you will figure earned finance charges for the partial payment period. You do this by counting the number of days from the due date of the prior payment through the date I prepay. You then multiply that number of days times the daily rate. The daily rate is 1/365th of the Annual Percentage Rate. You will also add the acquisition cost of $25 (or $150 for a heavy commercial vehicle) to the earned finance charge. I will not get a refund if it is less than $1.00."
(C) Flexible contract forms designed to accommodate alternative methods. Creditors may use a flexible contract form with alternative earnings methods, so long as the method used on a particular contract is permissible for that contract. The following clause illustrates one way that this flexibility may be accomplished: "You will figure the Finance Charge refund using the sum of the periodic balances method as defined by the Texas Finance Commission rule if: this contract is a Regular Payment Contract as defined by the Texas Finance Commission rule, and this contract does not have a term greater than 61 months. If this contract is not a Regular Payment Contract or if it has a term greater than 61 months, you will figure the Finance Charge refund using the scheduled installment earnings method as defined by the Texas Finance Commission rule. I will not get a refund if it is less than $1.00."
(21) Application of payments. In this provision, the term "finance charge" should not be construed to have the same meaning as Finance Charge as defined by the Truth in Lending Act. A default or late charge is considered to be a finance charge under Texas law; therefore, a default or late charge can be charged and collected as part of the earned finance charge. At the creditor's option the creditor may modify the application of payments language by adding "and late charges" following the phrase "earned but unpaid finance charge." The model clause reads:
Figure: 7 TAC §84.808(21) (.pdf)
(22) Effect of early and late payments. For contracts using the true daily earnings method, the model clause reads: "You based the Finance Charge, Total of Payments, and Total Sale Price as if all payments were made as scheduled. If I do not timely make all my payments in at least the correct amount, I will have to pay more Finance Charge and my last payment will be more than my final scheduled payment. If I make scheduled payments early, my Finance Charge will be reduced (less). If I make my scheduled payments late, my Finance Charge will increase."
(23) Interest on matured amount. The model provision for interest on any matured amount at any rate permitted by law reads: "If I don't pay all I owe when the final payment becomes due, or I do not pay all I owe if you demand payment in full under this contract, I will pay an interest charge on the amount that is still unpaid. That interest charge will be the higher rate of 18% per year or the maximum rate allowed by law, if that rate is higher. The interest charge for this amount will begin the day after the final payment becomes due." In this provision, the maximum rate allowed by law refers to the rate found in Texas Finance Code, Chapter 303.
(24) Balloon payments. If the contract has a balloon payment, the creditor must include a provision in the contract that allows the buyer to refinance the balloon payment over time. The provision must comply with Texas Finance Code, §348.123. The model provision for defining the balloon payment reads: "A balloon payment is a scheduled payment more than twice the amount of the average of my scheduled payments, other than the downpayment, that are due before the balloon payment."
(A) Paying the balloon payment. If a retail installment contract contains a balloon payment that is the final payment, the contract must also provide the right for the retail buyer to pay the balloon payment. The model provision for paying the amount of the final scheduled balloon payment reads: "I can pay all I owe when the balloon payment is due and keep my motor vehicle."
(B) Balloon payment alternatives. If the retail installment contract contains the right for a retail buyer to refinance a balloon installment, the contract provision to refinance the installment must comply with either clause (i) or (ii) of this subparagraph. A contract under clause (ii) of this subparagraph must also contain the right of the retail buyer to sell the motor vehicle back to the holder or the retail seller.
(i) The model clause to describe a buyer's right to refinance a balloon installment under Texas Finance Code, §348.123(a), when applicable reads: "If I buy the motor vehicle primarily for personal, family, or household use, I can enter into a new written agreement to refinance the balloon payment when due without a refinancing fee. If I refinance the balloon payment, my periodic payments will not be larger or more often than the payments in this contract. The annual percentage rate in the new agreement will not be more than the Annual Percentage Rate in this contract. This provision does not apply if my Payment Schedule has been adjusted to my seasonal or irregular income."
