Part I.
Finance Commission of Texas
Chapter 1.
Consumer Credit Commissioner
Subchapter A. Regulated Loan Licenses
1.
General Provisions
7 TAC §1.14, §1.15
The Finance Commission of Texas (the commission) adopts the
repeal of §1.14 and §1.15. This repeal is necessary because the
sections relate to authorized lender's duties prescribed under Chapter 3,
Texas Civil Statutes, Article 5069-3.01
et seq
.,
which was repealed by the 75th Legislature (1997). Moreover these rules are
being replaced by a new set of rules for Chapter 3A, a new chapter of the
The agency received no comments regarding the proposal.
The repeal is adopted under Texas Civil Statutes, Article 5069-3A.901,
which authorizes the Finance Commission to adopt rules to enforce new Chapter
3A. The repeal will not be adopted until the proposed replacement sections
are adopted.
The statutory provisions (as currently in effect) affected by the proposed
repeal are Texas Civil Statutes, Article 5069, Chapter 3A, Subchapter J.
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 April
23, 1999.
TRD-9902404
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: May 13, 1999
Proposal publication date: March 12, 1999
For further information, please call: (512) 936-7640
7 TAC §§1.71-1.75, 1.77, 1.78, 1.80
The Finance Commission of Texas (the commission) adopts the
repeal of §§1.71-1.75, 1.77, 1.78, and 1.80. The repeals are necessary
because the sections that are proposed for repeal relate to insurance in connection
with loans made under authority of Chapter 3, Texas Civil Statutes, Article
5069-3.01
et seq
., which was repealed by the
75th Legislature (1997). Moreover, they are being replaced by a new set of
rules for Chapter 3A, a new chapter of the
Texas
Credit Title
which encompasses old chapters 3 through 5. The repeals
are adopted without changes to the proposal as published in the March 12,
1999, issue of the
Texas Register
(24 TexReg
1702).
The agency received no comments regarding this proposal.
The repeals are adopted under Texas Civil Statutes, Article 5069-3A.901,
which authorizes the Finance Commission to adopt rules to enforce new Chapter
3A. The repeal will not be adopted until the proposed replacement sections
are adopted.
The statutory provisions (as currently in effect) affected by the proposed
repeals; Texas Civil Statutes, Article 5069, Chapter 3A, Subchapter I.
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 April
23, 1999.
TRD-9902401
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: May 13, 1999
Proposal publication date: March 12, 1999
For further information, please call: (512) 936-7640
7 TAC §1.93, §1.96
The Finance Commission of Texas (the commission) adopts the
repeal of §1.93 and §1.96. The repeals are necessary because the
sections that are proposed for repeal relate to insurance in connection with
loans made under authority of Chapter 3, Texas Civil Statutes, Article 5069-3.01
The agency received no comments regarding this proposal.
The repeals are adopted under Texas Civil Statutes, Article 5069-3A.901,
which authorizes the Finance Commission to adopt rules to enforce new Chapter
3A. The repeal will not be adopted until the proposed replacement sections
are adopted.
The statutory provisions (as currently in effect) affected by the proposed
repeals; Texas Civil Statutes, Article 5069, Chapter 3A, Subchapter I.
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 April
23, 1999.
TRD-9902406
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: May 13, 1999
Proposal publication date: March 12, 1999
For further information, please call: (512) 936-7640
7 TAC §§1.801-1.811
The Finance Commission of Texas (the commission) adopts new
§§1.801-1.811 concerning insurance as provided in Subchapter I,
Chapter 3A, Article 5069. The sections are adopted without changes to the
proposed text as published in the March 12, 1999, issue of the
Texas Register
(24 TexReg 1703).
Pursuant to Subchapter I, a lender may request or require various insurance
coverages in connection with a loan made under Texas Civil Statutes, Chapter
3A. The proposed rules will provide guidance concerning procedures involved
in procuring, maintaining, and terminating these insurance coverages.
