Texas Register
(24 TexReg 3965).
Texas Civil Statutes, Article 6252-13c and Article 6252-13d, require a
licensing authority to adopt rules relating to its exercise of authority to
suspend or revoke an existing license, or deny an application for a license,
because of a person's conviction of a crime which directly relates to the
duties and responsibilities of the licensed profession. Permits to sell or
manage prepaid funeral benefits contracts are regulated by the department
of banking pursuant to Finance Code, Chapter 154, and are considered to come
within the meaning and intent of these articles.
As required by Texas Civil Statutes, Article 6252-13d, §25.31 as adopted
defines the crimes that are considered to be directly related to the duties
and responsibilities of selling and managing prepaid funeral benefits contracts,
the officials whose conviction of such a crime could adversely affect a proposed
or existing permit, and specifies the administrative and judicial review available
upon the denial of an application for a permit, or the cancellation, suspension,
or refusal to renew an existing permit because of such criminal conviction.
No comments were received expressing approval of or objection to the proposed
section as a whole. One comment was received which addressed several aspects
of the proposed section. As discussed below, the definition of "official"
was modified in response to the comment, with the remainder of the requested
changes rejected for the reasons indicated. As a general response, the department
emphasizes that the purpose of the section is notice of the types of crimes
that "may" result in adverse action. The department believes the circumstances
of perceived unfairness envisioned by the commentor, assuming that the commissioner
is inclined to take an adverse action in such circumstances, can and should
be addressed as potential mitigating factors under §25.31(d).
1. The commentor suggested that the definition of "Official" in proposed
§25.31(a)(2) was too broad, offering alternative language that, in essence,
could remove an owner, director, or officer of an applicant or permit holder
from the definition. The suggested change would include only persons that
individually control the permit holder or applicant. The department agrees
that it is not necessary to include a director in the definition. To the extent
that individual directors actually control the entity or deal with the public,
they would likely be covered by the rule as officers or principal shareholders.
In addition, the department currently does not perform criminal background
checks on directors, unless they are officers or principal shareholders. The
definition of "official" has been accordingly modified. However, the department
rejects the further suggestion that the definition also not include owners
and officers. It is necessary to include an "owner" in order to cover a person
who controls a non-corporate entity. Officers would typically include those
persons who manage the day-to-day affairs of the entity, and deal directly
with the public. The department believes that possibility of criminal conduct
by individuals that control a non-corporate entity or that manage the day-to-day
operations of a permit holder or deal directly with contract purchasers is
of equal regulatory concern as that possibility with regard to persons that
exercise corporate control. Moreover, the presence of such a person would
likely result in a denial of an application pursuant to Finance Code, §154.103(b),
on grounds of a lack of necessary character or general fitness.
2. The commentor requested that §25.31(b) be changed to delete the
words "or servicer," arguing that servicing a contract is not an activity
authorized by a permit, and that a criminal conviction with respect to servicing
is therefore not directly related to the official's fitness to engage in the
activities for which the permit is obtained. The comment further states that
this change would make clear that a seller that is not also the service provider
cannot have a permit jeopardized by the criminal conviction of a third-party
provider. The department rejects this change. For many permit holders and
applicants, selling prepaid funeral benefits contracts is undertaken primarily
to promote their principal business of providing funeral services. Certainly
the purchaser of a contract from a seller that is also the service provider
would view buying the contract and receiving the service as part of the same
transaction. It would be inconsistent with the regulatory responsibilities
of the department to issue or allow retention of a permit which would provide
greater opportunity for a servicer to engage in a type of undesirable activity
for which a propensity has already been demonstrated. With respect to the
second argument, the department fails to see how the section could lead to
adverse action against a permit holder because of a criminal conviction of
an unrelated third party provider. The third party is unambiguously not an
"official" of the permit holder as defined in §25.31(a)(2).
3. Similarly, the commentor requested that §25.31(c) be changed by
eliminating the words "and servicing" and the phrase "and the provision of
funeral services" in the first sentence, and by deleting §25.31(c)(5)
in its entirety, asserting that crimes arising out of servicing a contract
are not directly related to the duties and responsibilities of a permit holder.
The department rejects this argument for the reasons discussed in the preceding
paragraph.
4. The commentor suggested that the words "or another state" be deleted
in §25.31(c)(4), because a crime involving a violation of another state's
prepaid funeral benefits laws may be a crime not directly related to the duties
and responsibilities of a permit holder under Texas law. The department rejects
this suggestion. Given the similarity of prepaid funeral benefits statutes
among the states which have them, it is unlikely that an action which results
in criminal penalties under the prepaid funeral benefits statutes of another
state would be an action unrelated to the duties and responsibilities of a
Texas permit holder. More to the point, however, compliance with Texas law
relating to the sale of prepaid funeral benefits certainly is among the duties
and responsibilities of a Texas permit holder, and an applicant's diligence
in complying with the law of another state, whatever the differences or similarities
may be when compared to Texas law, is reflective of the diligence that may
be anticipated in complying with Texas law.
5. Finally, the commentor requested that in §25.31(c)(6), the words
"the Texas Department of Banking under Chapter 154 of the Texas Finance Code"
be substituted for "other governmental body." The department rejects this
suggestion. Submitting reports to a governmental agency is an important duty
and responsibility of a permit holder. The department believes that a lack
of diligence in submitting reports required by any governmental body, when
sufficiently severe to result in a criminal conviction, is directly relevant
to an applicant's probable diligence in submitting reports required under
Finance Code, Chapter 154, and is proper grounds for denial of a permit, absent
mitigating circumstances.