(ii) If the contract contains a balloon payment and the seller intends Texas Finance Code, §348.123(b)(5) to apply to the contract:
(I) Special right to refinance balloon payment under Texas Finance Code, §348.123(b)(5)(B)(iii). The model clause reads: "I can enter into a new agreement to refinance my last installment if I am not in default. I can refinance at an annual percentage rate up to 5 points greater than the Annual Percentage Rate shown in this contract. The rate will not be more than applicable law allows. The new agreement will allow me to refinance the last installment for at least 24 months with equal monthly payments. You and I can also agree to refinance the last installment over another time period or on a different payment schedule."
(II) Repurchase option. If the contract includes a balloon payment, the creditor must draft a provision addressing the repurchase option.
(25) Agreement to keep motor vehicle insured. The model clause regarding agreement to keep the motor vehicle insured reads: "I agree to have physical damage insurance covering loss or damage to the motor vehicle for the term of this contract. The insurance must cover your interest in the vehicle." The creditor may include the following optional provision: "The insurance must include collision coverage and either comprehensive or fire, theft, and combined additional coverage."
(26) Creditor's right to purchase required insurance if buyer fails to keep motor vehicle insured. The model clause regarding agreement to allow the creditor to purchase required insurance if the buyer fails to keep the motor vehicle insured reads: "If I fail to give you proof that I have insurance, you may buy physical damage insurance. You may buy insurance that covers my interest and your interest in the motor vehicle, or you may buy insurance that covers your interest only. I will pay the premium for the insurance and a finance charge at the contract rate. If you obtain collateral protection insurance, you will mail notice to my last known address shown in your file."
(27) Physical damage insurance proceeds. The model clause regarding physical damage insurance proceeds reads: "I must use physical damage insurance proceeds to repair the motor vehicle, unless you agree otherwise in writing. However, if the motor vehicle is a total loss, I must use the insurance proceeds to pay what I owe you. I agree that you can use any proceeds from insurance to repair the motor vehicle, or you may reduce what I owe under this contract. If you apply insurance proceeds to the amount I owe, they will be applied to my payments in the reverse order of when they are due. If my insurance on the motor vehicle or credit insurance doesn't pay all I owe, I must pay what is still owed. Once all amounts owed under this contract are paid, any remaining proceeds will be paid to me."
(28) Returned insurance premiums and service contract charges. The contract may authorize a creditor to apply charges returned to the creditor for canceled insurance, service contract, and extended warranty charges to the buyer's obligation under the agreement as permitted by law, regardless of whether or not the buyer is in default under the contract.
(A) The model clause for contracts using the true daily earnings method reads: "If you get a refund on insurance or service contracts, or other contracts included in the cash price, you will subtract it from what I owe. Once all amounts owed under this contract are paid, any remaining refunds will be paid to me."
(B) For contracts using the scheduled installment earnings or sum of the periodic balances methods, the creditor may substitute the following clause: "If you get a refund of insurance or service contract charges, you will apply it and the unearned finance charges on it in the reverse order of the payments to as many of my payments as it will cover. Once all amounts owed under this contract are paid, any remaining refunds will be paid to me."
(29) Application of credits. The model clause regarding application of credits reads: "Any credit that reduces my debt will apply to my payments in the reverse order of when they are due, unless you decide to apply it to another part of my debt. The amount of the credit and all finance charge or interest on the credit will be applied to my payments in the reverse order of my payments."
(30) Transfer of rights. The seller does not have a duty to disclose the terms on which a contract or a balance under a contract is acquired, including any discount or difference between the rates, charges, or balance under the contract and the rates, charges, or balance acquired as provided by Texas Finance Code, §348.301. The model clause regarding transfer of rights reads: "You may transfer this contract to another person. That person will then have all your rights, privileges, and remedies."