Section 1.801 defines terms that are used in connection with these transactions.
Section 1.802 explains the procedures for property insurance that may
be written in connection with a loan made under Chapter 3A. The substance
of this rule is currently embodied in 7 TAC §1.73 (which is being proposed
for simultaneous repeal) and has been in effect since its initial adoption
in 1972. The commissioner has a responsibility to determine if rates for property
insurance that is obtained by the lender at rates that are not fixed or approved
by the Texas Department of Insurance bear a reasonable relationship to the
amount, term, and conditions of the loan, the value of the collateral, and
the existing hazards or risk of loss, damage, or destruction. This rule provides
the procedure for making that determination.
Section 1.803 provides the limits for property insurance relative to the
amount of the note and the value of the collateral. The rule also provides
a procedure for substantiating the amount of property insurance, especially
when the credit insurance policy covers multiple items of collateral . This
procedure is currently embodied in 7 TAC §1.74 (which is being proposed
for simultaneous repeal) and has been in effect since its initial adoption
in 1972. The procedure is necessary to determine an appropriate settlement
amount when a claim is made for a partial personal property loss.
Section 1.804 details the manner of determining the appropriate value of
insured items, in the event of a claim. Specifically, the rule lays out the
"claims ratio" as an approved formula for allocating value to individual items
of collateral in the event of a claim when the total amount of property insurance
written is less than the total value of the collateral.
Section 1.805 describes the types of credit insurance authorized to be
sold in connection with a Chapter 3A loan. The rule is necessary to prescribe
these types of insurance and require compliance with the applicable sections
of the insurance statutes.
Section 1.806 requires the lender to provide a borrower with a copy of
a policy or certificate of insurance for coverage sold in connection with
a Chapter 3A loan. This rule is necessary to prescribe the specific information
required to be disclosed to the borrower and to provide for a reasonable time
frame in which the information is to be disclosed to the borrower.
Section 1.807 refers the reader to other applicable requirements for placement
of single-interest insurance on a loan written under the authority of Chapter
3A.
Section 1.808 provides the procedures for terminating insurance policies
in the event that a loan has been discharged. This procedure is currently
embodied in 7 TAC §1.77 (which is being proposed for simultaneous repeal)
and has been in effect since its initial adoption in 1972. The procedure is
necessary to provide lenders guidance for complying with the credit statutes
and the insurance statutes in the event of the termination of a policy.
Section 1.809 explains refunding procedures when an account is paid in
full due to the proceeds of an insured property loss. This procedure is currently
embodied in 7 TAC §1.78 (which is being proposed for simultaneous repeal)
and has been in effect since its initial adoption in 1972. The procedure is
necessary to provide lenders guidance in crediting accounts or refunding the
unearned portions of insurance premiums and interest charges when the account
has been paid in full by the insurance proceeds.
Section 1.810 prescribes the procedure for cancellation of property insurance
when a borrower provides a lender with evidence that the borrower has equivalent
insurance. This rule is necessary to provide a procedure for the cancellation
of equivalent insurance so that borrowers and lenders understand the steps
required to accomplish the cancellation.
Section 1.811 provides the terms and conditions for writing a nonfiling
insurance policy on a Chapter 3A loan. This insurance is insurance that is
written in lieu of the fees that may be assessed for filing, recording, and
releasing financing statements on the security for a loan. These rules are
necessary to provide clarity to lenders regarding the instances when a charge
for this insurance may be assessed.
The rule adoption is necessary due to the repeal of the former Article
5069, Chapters 3, 4, and 5 and the adoption of new Article 5069-3A.001 et
seq. Generally, these procedures are well established and are commonly used
throughout the regulated industry. These rules should serve, however, to clarify
the calculations and procedures.
The agency received no comments regarding the proposal.
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, Article 5069-3A, Subchapter I is affected by these
proposed new sections.
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 April
23, 1999.
