7 TAC §§1.101-1.107
The Finance Commission of Texas (the commission) proposes
new §§1.101 - 1.107, concerning the purpose and scope of a new
chapter of the rules to cover loans made under new Chapter 3A (Texas Civil
Statutes, Article 5069-3A.101
et seq
.), definitions
to be used in this chapter, the responsibility of licensees for the acts of
their agents, required knowledge of laws and regulations, attempted evasion
of new Chapter 3A, multiple licenses, and loans by mail.
The new sections provide an introduction to a new set of rules for Chapter
3A, a new chapter of the Credit Code which encompasses the substance of old
Chapters 3 through 5.
Leslie Pettijohn, Consumer Credit Commissioner, has determined that for
the first five-year period the sections as proposed will be in effect there
will be no fiscal implications for state or local government as a result of
administering or enforcing the new sections.
Ms. Pettijohn also has determined that for each year of the first five-year
period the sections as proposed will be in effect the public benefit anticipated
as a result of the adoption of the new rules is the clarification of the new
statutory requirements set forth in Chapter 3A to aid the industry in compliance.
No net economic cost will result to persons required to comply with the new
sections. No difference will exist between the cost of compliance for small
businesses and the cost of compliance for the largest businesses affected
by the new sections.
Comments on the proposed adoption of the new sections may be submitted
in writing to Leslie Pettijohn, Consumer Credit Commissioner, 2601 North Lamar
Boulevard, Austin, Texas 78705-4207.
The new sections are proposed under Texas Civil Statutes, Article
5069-3A.901, which authorizes the Finance Commission to adopt rules to enforce
new Chapter 3A.
Texas Civil Statutes, Articles 5069-3A.005, 5069-3A.101, 5069-3A.102, and
5069-3A.103 are affected by the proposed new sections.
§1.101. Purpose and Scope.
(a)
Purpose. The purpose of this chapter is to assist in the
administration and enforcement of Chapter 3A of the Texas Civil Statutes,
Article 5069 ("Article 5069").
(b)
Scope.
(1)
This chapter applies to all persons engaged in the business
of making, transacting, or negotiating loans subject to Chapter 3A of Article
5069. As such, this chapter only applies to lenders and brokers in the business
of making, transacting or negotiating loans that:
(A)
contract for, charge, or receive interest in excess of
10 percent per year;
(B)
are loans extended primarily for personal, family, or
household use; and
(C)
are either unsecured or secured by a lien on real estate
or personal property under a secondary mortgage loan. This includes term loans
extended primarily for personal, family, or household purposes.
(2)
This also includes a loan broker who arranges,
negotiates, or brokers loans for a lender that funds the loan. This chapter
does not apply to any loans made under Chapters 1B-1H of Article 5069, including,
for example, commercial and agricultural loans.
§1.102. Definitions.
Words and terms used in this chapter that are defined in Chapter 3A
of Article 5069 have the same meanings as defined in Chapter 3A. The following
words and terms, when used in this chapter, shall have the following meanings,
unless the context clearly indicates otherwise. Acquisition Charge An interest
charge authorized for making the cash advance under authority of Article 3A.402
of Article 5069.
Add-on interest
- A method for calculating precomputed interest
in which the borrower agrees to pay the total of payments, which includes
both interest and principal, as opposed to agreeing to pay the principal plus
interest as it accrues at a certain rate. Add-on interest is calculated at
the outset of a loan on the cash advance for the full term, as if the principal
did not decline over the course of the loan. For example, a $1,000 loan with
12 monthly installments and an add-on interest amount of 8 dollars per hundred
per annum would have a total charge of interest of $80.00 and monthly payments
of $90.00, yielding an annual percentage rate ("APR") of 14.45%.
Authorized Charge
- Any charge authorized by applicable Texas
law to be included in the credit transaction.
Authorized Lender
- A person who has obtained a license from
the commissioner or a bank, savings bank, savings and loan association, or
credit union doing business under the laws of this State or the United States.
Banks chartered in other states insured by the Federal Deposit Insurance Corporation
are included in this term. Separate entities that are subsidiaries or affiliates
of licensees or authorized banks, savings banks, savings and loan associations,
or credit unions are not authorized lenders unless they meet the required
elements of the definition of an authorized lender in their own right.