(31) Grant of security interest in collateral. The model clause regarding a description of a security interest granted in a typical motor vehicle installment sale reads:
Figure: 7 TAC §84.808(31) (.pdf)
(32) Agreements regarding use and transfer of motor vehicle. The contract may contain a provision prohibiting a buyer from transferring any interest in the motor vehicle without the creditor's written permission, requiring the buyer to notify the seller of change of address, or prohibiting the removal of the motor vehicle from Texas. The transfer fee limitation establishes the maximum fee that a creditor could contract for, charge, or collect for transferring the buyer's equity in the motor vehicle to another party. If desired, a creditor may amend the model provision to reflect a lower transfer fee amount. The model clause concerning agreements regarding the use and transfer of the motor vehicle reads: "I will not sell or transfer the motor vehicle without your written permission. If I do sell or transfer the motor vehicle, this will not release me from my obligations under this contract, and you may charge me a transfer of equity fee of $25 ($50 for a heavy commercial vehicle). I will promptly tell you in writing if I change my address or the address where I keep the motor vehicle. I will not remove the motor vehicle (Optional: motor vehicle or other collateral) from Texas for more than 30 days unless I first get your written permission."
(33) Care of motor vehicle. The contract may obligate the buyer to keep the motor vehicle free of liens and encumbrances, require the buyer to keep the motor vehicle in good working order and repair, or prohibit the buyer from allowing the motor vehicle to be exposed to seizure, confiscation, or other involuntary transfer. The model clause regarding care of the motor vehicle reads: "I agree to keep the motor vehicle free from all liens and claims except those that secure this contract. I will timely pay all taxes, fines, or charges pertaining to the motor vehicle. I will keep the motor vehicle in good repair. I will not allow the motor vehicle to be seized or placed in jeopardy, or use it illegally. I must pay all I owe even if the motor vehicle is lost, damaged or destroyed. If a third party takes a lien or claim against or possession of the motor vehicle, you may pay the third party any cost required to free the motor vehicle from all liens or claims. You may immediately demand that I pay you the amount paid to the third party for the motor vehicle. If I do not pay this amount, you may repossess the motor vehicle and add that amount to the amount I owe. If you do not repossess the motor vehicle, you may still demand that I pay you, but you cannot compute a finance charge on this amount."
(34) Default rights and repossession provisions. This paragraph details agreements allowing acceleration of the buyer's obligation upon the buyer's default or upon the creditor's determination of insecurity as permitted by Texas Business and Commerce Code, §1.309. The following provisions are samples of model clauses regarding some of the default rights and remedies of a creditor in a typical motor vehicle installment sale transaction:
(A) Acceleration and default. The model clause regarding acceleration and default reads:
Figure: 7 TAC §84.808(34)(A) (.pdf)
(B) Late charge. The model clause regarding late charge reads: "I will pay you a late charge as agreed to in this contract when it accrues."
(C) Repossession. At the creditor's option, a creditor may choose one of the following model provisions pertaining to repossession. The model clauses regarding repossession read:
(i) "If I default, you may repossess the motor vehicle from me if you do so peacefully. If any personal items are in the motor vehicle, you can store them for me and give me written notice at my last address shown on your records within 15 days of discovering that you have my personal items. If I do not ask for these items back within 31 days from the day you mail or deliver the notice to me, you may dispose of them as applicable law allows. Any accessory, equipment, or replacement part stays with the motor vehicle." In this provision, the term "peacefully" is intended to have the same meaning as "without breaching the peace," as determined by the Texas courts, and as found under clause (ii) of this subparagraph. Or
(ii) "If I default, you may repossess the motor vehicle from me if you do so without breaching the peace. If any personal items are in the motor vehicle, you can store them for me and give me written notice at my last address shown on your records within 15 days of discovering that you have my personal items. If I do not ask for these items back within 31 days from the day you mail or deliver the notice to me, you may dispose of them as applicable law allows. Any accessory, equipment, or replacement part stays with the motor vehicle."
(D) Buyer's right to redeem. The model clause regarding buyer's right to redeem reads: "If you take my motor vehicle, you will tell me how much I have to pay to get it back. If I do not pay you to get the motor vehicle back, you can sell it or take other action allowed by law. My right to redeem ends when the motor vehicle is sold or you have entered into a contract for sale or accepted the collateral as full or partial satisfaction of a contract."