TRD-9902407
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: May 13, 1999
Proposal publication date: March 12, 1999
For further information, please call: (512) 936-7640
7 TAC §§1.826-1.828
The Finance Commission of Texas (the commission) adopts new
§§1.826-1.828 concerning an authorized lender's duties and authority
under Subchapter J, Chapter 3A, Texas Civil Statutes, Article 5069. The sections
are adopted without changes to the proposed text as published in the March
12, 1999, issue of the
Texas Register
(24
TexReg 1706).
Section 1.826 requires that a lender shall provide a borrower with a payoff
quote. This provision is necessary to enable a borrower to prepay the loan
at any time in accordance with Article 3A.803. The former provision requiring
payoff quotes is found at 7 TAC §1.14.
Section 1.827 requires a lender to provide a borrower with a Spanish language
disclosure when a majority of the negotiations have occurred in Spanish. The
substance of this rule is currently embodied in 7 TAC §1.15 (which is
being proposed for simultaneous repeal) and has been in effect since its initial
adoption in 1972. This rule is necessary to ensure that consumers are adequately
informed of the terms and conditions of a loan.
Section 1.828 provides the procedures for a lender to satisfy the requirements
of Article 3A.804. This rule is necessary to provide lenders with guidance
for complying with this section.
The rule adoption is necessary due to the repeal of the former Article
5069, Chapter 5 and the adoption of new Article 5069-3A.001
et seq
. Generally, these procedures are well established and are commonly
used throughout the regulated industry. These rules should serve, however,
to clarify the calculations and procedures.
The agency received no comments regarding the proposal.
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, Article 5069-3A, Subchapter J is affected by these
proposed new sections.
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 April
23, 1999.
TRD-9902408
Leslie L. Pettijohn
Commissioner
Finance Commission of Texas
Effective date: May 13, 1999
Proposal publication date: March 12, 1999
For further information, please call: (512) 936-7640
Chapter 75.
Applications
Subchapter A. Charter Applications
7 TAC §75.3, §75.10
The Finance Commission of Texas adopts amended 7 TAC §75.3
and §75.10 regarding charter application procedures for state savings
banks to update and enhance flexibility in the charter application process.
The sections are adopted without changes to the proposal as published in the
January 1, 1999, issue of the
Texas Register
(24 TexReg 16).
The amendment to §75.3 removes the requirement for specific language
to be published in notices of charter applications. The 74th Legislature authorized
the Finance Commission to employ a hearings officer to provide services to
the Texas Department of Banking, Savings and Loan Department and Office of
Consumer Credit Commissioner. In 1995, the Finance Commission adopted 7 T.A.C.,
Chapter 9 establishing practices and procedures to be followed by the hearing
officer in the conduct of hearings for the Department. At that time, Department
rules regarding notice and hearing procedures were modified to provide consistency
and give the Commissioner the flexibility to approve publication of a notice
worded differently than the existing §75.3. This amendment to §75.3
clarifies that process.
The amendment to §75.10 gives discretion to the Commissioner to set
a hearing to consider the facts or obtain additional information for a change
of name application.
No comments were received regarding the amended sections.
The sections are amended under
Finance
Code
, §11.302, which requires the commission to adopt rules regarding
enforcement and implementation of Subtitle C of the
Finance Code
.
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 April
23, 1999.
TRD-9902397
James L. Pledger
Commissioner
Texas Savings and Loan Department
Effective date: May 13, 1999
Proposal publication date: January 1, 1999
For further information, please call: (512) 475-1350
7 TAC §§75.25-75.27
The Finance Commission of Texas adopts new 7 TAC §§75.25
through 75.27 regarding expedited application procedures for certain state
savings banks relating to branch offices, mobile facilities, change of office
location, merger, consolidation, or purchase and assumption transactions.
A reduction in related application fees in Chapter 79 is separately adopted
for expedited applications. The sections are adopted without changes to the
proposal as published in the March 19, 1999, issue of the
Texas Register
(24 TexReg 1887).