Commissioner
- Consumer Credit Commissioner of
the State of Texas.
Date of Consummation
- The date of closing or execution of
a loan contract.
Default Charge or Late Charge
- The additional interest charge
for late payment on a loan.
Deferment Charge
- The payment of an additional interest charge
to defer the payment date of a scheduled payment on a contract.
Dual Interest Coverage
- Insurance that provides benefits
to both the holder of a loan and the borrower in the event of a loss of the
security covered by the policy. The policy contains a loss payable clause
or endorsement that provides benefits that are payable at the discretion of
the holder. Installment Account Handling Charge (IAHC) An interest charge
authorized for making a loan under Article 5069-3A.402.
Installment Loan
- Any type of closed-end loan with multiple
scheduled payments.
Interest-bearing Loan
- A loan in which the borrower agrees
to pay the principal and interest that accrues at a certain periodic rate.
Interpretation Letter
- A formal interpretation of Article
5069 and the Texas Finance Code made by the Commissioner and approved by the
Finance Commission under Texas Finance Code §14.408.
Licensee
- Any person who has been issued a consumer loan
license pursuant to Chapter 3A of Article 5069. Another name for a "consumer
loan license" is "regulated loan license."
Making a Loan
- The act of making a loan is either the determination
of the credit decision to provide the loan, or the act of funding the loan
or transferring money from the lender to the borrower. A person whose name
appears on the loan documents as the maker of the note is considered to have
"made" the loan.
Negotiating a Loan
- The process of submitting and considering
offers between a borrower and a lender with the objective of reaching agreement
on the terms of a loan. The act of passing information between the parties
can, by itself, be considered "negotiation" if it was part of the process
of reaching agreement on the terms of a loan. "Negotiation" involves acts
which take place before an agreement to lend or funding of a loan actually
occurs. OCCC Office of Consumer Credit Commissioner of the State of Texas.
Precomputed Loan A loan in which the borrower agrees to pay the total of payments
that includes both principal and all anticipated interest through the full
term of the loan. If a borrower prepays a precomputed loan, the borrower is
entitled to a rebate of all unearned interest and unearned charges.
Prepaid Interest
- Interest paid separately in cash or by
check before or at consummation in a transaction, or withheld from the proceeds
of the credit at any time. Some common terms such as points, discounts, and
origination fees have been used to identify this charge.
Principal
- The capital sum of the debt including any interest
capitalized and added to the cash advance at the inception of the loan. This
is the amount of money which is used, forborne, or detained and upon which
interest is charged. The principal amount does not include any interest accrued
after the inception of the loan, such as default charges.
Pro Rata Method
- A formula for determining the amount of
unearned interest or other charges, such as insurance, to be refunded following
prepayment or acceleration by applying the amounts to equal unit periods.
This formula assumes that interest or other charges are earned in direct proportion
to the time that a loan has been outstanding.
Rebate
- Refund of all or part of a precomputed charge or
interest.
Regulated Loan
- Loan made under the authority of Article
5069-3A.101.
Renewal or Refinance
- A new loan contract that includes,
in whole or in part, the net balance of one or more existing loan contracts.
Simple Annual Rate
- The interest rate under the loan agreement
expressed as a percentage rate per year employing the U.S. Rule method. Sum
of the Monthly Balances or Sum of the Periodic Balances Method Another formula
for determining the amount of unearned interest or other charges to be refunded.
This is a variant of the Rule of 78. It provides that the fraction of the
contract interest to be rebated at any given time in the loan term is the
sum of the monthly loan balances for the months remaining in the originally
scheduled loan term divided by the sum of the monthly balances for all of
the months in the scheduled loan term. For example, for a 6-month loan of
$600 which is scheduled to be repaid in $100 monthly installments, the rebate
fraction after two months would be: 400 + 300 + 200 + 100 ÷ 600 + 500
+ 400 + 300 + 200 + 100 = 1000/2100 = 10/21 = 0.476 (rounded). For any loan
which is paid off in equal installments, the sum of the balances method and
the Rule of 78 will provide identical rebates. If, however, a loan schedule
contains unequal payments and especially where the debt is retired by a final
balloon payment, the rebates under the two formulas will be different.
Term Loan
- A loan made repayable in a single payment.