(E) Disposition of motor vehicle. The model clause regarding disposition of the motor vehicle reads: "If I don't pay you to get the motor vehicle back, you can sell it or take other action allowed by law. You will send me notice at least 10 days before you sell it. You can use the money you get from selling it to pay allowed expenses and to reduce the amount I owe. Allowed expenses are expenses you pay as a direct result of taking the motor vehicle, holding it, preparing it for sale, and selling it. If any money is left, you will pay it to me unless you must pay it to someone else. If the money from the sale is not enough to pay all I owe, I must pay the rest of what I owe you plus interest. If you take or sell the motor vehicle, I will give you the certificate of title and any other document required by state law to record transfer of title."
(F) Collection costs. The model clause regarding collection costs reads: "If you hire an attorney who is not your employee to enforce this contract, I will pay reasonable attorney's fees and court costs as the applicable law allows."
(G) Cancellation of optional insurance or service contracts. The model clause regarding cancellation of optional insurance or service contracts reads: "This contract may contain charges for insurance or service contracts or for services included in the cash price. If I default, I agree that you can claim benefits under these contracts to the extent allowable, and terminate them to obtain refunds of unearned charges to reduce what I owe or repair the motor vehicle."
(35) Acceleration, waiver of notice of intent to accelerate, and notice of acceleration. A model clause regarding the holder's right to accelerate maturity of the contract and to waive the buyer's or co-buyer's common law right to notice of intent to accelerate, notice of acceleration, or both reads: "If I default, or you believe in good faith that I am not going to keep any of my promises, you can demand that I immediately pay all that I owe. You don't have to give me notice that you are demanding or intend to demand immediate payment of all that I owe."
(36) Refund upon acceleration. For contracts using the sum of the periodic balances or scheduled installment earnings methods, the model clause regarding the buyer's right to a finance charge refund upon acceleration of the contract reads: "If you demand that I pay you all that I owe, you will give me a credit of part of the Finance Charge as if I had prepaid in full."
(37) Integration and severability.
(A) The contract may include an integration clause indicating that the parties to the contract intend it to be the final written expression of their agreement. The model clause regarding integration reads: "This contract contains the entire agreement between you and me relating to the sale and financing of the motor vehicle."
(B) The contract may also include a severability clause providing that the invalidity of any portion of the contract does not render invalid other parts of the contract that would otherwise be valid. The model clause regarding severability reads: "If any part of this contract is not valid, all other parts stay valid."
(38) No waiver and limitations on creditor's rights and usury savings.
(A) A model clause to prevent a creditor's delay in enforcing rights under the contract from affecting a waiver of those rights reads: "If you don't enforce your rights every time, you can still enforce them later."
(B) A provision establishing limitations on the creditor's rights reads: "You will exercise all of your rights in a lawful way."
(C) The model clause regarding usury savings reads: "I don't have to pay finance charge or other amounts that are more than the law allows. This provision prevails over all other parts of this contract and over all your other acts."
(39) Applicable law. A model clause to establish the law that will apply to the contract reads: "Federal law and Texas law apply to this contract."
(40) Warranty disclaimer. The disclaimer of express and implied warranties should be set out from the surrounding text so that the disclosure is conspicuous. A disclaimer of express and implied warranties, such as the following, is permitted by Texas Business and Commerce Code, Article 2, Subchapter C, and reads: "Unless the seller makes a written warranty, or enters into a service contract within 90 days from the date of this contract, the seller makes no warranties, express or implied, on the motor vehicle, and there will be no implied warranties of merchantability or of fitness for a particular purpose. This provision does not affect any warranties covering the motor vehicle that the motor vehicle manufacturer may provide."
(41) Preservation of consumer's claims and defenses notice. This notice only applies if the motor vehicle financed in the contract was purchased for personal, family, or household use. The preservation of consumer's claims and defenses notice disclosure should be set out from the surrounding text so that the disclosure is in all capitals, boldfaced and in at least 10-point type. The preservation of consumer's claims and defenses notice disclosure, as required by the Federal Trade Commission's preservation of consumer's claims and defenses notice, 16 C.F.R. §§433.1 et seq. , reads: "NOTICE: ANY HOLDER OF THIS CONSUMER CREDIT CONTRACT IS SUBJECT TO ALL CLAIMS AND DEFENSES WHICH THE DEBTOR COULD ASSERT AGAINST THE SELLER OF GOODS OR SERVICES OBTAINED PURSUANT HERETO OR WITH THE PROCEEDS HEREOF. RECOVERY HEREUNDER BY THE DEBTOR SHALL NOT EXCEED AMOUNTS PAID BY THE DEBTOR HEREUNDER. This provision applies to this contract only if the motor vehicle financed in the contract was purchased for personal, family, or household use."