Adopted §75.25 establishes the criteria for a savings bank to be eligible
to file an expedited application. This is a reduction of regulatory burden
to those savings banks that are well rated, well managed, and not operating
under any regulatory directive or agreement.
Adopted §75.26 describes the items necessary to be filed with an expedited
application. It requires that the applicant supply the Commissioner all information
necessary to make a fully informed decision regarding an expedited filing.
Adopted §75.27 permits discretion to the Commissioner to deny expedited
filing treatment to an otherwise eligible applicant if he finds that the proposed
transaction involves significant policy, supervisory, or legal issues.
No comments were received regarding the new sections.
The sections are adopted under
Finance
Code
, §11.302, which requires the commission to adopt rules regarding
enforcement and implementation of Subtitle C of the
Finance Code
.
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 April
23, 1999.
TRD-9902398
James L. Pledger
Commissioner
Texas Savings and Loan Department
Effective date: May 13, 1999
Proposal publication date: March 19, 1999
For further information, please call: (512) 475-1350
7 TAC §§75.31, 75.33, 75.35, 75.37, 75.38
The Finance Commission of Texas adopts amended 7 TAC §§75.31,
75.33, 75.35, 75.37, and 75.38 regarding additional offices and facilities
for state savings banks. The amendment would reduce regulatory burden and
update the application procedures for additional offices and facilities. The
sections are adopted without changes to the proposal as published in the March
19, 1999, issue of the
Texas Register
(24
TexReg 1888).
The amendment to §75.31 updates the requirements for home and branch
offices of state savings banks.
The amendment to §75.33 updates the information required in the application
for a branch office and the findings required for approval. It also relocates
and clarifies the requirement of existing §75.31(b) that submissions
related to all facts be signed and sworn to by an officer of the savings bank.
The amendment to §75.35 updates the mobile facilities application
requirements, reducing regulatory burden and making the application process
for mobile facilities consistent with other office applications.
The amendment to §75.37 provides definitional consistency between
a remote service unit under this section and the security provisions for automatic
teller machines described in §77.115. The amendment also replaces the
application requirement for remote service units with a requirement for approval
by the institution's board and notice to the commissioner. This change will
make state savings bank requirements consistent with other state and federally
chartered financial institutions and will not affect the safety and soundness
of the industry.
The amendment to §75.38 clarifies that the section only applies to
relocation of home and branch offices. It also codifies and expands an existing
Department policy that permits a home office to be relocated to an existing
approved branch office and the home office to be retained as a branch office
after advance notice is provided to the Commissioner.
No comments were received regarding the amended sections.
The sections are amended under
Finance
Code
,§11.302, which requires the commission to adopt rules regarding
enforcement and implementation of Subtitle C of the
Finance Code
.
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 April
23, 1999.
TRD-9902399
James L. Pledger
Commissioner
Texas Savings and Loan Department
Effective date: May 13, 1999
Proposal publication date: March 19, 1999
For further information, please call: (512) 475-1350
Subchapter F. Fees and Charges
7 TAC §§79.92, 79.100, 79.102, 79.107
The Finance Commission of Texas adopts amended 7 TAC §§79.92,
79.100, 79.102, 79.107 regarding the reduction of fees and charges for applications
by state savings banks to coincide with proposals submitted concurrently.
The revised fees more accurately reflect the review and processing time involved
with the respective applications and maintain a fee schedule competitive with
federal regulatory agencies. The sections are adopted without changes to the
proposal as published in the March 19, 1999, issue of the
Texas Register
(24 TexReg 1890).
Amended §79.92 will reduce the fee for a branch office application
from $2,500 to $1,500. This fee applies to an application that does not qualify
for expedited treatment.