Transacting a Loan
- Any of the significant events associated
with the lending process through funding, including the preparation, negotiation
and execution of loan documents and the transfer of money by the lender to
the borrower or to a third party on the borrower's behalf. This also includes
the act of arranging a loan.
United States Rule
- Ruling of United States Supreme Court
in
Story v. Livingston
, 38 U.S. (13 Pet.)
369, 371 (1839) that, in partial payments on a debt, each payment is applied
first to interest and any remainder reduces the principal. Under this rule,
accrued but unpaid interest cannot be added to the principal and interest
cannot be compounded.
§1.103. Responsibility for Acts of Agents.
A licensee is responsible for the acts and omissions of its officers,
directors, employees, and agents in the conduct of the licensee's business.
§1.104. Knowledge of Laws and Regulations Required.
Each officer, director, employee, and agent of a licensee shall have
a working knowledge of Chapter 3A of Article 5069, its implementing regulations,
and other pertinent state and federal statutes and regulations that apply
to their business.
§1.105. Attempted Evasion of Applicability of Chapter.
A "device, subterfuge, or pretense to evade the application of this
title," as used in Article 5069-3A.101(b), refers to any transaction:
(1)
that in form may appear on its face to be something other
than a loan, but in substance meets the definition of a loan as defined in
Article 5069-1B.002(a)(10); and
(2)
in which more than 10% annual interest, in substance,
is being contracted for, charged or received.
§1.106. Multiple Licenses.
(a)
Definitions. The words "make," "negotiate," "arrange,"
and "collect" as used in Texas Civil Statutes, Article 5069-3A.102(b) are
to be construed as follows.
(1)
Make. Loans are "made" by the office or offices where
either the credit decision is made or the cash advance is disbursed.
(2)
Negotiate and Arrange. Loans are "negotiated" or
"arranged" in the office or offices that received any information preliminary
to a credit decision on a prospective borrower or received the executed application,
agreement, or other necessary loan documentation.
(3)
Collect. Loans are "collected" in the office or offices
from which attempts are made to collect past-due payments from the borrowers
under a loan. The mere receipt and accounting of payments does not constitute
"collection."
(b)
Application. Any office making, negotiating, arranging,
or collecting loans must be licensed. For example, if a lender receives and
reviews loan applications at one office, makes the loan decision at another
office, funds the loan at a third and collects past-due payments from another,
all of these offices must be licensed. On the other hand, an office that merely
receives, records, accounts for, processes payments need not be licensed.
§1.107. Loans by Mail.
(a)
Definitions. The words "make," "negotiate," "arrange,"
and "collect" as used in Texas Civil Statutes, Article 5069-3A.103(b) are
to be construed as follows.
(1)
Make. Loans by mail are "made" by the office or offices
where either the credit decision is made or the cash advance is disbursed.
(2)
Negotiate and Arrange. Loans by mail are "negotiated"
or "arranged" in the office or offices that either provided the borrower a
loan application, a loan agreement, or other document necessary to set up
a loan transaction or received the executed application, agreement, or other
necessary loan documentation.
(3)
Collect. Loans by mail are "collected" in the office
or offices from which attempts are made to collect past-due payments from
the borrowers under a loan. The mere receipt and accounting of payments does
not constitute "collection."
(b)
Application. Any office, wherever located, making, negotiating,
arranging, or collecting loans by mail must be licensed. For example, if a
lender receives and reviews loan applications at one office, makes the loan
decision at another office, funds the loan at a third and collects past-due
payments from another, all of these offices involved in lending by mail must
be licensed. On the other hand, an office that merely receives, records, accounts
for, processes payments need not be licensed.
(c)
License not required. National banks and federally-chartered
thrifts and credit unions, wherever located, and federally-insured state banks,
state thrifts and state credit unions with offices located outside of Texas
may make loans by mail to Texas without obtaining any license under Texas
Civil Statutes Art. 5069-3A.101
et seq.
from
the OCCC and are considered to be an authorized lender.
(d)
Internet Loans. For purposes of Texas Civil Statutes Art.
5069-3A.103(b), a loan made, negotiated, arranged or collected by or through
the Internet is considered a "loan by mail."
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Issued in Austin, Texas, on December 31, 1997.
TRD-9717324
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Earliest possible date of adoption: February 16, 1998
For further information, please call: (512) 936-7600