(42) Used car buyer's guide. The used car buyer's guide disclosure should be set out from the surrounding text so that the disclosure is conspicuous. The disclosure should be prefaced by the words "In this box only, the word "you" refers to the Buyer." The used car buyer's guide disclosure, as required by the Federal Trade Commission's Used Car Regulation, 16 C.F.R. §§455.1 et seq., reads:
(A) "Used Car Buyer's Guide. The information you see on the window form for this vehicle is part of this contract. Information on the window form overrides any contrary provisions in the contract of sale."
(B) Spanish Translation: "Guía para compradors de vehículos usados. La información que ve en el formulario de la ventanilla para este vehículo forma parte del presente contrato. La información del formulario de la ventanilla deja sin efecto toda disposición en contrario contenida en el contrato de venta."
(43) Negotiability and assignment. The disclosure of the negotiability of the contract should be placed on the front side of the contract and may read:
(A) "The Annual Percentage Rate may be negotiated with the Seller. The Seller may assign this contract and retain its right to receive a part of the Finance Charge";
(B) "The rates of this contract are negotiable. The seller may assign or otherwise sell this contract and receive a discount or other payment for the difference between the rate, charges, or balance"; or
(C) "A customer may obtain their own financing. The finance charge may be negotiable. The dealership may assign the retail installment contract. There is no duty to disclose the terms for the sale of this contract (e.g., price paid to retail seller to purchase retail installment contract)."
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on June 20, 2008.
TRD-200803217
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: July 10, 2008
Proposal publication date: May 2, 2008
For further information, please call: (512) 936-7621
CHAPTER 91. CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS
SUBCHAPTER C. MEMBERS
The Credit Union Commission adopts amendments to §91.301, concerning Field of Membership, without changes to the text as published in the February 22, 2008, issue of the Texas Register (33 TexReg 1477). The amendments to §91.301 add a new subsection granting the commissioner the authority to approve field of membership expansions that have been approved by the National Credit Union Administration. A second new subsection formalizes the criteria needed to add a Group to a credit union's field of membership. In addition, the amendments clarify that credit unions have the option to include businesses and other organizations whose employees are within the Group in its field of membership, unlike other entities that must receive separate expansion approval. Finally, the amendments eliminate some redundant overlap language and make grammatical and technical corrections to the rule.
The amendments are adopted as a result of the Department's general rule review.
The Commission received no comments with respect to these rule amendments. A public hearing on the amendments was held at the Department offices on May 2, 2008 at 9:00 a.m. No comments were received at that hearing.
The amendments are adopted under Texas Finance Code, §15.402, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code §122.051, concerning membership.
The specific section affected by the amended rule is Texas Finance Code, §122.051.
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 23, 2008.
TRD-200803243
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: July 13, 2008
Proposal publication date: February 22, 2008
For further information, please call: (512) 837-9236
The Credit Union Commission adopts amendments to §91.302, concerning Election or Other Vote By Electronic Device, Absentee Ballot, or Mail Ballot, without changes to the text as published in the February 22, 2008, issue of the Texas Register (33 TexReg 1479). The amendments to §91.302 change the title of the section to Election or Other Membership Vote By Electronic Balloting, Early Voting, Absentee Voting, or Mail Balloting. The amendments also include provisions on early voting and encourage credit unions to promote member participation in elections and other membership votes. Additional amendments provide that early or absentee ballots must be received prior to the beginning of the meeting, eliminating the five calendar day requirement, and make grammatical and technical amendments.
The amendments are adopted as a result of the Department's general rule review.