Amended §79.100 removes the fee for remote service units since the
Department's concurrent proposal would reduce remote service unit application
to a notice filing in §75.37. In its place, fees for expedited applications
will be authorized in new §75.26. The expedited application fee for a
branch office will be $500, $250 for an office relocation, $2,500 for a reorganization,
merger or consolidation, and $2,000 for a purchase and assumption transaction.
Amended §79.102 reduces from $2,500 to $1,500 the fee for an application
by a savings bank for permission to make an initial investment in a subsidiary
corporation pursuant to §§77.91 through 77.95.
Amended §79.107 will reduce the fee for holding company registration
from $5,000 to $2,000. A holding company registration must be filed within
90 days of becoming a state savings bank holding company pursuant to §79.41.
No comments were received regarding the amended sections.
The sections are amended under
Finance
Code
,§11.302, which requires the commission to adopt rules regarding
enforcement and implementation of Subtitle C of the
Finance Code
.
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 April
23, 1999.
TRD-9902400
James L. Pledger
Commissioner
Texas Savings and Loan Department
Effective date: May 13, 1999
Proposal publication date: March 19, 1999
For further information, please call: (512) 475-1350
Chapter 91.
Chartering, Operations, Mergers, Liquidations
Subchapter D. Powers of Credit Unions
7 TAC §91.403
The Texas Credit Union Commission adopts new §91.403,
concerning federal parity with respect to offering Guaranteed Auto Protection
(GAP) programs, without change to the proposed text published in the February
5, 1999, issue of the
Texas Register
(24 TexReg
651).
The new rule will provide specific authorization for a state-chartered
credit union to establish and operate a Guaranteed Auto Protection (GAP) program
for its members. A GAP program protects institutions from losses resulting
from inadequate or lost collateral. Also, under certain programs, borrowers
may not be held responsible for deficiencies. Currently, state credit unions
can offer this type of program provided they first obtain a license to offer
debt cancellation contracts from the Texas Department of Insurance. Federal
credit unions are not required to obtain such a license due to a determination
that the Federal Credit Union Act preempts state insurance law with respect
to debt cancellation contracts. This places state-chartered credit unions
at a competitive disadvantage.
The Commission received comments from First Educators Credit Union, the
Texas Credit Union League, FLS Services, Inc., and two individuals. The commentors
supported the new section to clarify that a GAP program is permissible for
state-chartered credit unions on the same basis as federal credit unions.
One commentor recommended a clarification to make it clear that a credit union
could offer GAP coverage on direct auto loans as well as on auto leases and
balloon financing programs. The Commission disagrees that a revised definition
is needed. This preamble makes it clear that it is the Commission's intention
to allow credit unions to be able to offer GAP coverage on all types of auto
financing and leasing transactions. The Commission has again reviewed the
proposed language and has determined that it fulfills the Commission's intent.
The new section is adopted under the Texas Finance Code §15.402
and 123.003. The Commission interprets §15.402 to authorize the Commission
to adopt reasonable rules, and the Commission interprets §123.003 to
authorize the Commission to adopt rules that authorize a state credit union
to engage in any activity in which it could engage, exercise any power it
could exercise, or make any loan or investment it could make, if it were operating
as a federal credit union.
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 April
23, 1999.
TRD-9902395
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: May 13, 1999
Proposal publication date: February 5, 1999
For further information, please call: (512) 837-9236
7 TAC §91.801
The Texas Credit Union Commission adopts amendments to §91.801,
concerning investment in a credit union service organization (CUSO), with
one technical correction to the proposed text published in the February 5,
1999, issue of the
Texas Register
(24 TexReg
657-658). The reference to §97.113(c) in subsection (f) of this section
should read §97.113(d).
The amendments were proposed for the purposes of clarifying existing requirements
and adding new requirements to address potential safety and soundness concerns.