The department is making nonsubstantive, stylistic edits to improve readability
based on internal comments. No edit changes the meaning, intent, or effect
of the section with regard to an affected person.
The section is adopted pursuant to Texas Civil Statutes, Article
6252-13d, which requires a licensing authority to issue guidelines relating
to the suspension, revocation, or denial of a license because of a conviction
of a crime which directly relates to the licensed occupation, and Finance
Code, §154.051(b), which authorizes the department to adopt rules on
any matter relating to the enforcement and administration of Finance Code,
Chapter 154.
§25.31.Effect of Criminal Convictions on Permits.
(a)
Definitions. The following words and terms, when used in
this section, shall have the following meanings, unless the context clearly
indicates otherwise:
(1)
Commissioner--The banking commissioner of Texas.
(2)
Official--An individual applying for or holding a
permit, or an owner, officer, or holder of more than 25 percent of the outstanding
shares of an applicant for or holder of a permit that is an entity.
(3)
Permit--The authorization issued by the commissioner
pursuant to Finance Code, Chapter 154, Subchapter C, to sell or accept money
for prepaid funeral benefits, or solicit an individual's designation of prepaid
funeral benefits to be paid out of a fund, investment, security, or contract.
(b)
Effect of criminal conviction on proposed or existing permit.
The commissioner may deny an application for a permit, or cancel, suspend,
or refuse to renew a permit if an official has been convicted of a crime which
directly relates to the duties and responsibilities of a seller or servicer
of prepaid funeral benefits contracts. Adverse action by the commissioner
in response to a conviction of a crime specified in subsection (c) of this
section is subject to mitigating circumstances and rights of the applicant
or permit holder as specified in subsections (d)-(h) of this section.
(c)
Crimes directly related to fitness for permit. The sale
and servicing of prepaid funeral benefits involves or may involve representations
to prospective plan purchasers, collection and investment of money paid by
purchasers of prepaid funeral benefits, payment of premiums on insurance policies
to fund the benefits, provision of funeral services on matured contracts,
and compliance with reporting requirements to governmental agencies. Consequently,
a crime involving the misrepresentation of costs or benefits of a product
or service, the improper handling of money or property entrusted to the person
for the future benefit of another, or the failure to file a governmental report
or the filing of a false report is a crime directly related to the duties
and responsibilities of a permit holder, including a crime involving:
(1)
fraud, misrepresentation, deception, or forgery;
(2)
breach of trust or other fiduciary duty;
(3)
dishonesty or theft;
(4)
violation of a statute of this or another state governing
prepaid funeral benefits plans;
(5)
violation of a statute of this or another state governing
the provision of funeral services;
(6)
failure to file a required report with a governmental
body, or filing of a false report; or
(7)
attempt, preparation, or conspiracy to commit one
of the preceding crimes.
(d)
Mitigating considerations. In determining whether a conviction
for a crime specified in Subsection (d) of this section renders an official
presently unfit to be a permit holder, the commissioner shall consider:
(1)
the extent and nature of the official's past criminal activity;
(2)
the age of the official at the time of the commission
of the crime;
(3)
the time elapsed since the official's last criminal
activity;
(4)
the conduct and work activity of the official prior
to and following the criminal activity;
(5)
the official's rehabilitation or rehabilitative effort
while incarcerated or following release; and
(6)
the official's present fitness for a permit, evidence
of which may include letters of recommendation from prosecution, law enforcement,
and correctional officers who prosecuted, arrested, or had custodial responsibility
for the official, the sheriff and chief of police in the community where the
official resides, and other persons in contact with the convicted official.
(e)
Required documentation. The applicant must, to the extent
possible, secure and provide to the commissioner reliable documents and/or
testimony evidencing the information required to make a determination under
subsection (d) of this section, including the recommendations of the prosecution,
law enforcement, and correctional authorities. The applicant must also furnish
proof in such form as may be required by the commissioner that the official
has maintained a record of steady employment, has supported such official's
dependents, has otherwise maintained a record of good conduct, and has paid
all outstanding court costs, supervision fees, fines, and restitution as may
have been ordered in all criminal cases in which the official has been convicted.
(f)
Notification of adverse action. If a permit application
is denied, or if a permit is canceled, suspended, or not renewed because of
the criminal conviction of an official, the commissioner will so notify the
applicant or permit holder in writing. The notification must include a statement
of the reasons for the action and a description of the procedure for administrative
or judicial review of the action.
(g)
Administrative hearing. An applicant whose permit application
is denied, or a permit holder whose permit is suspended, canceled, or not
renewed may request a hearing. A hearing on an order of suspension, cancellation,
or non-renewal must be requested not later than the 15th day after the date
the order is mailed. A hearing is subject to the provisions of the Administrative
Procedure Act, Chapter 2001, Government Code and the provisions of Chapter
9, Subchapter B of this title (relating to Contested Case Hearings).
(h)
Judicial review. An applicant whose permit application
has been denied, or a permit holder whose permit has been suspended, canceled
or not renewed because of the criminal conviction of an official may appeal
a final order as set forth in Government Code, Chapter 2001, Subchapter G.
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 August
5, 1999.
TRD-9904825
Everette D. Jobe
General Counsel
Texas Department of Banking
Effective date: August 25, 1999
Proposal publication date: May 28, 1999
For further information, please call: (512) 475-1300