The Commission received no comments with respect to these rule amendments. A public hearing on the amendments was held at the Department offices on May 2, 2008 at 9:00 a.m. No comments were received at that hearing.
The amendments are adopted under Texas Finance Code, §15.402, which authorizes the Commission to adopt reasonable rules for administering Title 2, Chapter 15 and Title 3, Subchapter D of the Texas Finance Code, and under Texas Finance Code §122.052, which directs the commission to establish rules for conducting mail and electronic balloting.
The specific section affected by the amended rule is Texas Finance Code, §122.052.
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 23, 2008.
TRD-200803244
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: July 13, 2008
Proposal publication date: February 22, 2008
For further information, please call: (512) 837-9236
CHAPTER 153. HOME EQUITY LENDING
The Finance Commission of Texas and the Texas Credit Union Commission ("commissions") jointly adopt amendments to interpretations 7 TAC §153.22 and §153.84, relating to home equity lending under Texas Constitution, Article XVI, §50(a)(6), (g), and (t)(3). The amendments to 7 TAC §153.22 and §153.84 are adopted with changes to the proposed text as published in the March 14, 2008, issue of the Texas Register (33 TexReg 2101). As a result of comments received, the commissions withdraw the proposed amendments to 7 TAC §153.51.
The commissions received five comments on the proposal from the following parties: two comments from the Independent Bankers Association of Texas ("IBAT"), and one comment each from the Texas Mortgage Bankers Association ("TMBA"), Brown, Fowler & Alsup, P.C., and Black, Mann & Graham, L.L.P. The comment from Brown, Fowler & Alsup, P.C. is generally opposed to the proposed amendments and states that "if adopted as currently worded, [the amendments] would impose a burdensome procedure upon home equity lenders and title companies conducting closings that was not intended by the legislature . . . ." On the other hand, one of the IBAT comments is supportive, stating: "Community banks appreciate the clarity that the interpretations provide to them in complying with these complicated provisions." Overall, the comments may be characterized as issue-oriented and seek to obtain the best clarification possible on the recent amendments to the Texas Constitution. Each issue commented upon is addressed following the purpose paragraph for the interpretation receiving the comment.
Texas Constitution, Article XVI, §50 ("Section 50"), sets out the only permissible encumbrances on a homestead. Pursuant to Section 50(u), as implemented by Texas Finance Code, §11.308 and §15.413, the power to interpret Section 50(a)(5) - (7), (e) - (p), and (t) of the Texas Constitution has been separately and independently delegated to the commissions, subject to the statutory admonition that the commissions strive for consistency in the exercise of this independent authority. The commissions have jointly adopted the home equity lending interpretations codified in 7 TAC Chapter 153.
Section 50 was amended effective December 4, 2007, pursuant to voter approval of Proposition 8 (House Joint Resolution Number 72), proposed in the 80th Texas Legislative Session. In general, the purpose of the amendments to §153.22 and §153.84 is to conform with the constitutional changes in Section 50. The individual purposes of the amendments to each section are provided in the following paragraphs.
The amendments to §153.22 outline the lender's obligation to provide copies of certain documents at closing, as required by amended Section 50(a)(6)(Q)(v), including a copy of the final loan application and all documents that are signed by the owner at closing.
One commenter suggests that the phrasing of the first sentence be changed from "the lender must provide" to the "owner must receive," in reference to the final loan application and documents signed by the owner at closing. The commissions first would like to note that this revision is a comment on existing language not being amended. Furthermore, the commenter's change in phrasing is merely a distinction in wording without a difference in meaning. Thus, the commissions decline the commenter's suggestion and will maintain the current wording.
Two commenters request that the word "executed" be added in the first sentence before the word "documents" in order to better track the constitutional changes. As explained by one commenter, "The word 'executed' was added to Section 50(a)(6)(Q)(v) to clarify that the copies of the loan documents signed by the owner at closing must be copies after the owner has signed them; otherwise, the word 'executed' is superfluous." The commissions agree with this recommendation and have added "executed" to the first sentence of §153.22 for this adoption.