One amendment to subsection (a) confirms the requirement under subsection
(c)(2) that a CUSO must be a separate legal entity from the credit union and
that the CUSO must be adequately capitalized to reduce loss risk exposure
to the investing credit union(s). The second amendment to subsection (a) simplifies
the notification requirement. An amendment to subsection (c) adds a registered
limited liability partnership to the forms of organization of a CUSO that
a credit union may invest in and loan money to. Another amendment requires
a credit union that is considering investment in a CUSO to obtain a legal
determination that the CUSO's organizational structure will limit the credit
union's potential loss exposure. The Commission has also added two new subsections
to the rule. The first prohibits senior credit union staff from receiving
directly or indirectly any salary, commission, investment income or other
income from a CUSO affiliated with the credit union due to potential conflict
of interest. The second new subsection authorizes the Commissioner to charge
a CUSO a supplemental examination fee should it become necessary for Credit
Union Department examiners to inspect the CUSO's books and records.
Comment letters were received from First Educators Credit Union, USE Credit
Union, and the Texas Credit Union League. One commentor stated that the rule
gives "clear guidance to credit unions on CUSO structure and formation", while
allowing credit unions "sufficient flexibility to operate their CUSO as a
business venture, without unnecessary constraints." Another commentor supported
the amendments, but pointed out that the term "CUSO" is an acronym and that
while the term is defined in 7 TAC §91.102, no where in the rules is
what CUSO represents stated. The commentor is recommending that the Commission
amend §91.102 to correct the omission. The Commission will take this
comment in consideration during its review of this rule under the Department's
published Rule Review Plan.
The last comment letter raised four issues concerning the proposed amendments.
Beginning with the adequate capitalization requirement contained in subsection
(a), the party stated that the language is obscure. The commentor also stated
the belief that many new CUSO organizations may have marginal capitalization,
and that given CUSOs are "taxable entities in some forms, minimal capitalization
would be desirable. The letter concluded by stating the subsection should
be reworded to reflect a requirement that the investing credit unions have
adequate capitalization (exceeding 6%) to make the investment. In response
the Commission would point out that one of the purposes of organizing a CUSO
is to reduce a credit union's liability and limit its potential loss exposure
to no more than the loss of funds invested in or lent to a CUSO. Given the
fact that inadequate capitalization has led the courts to "pierce the corporate
veil" and make the actual investors liable, the Commission believes a significant
safety and soundness concern arises without the requirement that a CUSO be
adequately capitalized. Accordingly, it is an appropriate prerequisite for
any such investment or loan.
The other three issues raised by this commentor address the investment
limit and the reference to the Texas Finance Code, both contained in subsection
(b), and the list of permissive activities and services for CUSOs contained
in subsection (d). The Commission, however, did not propose any substantive
amendments to these subsections. The only change proposed pertains to correcting,
in subsection (b), the statutory cite which no longer exists by virtue of
the Texas Credit Union Act's codification into the new Texas Finance Code.
The comments will be retained, however, and considered when the rule is scheduled
for review under the Department's Rule Review Plan.
The amended rule is adopted under the Texas Finance Code, §15.402
and §124.351(a). The Commission interprets §15.402 as authorizing
the Commission to adopt reasonable rules. The Commission interprets §124.351(a)
to authorize the Credit Union Commission to adopt rules pertaining to authorized
investments for state-chartered credit unions.
§91.801.Investments in CUSOs.
(a)
A credit union by itself, or with other parties, may organize,
invest in or make loans to a CUSO which shall be adequately capitalized and
which shall be structured and operated as an entity separate and distinct
from the credit union. A credit union shall provide written notice to the
commissioner at least 15 days prior to making such investment or loans. The
credit union shall provide any additional information reasonably requested
by the commissioner.
(b)
An investment in any one CUSO shall not exceed the lesser
of 5.0% of the credit union's total assets or the total amount of its reserves
and undivided earnings. Loans to any one CUSO shall not exceed the aggregate
limit for loans to one member specified by the Texas Finance Code §124.003
or a rule adopted under that section. The total aggregate amount of all investments
in all CUSOs by any one credit union shall not exceed 10% of the total assets
of the credit union, unless the credit union receives the prior written approval
of the commissioner.