One commenter poses the following question: "Could the lender provide a single copy of all of the documents to one spouse at closing and satisfy this requirement [of providing the owner with copies] or should two complete duplicate copies be provided to both spouses?" The commissions agree that clarification on this point would be helpful, and have added the following new second sentence to §153.22 for this adoption: "One copy of these documents may be provided to married owners."
One commenter states that "it is confusing to add the phrase, 'With the exception of the final loan application, the' as part of the second sentence dealing with pre-closing documents because the final loan application is not provided to or executed by the owner prior to closing." Additionally, three other commenters request that the word "final" be deleted from the second sentence of the proposed amendments to §153.22 (the "final" being referenced is included in the italicized phrase quoted earlier). The commissions agree with these comments and have deleted the italicized phrase from §153.22 for this adoption.
Two commenters raise concerns regarding the addition of the words "at closing" to the Texas Constitution and the resulting limitations on documents that must be provided. One commenter summarizes the issue as follows: "The words 'at closing' were added to Section 50(a)(6)(Q)(v) to expressly limit the requirement to provide the owner with copies of documents related to the home equity loan only to the documents signed by the owner at closing. Thus, there is no longer any authority for the Commissions to require that copies of post-closing documents signed after the date of closing be provided to the owner."
The commissions agree with the commenters and have revised §153.22 accordingly. As a result, the third sentence has experienced three modifications: (1) The phrase "The lender is not required" has been replaced with "This requirement does not obligate the lender," (2) the addition of "or after" before the word "closing," and (3) the deletion of everything after the word "closing." Therefore, the third and now final sentence of §153.22 reads as follows for this adoption: "This requirement does not obligate the lender to give the owner copies of documents that were signed by the owner prior to or after closing." Please note, however, that this language is not intended to affect the lender's obligation to provide a copy of the loan application, if not previously provided, and a final itemized disclosure prior to closing under Section 50(a)(6)(M)(ii) of the Constitution.
The proposed amendments to §153.51 were intended to clarify the lender's obligation to provide a copy of the application at least one business day prior to closing, as required by amended Section 50(a)(6)(M)(ii). The commissions never intended the proposed language to require that lenders provide a copy of the final loan application prior to closing. The commissions agree with three commenters who stated that the Texas Constitution does not impose such a requirement. In fact, the commissions' intent was to implement the intent of the legislature, which was well summarized by a commenter as follows: " [T]he intent of the legislature is that lenders with respect to any home equity loan are required to provide home owners (i) a copy of their loan application at least one day prior to closing only if the lender has not previously provided the owners a copy of their signed application form at the time of application, and (ii) a copy of the final form of the loan application at the time of closing."
Moreover, two commenters brought to the commissions' attention that the proposed amendments to §153.51 were misplaced and as explained by one commenter "should instead be more appropriately proposed as amendments to §153.13, which specifically interprets the Preclosing Disclosures required under subsection (a)(6)(M)(ii) . . . ." The commissions agree that the proposed amendments to §153.51 would be better suited as proposed amendments to §153.13. Due to the reasons outlined by the two preceding paragraphs, the commissions withdraw the proposed amendments to §153.51 and are proposing new amendments to §153.13 separately in this issue of the Texas Register.
The amendments to §153.84 implement the prohibition on the owner's use of preprinted checks unsolicited by the borrower to obtain a HELOC advance, as required by amended Section 50(t)(3). New paragraph (2) clarifies that the borrower may not request that the lender periodically send preprinted checks to the borrower. Current paragraphs (3) and (4) of §153.84 have been deleted, as these definitions are unnecessary due to the constitutional changes.
One commenter suggests that new §153.84(2) "should clarify that the borrower may not at closing request the lender to periodically send preprinted checks to the borrower." The commissions believe that the addition of this phrase would permit a false inference, i.e. that the day or week after closing, borrowers could engage in this prohibited practice. The prohibition on borrowers requesting that lenders periodically send preprinted checks is a comprehensive prohibition, effective at closing, the day after closing, six months after closing, and so on.