(c)
No credit union may invest in or make loans to a CUSO:
(1)
if any officer, director, committee member, or employee
of such credit union or any member of the immediate family of such persons
owns or makes an investment in the CUSO;
(2)
unless the organization is structured as a corporation,
limited liability company, registered limited liability partnership, or limited
partnership and the credit union has obtained a written legal opinion that
the CUSO is established in a manner that will limit the credit union's potential
exposure to not more than the loss of funds invested in or loaned to such
CUSO;
(3)
if the CUSO provides services or engages in activities
not described in this rule or which have not been approved by the commissioner
in writing; or
(4)
unless prior to investing in or making a loan to a
CUSO the credit union obtains a written agreement which requires the CUSO
to follow GAAP, render financial statements to the credit union at least quarterly,
and provide the department, or its representatives, complete access to the
CUSO's books and records at reasonable times without undue interference with
the business affairs of the CUSO.
(d)
(No change.)
(e)
Senior management staff of a credit union may receive salary,
commission, investment income, or other income or compensation from any CUSO
affiliated with their credit union provided the individual provides fair and
full disclosure initially and annually thereafter to the boards of participating
credit unions.
(f)
If a CUSO is requested by the commissioner to make its
books and records available for inspection and examination, the CUSO shall
pay a supplemental examination fee as prescribed in §97.113(d) of this
title (relating to Supplemental Examinations). The commissioner may waive
the supplemental examination fee or reduce the fee as he deems appropriate.
(g)
The requirements of this rule apply only to investments
or loans made after the effective date of this rule.
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 April
23, 1999.
TRD-9902393
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: May 13, 1999
Proposal publication date: February 5, 1999
For further information, please call: (512) 837-9236
7 TAC §91.4001, §91.4002
The Texas Credit Union Commission adopts new Subchapter M,
§91.4001 and §91.4002, concerning electronic operations by or involving
a credit union, with nonsubstantive changes to the proposed text published
in the February 5, 1999, issue of the
Texas Register
(24 TexReg 658-659).
Under the new sections, a credit union may engage in prudent innovation
through the use of emerging technology. The proposal permits credit unions
to use, or to participate with others to use, electronic means or facilities
to perform any function or provide any product or service as part of an authorized
activity. The new sections also require a credit union to notify the Department
30 days before it establishes a transactional web site. Credit unions that
present supervisory or compliance concerns may be subject to additional procedural
requirements.
First Educators Credit Union, PIA of Texas Credit Union, and the Texas
Credit Union League commented on §91.4001. Two of the comments received
were very supportive of the rule. One commentor was supportive because credit
unions will now be clearly authorized to offer electronic services and to
market electronic capabilities and by-products. The other supporter stated
the rule is clear and concise and that every credit union should consider
its provisions before establishing electronic operations. The third comment,
while not opposing the rule, expressed concern that the wording in subsection
(c) requires a system that "prevents abuse" and therefore creates liability
for the credit union. The commenting party went on to say that the best a
rule can do is to require credit unions "to install a measure adequately designed
to prevent abuse." The language's intent in subsection (c) is to require credit
unions to take all necessary steps to implement security measures that are
based on currently available technology designed specifically to guard against
computer hacking and other forms of computer tampering and fraud. The Commission
does not believe that the language proposed by the commenting party creates
any less liability, nor the rule any more liability, for a credit union with
respect to potential losses resulting from a computer crime. However, to clarify
this belief the Commission has modified subsection (c), paragraph (2) by striking
the text "must be adequate to" and inserting "should take into consideration."
The first words of the proceeding subparagraphs were then modified so that
they would be grammatically correct.
First Educators Credit Union and the Texas Credit Union League also commented
on §91.4002. One comment was supportive of the Commission's purpose in
proposing the rule. The other comment categorized the proposed rule as unnecessary
and overly burdensome. The Commission disagrees with this latter comment.
Transactional web sites pose a safety and soundness risk to credit unions
because they create security, compliance, and privacy risks. Therefore, for
future examination planning purposes, the Department should be informed when
a transactional web site is established. The objecting comment also states
that the notification requirement appears overly invasive, especially since
the name of a contact person is requested. After considering these comments,
the Commission concluded that safety and soundness and compliance considerations
warranted the Department receiving advance notice of industry use of one developing
technology - transactional web sites. These web sites allow credit union members
to use the Internet to conduct a wide variety of financial transactions. They
may, however, also pose safety and soundness risks as discussed above. The
notice requirement, as well as the request for a contact person, applies only
to the initial establishment of the transactional web site. The Commission
views it as necessary to identify the person knowledgeable about the web site
should the Department have any questions regarding the information requested
in subsection (a)(1) and (a)(2) of this section.
The new rules are adopted under the Texas Finance Code, §15.402.
The Commission interprets §15.402 to authorize the Commission to adopt
reasonable rules for administering the Texas Credit Union Act.
§91.4001.Authority to Conduct Electronic Operations.
(a)
A credit union may use, or participate with others to use,
electronic means or facilities to perform any function or provide any product
or service as part of an authorized activity. Electronic means or facilities
include, but are not limited to, automated teller machines, automated loan
machines, personal computers, the Internet, the World Wide Web, telephones,
and other similar electronic devices.
(b)
To optimize the use of its resources, a credit union may
market and sell, or participate with others to market and sell, electronic
capacities and by-products to others, provided the credit union acquired or
developed these capacities and by-products in good faith as part of providing
financial services to its members.
(c)
If a credit union uses electronic means and facilities
authorized by this rule, the credit union's board of directors must require
staff to:
(1)
Identify, assess, and mitigate potential risks and establish
prudent internal controls; and
(2)
Implement security measures designed to ensure secure
operations. Such measures should take into consideration:
(A)
the prevention of unauthorized access to credit union records
and credit union members' records;
(B)
the prevention of financial fraud through the use of electronic
means or facilities; and
(C)
compliance with applicable security device requirements
of §91.401(b) of this title (pertaining to User Safety at Unmanned Teller
Machines).
(d)
All credit unions engaging in such electronic activities
must comply with all applicable requirements, including addressing safety
and soundness concerns and ensuring compliance with applicable state and federal
laws and regulations.
§91.4002.Notice Requirement.
(a)
A credit union must file a written notice with the commissioner
at least 30 days before it establishes a transactional web site. The notice
must:
(1)
Include an address for and a description of the transactional
features of the web site;
(2)
Indicate the date the transactional web site will
become operational; and
(3)
List a contact person familiar with the deployment,
operation, and security of the transactional web site.
(b)
For the purposes of this chapter a transactional web site
is an Internet site that enables users to conduct financial transactions such
as accessing an account, obtaining an account balance, transferring funds,
processing bill payments, opening an account, applying for or obtaining a
loan, or purchasing other authorized products or services.
(c)
If a credit union has established a transactional web site
before the effective date of this rule, it must file a notice describing its
activity by June 1, 1999.
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 April
23, 1999.
TRD-9902392
Harold E. Feeney
Commissioner
Credit Union Department
Effective date: May 13, 1999
Proposal publication date: February 5, 1999
For further information, please call: (512) 837-9236
Subchapter B. Fees
4.
Insurance
5.
Refund
Subchapter I. Insurance
Subchapter J. Authorized Lender's Duties and Authority
Part IV.
Texas Savings and Loan Department
Subchapter B. Expedited Applications
Subchapter C. Additional Offices
Chapter 79.
Miscellaneous
Part VI.
Credit Union Department
Subchapter H. Investments
Subchapter M. Electronic Operations
Chapter 97.
Commission Policies and Administrative Rules