The floor remarks made by Representative Burt Solomons for purposes of legislative intent are instructive on this issue: "The phrase, preprinted checks not solicited by the borrower, means checks that a person sometimes gets in the mail inviting them to borrow money. If the borrower requests these checks, then he can use the checks. However, if a borrower can sign a piece of paper when they take out a home equity loan or a line of credit that says, 'I want the lender to send me checks periodically,' that is not okay. That is not the intent of this provision. A borrower must request the lender to send them the checks, which is what 'solicited by the borrower' means. We do not want homeowners with these accounts to be unnecessarily encouraged to borrow money against their home, and I want to make it very clear what the intent of this provision is for any state agency or court that needs help interpreting it." H.J. OF TEX., 80th Leg., R.S. 2431 (2007). Thus, the commissions decline the commenter's suggestion. The same commenter believes that "it would appear permissible to include a reorder form at the end of the pad [of preprinted checks previously ordered]." The commenter also suggests that lenders could provide "special checks" at the borrower's request. While the commissions believe that the term "special checks" is too ambiguous for use as a permitted item, the use of a reorder form would be permissible under this section. Therefore, the following second sentence has been added to §153.84(2) for this adoption: "A borrower may use a check reorder form, which may be included with preprinted checks, as a means of requesting a specific number of preprinted checks."
Also regarding §153.84(2), the commenter states: "It would also be useful to provide an example of what is permitted." The commissions believe that the legislative intent quoted previously shows that a lawful request under this requirement must meet the following elements: be from the borrower, be a request that the lender provide checks to access the home equity line of credit (HELOC), and not contain periodic language or an on-going request. In the commissions' view, the first sentence of §153.84(2) embodies these elements and fulfills the legislature's intent. Finally, the addition of the reorder form to the interpretation is an example of how a borrower is able to request preprinted checks from the lender. To the extent that the commenter requests an example beyond the reorder form, the commissions decline to adopt additional examples of permissible requests.
The amended interpretations are adopted pursuant to Texas Finance Code, §11.308 and §15.413, which separately and independently authorize each commission to issue interpretations of the Texas Constitution, Article XVI, §50(a)(5) - (7), (e) - (p), (t), and (u), subject to Texas Government Code, Chapter 2001.
The Texas Constitution, Article XVI, §50(a)(6), (g), and (t)(3) are affected by the adopted amendments.
§153.22.Copies of Documents: Section 50(a)(6)(Q)(v).
At closing, the lender must provide the owner with a copy of the final loan application and all executed documents that are signed by the owner at closing in connection with the equity loan. One copy of these documents may be provided to married owners. This requirement does not obligate the lender to give the owner copies of documents that were signed by the owner prior to or after closing.
§153.84.Restrictions on Devices and Methods to Obtain a HELOC Advance: Section 50(t)(3).
A HELOC is a form of an open-end account that may be debited from time to time, under which credit may be extended from time to time and under which an owner is prohibited from using a credit card, debit card, or similar device, or preprinted check unsolicited by the borrower to obtain a HELOC advance.
(1) A lender may offer one or more non-prohibited devices or methods for use by the owner to request an advance. Permissible methods include contacting the lender directly for an advance, telephonic fund transfers, and electronic fund transfers. Examples of devices that are not prohibited include prearranged drafts, preprinted checks requested by the borrower, or written transfer instructions. Regardless of the permissible method or device used to obtain a HELOC advance, the amount of the advance must comply with:
(A) the advance requirements in Section 50(t)(2);
(B) the loan to value limits in Section 50(t)(5); and
(C) the debit or advance limits in Section 50(t)(6).
(2) A borrower may from time to time specifically request preprinted checks for use in obtaining a HELOC advance but may not request the lender to periodically send preprinted checks to the borrower. A borrower may use a check reorder form, which may be included with preprinted checks, as a means of requesting a specific number of preprinted checks.
(3) An owner may, but is not required to, make in-person contact with the lender to request preprinted checks or to obtain a HELOC advance.
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 20, 2008.
TRD-200803218
Leslie L. Pettijohn
Consumer Credit Commissioner
Joint Financial Regulatory Agencies
Effective date: July 10, 2008
Proposal publication date: March 14, 2008
For further information, please call: (512) 936-7621