Part 5. OFFICE OF CONSUMER CREDIT COMMISSIONER
Chapter 84. MOTOR VEHICLE INSTALLMENT SALES
Subchapter A. SALES FINANCE LICENSES
The Finance Commission of Texas (commission) adopts the repeal of 7 TAC §§84.101 - 84.113, concerning Sales Finance Licenses. The repeal is adopted without changes to the proposal as published in the February 29, 2008, issue of the Texas Register (33 TexReg 1674).
The commission has determined that these rules more effectively belong in different locations within Chapter 84 in order to better track the organization of Texas Finance Code, Chapter 348. Therefore, the repeal of these rules is being adopted and new (relocated) rules are 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 adopted 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 April 18, 2008.
TRD-200802048
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: May 8, 2008
Proposal publication date: February 29, 2008
For further information, please call: (512) 936-7611
The Finance Commission of Texas (commission) adopts new §§84.101 - 84.104, concerning General Provisions, with regard to motor vehicle sales finance dealers licensed by the Office of Consumer Credit Commissioner. The new rules are adopted with changes to §§84.101, 84.102, and 84.104, and without changes to §84.103, as published in the February 29, 2008, issue of the Texas Register (33 TexReg 1674).
The commission received one written comment on the proposal from McGinnis, Lochridge & Kilgore, L.L.P. on behalf of GMAC LLC. The commenter suggests one clarification regarding §84.104, Knowledge of Laws and Regulations Required. The specific comments are addressed following the individual purpose of the provision at issue.
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. The following paragraphs outline the individual purposes of each rule. In addition to the changes made to certain rules in response to the official comment received, the agency has made further revisions resulting from informal comments received and from internal agency review. The explanations for all changes made since the proposal are provided below the purposes for the revised sections.
Section 84.101 sets out the purpose and scope of the chapter. Since the proposal, the terms "retail sellers" and "holders" have been relocated to the Definitions section (see §84.102, which follows). This relocation is a formatting change, as these terms are more appropriately included under definitions. The introductory phrase, "This chapter applies to" has been moved up into subsection (b), as opposed to its use in both paragraphs (1) and (2), resulting in more streamlined wording. Additionally, the explanatory phrase "from licensing" has been added after the word "exempted" in paragraph (2), clarifying the reference to the exemptions from licensing listed by Texas Finance Code, Chapter 348.
Section 84.102 (some definitions contained in former §84.204, some new definitions) outlines general definitions to be used throughout the chapter in order to ensure consistent treatment and application of defined terms. The new definitions are intended to provide clarification for licensees and to aid in enforcement and compliance efforts.
Since the proposal, in the definitions for "default charge or late charge" (§84.102(6)) and "deferment charge" (§84.102(7)), the word "finance" has been deleted in order to prevent any confusion with the terminology used in the Truth in the Lending Act.
As noted under §84.101, the term "holder" has been relocated to §84.102 since the proposal. The concept contained in the purpose and scope section is now echoed as definition §84.102(8), so that stakeholders will most easily be able to locate the meaning of this term. Also, a clarifying sentence has been added to the existing definition of the term "seller" (§84.102(6)), providing that "seller" is synonymous with the term "retail seller." The more reader friendly term "seller" is maintained in the rules for plain language purposes.
Section 84.103 provides for the responsibility of licensees for the acts of their agents.
Section 84.104 requires that each officer and director be familiar with Texas Finance Code, Chapter 348 and its implementing regulations applicable to the licensee's business. The rule also requires that employees and agents be familiar with the provisions of Texas Finance Code, Chapter 348 and its implementing regulations that are related to their responsibilities and duties, as provided by the licensee through training or an internal system of controls.
In response to informal comments received regarding the proposal, some formatting and clarifying changes have been made to §84.104. First, the phrase "shall have a working knowledge of" has been replaced with the phrase "must be familiar with" in order to echo the affirmation made by licensees during the application process. Second, the entire section has been modified to limit the knowledge requirement to Texas Finance Code, Chapter 348, and its implementing regulations.
In reference to §84.104, the commenter states: "An employee should only be required to have knowledge of the Texas law if the employee's regular employment duties involve transactions subject to the Texas law." The commenter offers some clarifying phrases that would "limit the requirement to know the applicable portions of the Texas Finance Code to those persons whose employment duties include regularly dealing with retail buyers regarding matters covered under the Code." The commenter further explains: "Most major motor vehicle finance companies, including GMAC, use internal controls to facilitate compliance with the law. GMAC's attorneys and managers put controls in place that limit charges and conduct to that allowed by the law of the various states." The commenter also suggests an addition to allow for compliance by employees and agents through internal controls.
The commission recognizes the commenter's concern in relation to so-called "front line" employees or agents working for large motor vehicle finance companies that operate in several states or worldwide. The commission agrees with the need for clarification as requested by the commenter and has made the following changes for this adoption. First, this section has been separated into three subsections, with subsection (a) applying only to officers and directors, and subsection (b) applying only to employees and agents. For employees and agents, new subsection (b) narrows the knowledge requirement to Chapter 348 provisions and regulations "that are related to their duties and responsibilities."
Second, the commission has decided to include a sentence in subsection (b) utilizing the commenter's concept regarding internal controls. Thus, although different from the commenter's suggested rule text, instructive language has been added to reflect the agency's policy that employees and agents may demonstrate compliance by adhering to the training or internal system of controls provided by the licensee.
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.
§84.101.Purpose and Scope.
(a) Purpose. The purpose of this chapter is to assist in the administration and enforcement of Texas Finance Code, Chapter 348.
(b) Scope. This chapter applies to:
(1) all persons engaged in the business of selling motor vehicles to retail buyers in transactions in which a retail buyer purchases a motor vehicle from a retail seller and agrees with the retail seller to pay part or all of the cash price in one or more deferred installments; and
(2) all persons that acquire or otherwise receive retail installment sales contracts unless specifically exempted from licensing by Texas Finance Code, Chapter 348.
§84.102.Definitions.
The following words and terms, when used in this chapter, have the following meanings, unless the context clearly indicates otherwise:
(1) Accrual method--A method to compute a finance charge and apply the finance charge to the unpaid principal balance. Both the true daily earnings method and the scheduled installment earnings method are accrual methods.
(2) Add-on method--A method for calculating a precomputed time price differential charge in which the retail buyer agrees to pay the total of payments. The total of payments includes both the principal balance of the contract and the time price differential charge. The add-on time price differential charge is calculated at the inception of the contract on the principal balance for the full term, as if the principal balance of the contract did not decline over the term of the contract.
(3) Contract rate--The annual time price differential rate that may be stated in a retail installment sales contract, and that accrues or is assessed against the principal balance that is subject to a finance charge for the term of the contract. The contract rate cannot exceed the daily rate converted to an annualized rate.
(4) Creditor--The seller or any subsequent holder or assignee of the retail installment sales contract.
(5) Daily rate--The rate authorized under Texas Finance Code, §348.105, or the simple rate equivalent of the rate applicable to the contract under Texas Finance Code, §348.104, computed on a daily basis using a 365-day calendar year.
(6) Default charge or late charge--The additional charge for a late payment on a contract.
(7) Deferment charge--The payment of an additional charge to defer the payment date of a scheduled payment on a contract.
(8) Holder--Holder includes retail sellers as well as any person who subsequently purchases, acquires, or otherwise receives the retail installment sales contract. All holders are creditors.
(9) Irregular payment contract--A contract:
(A) that is payable in installments that are not consecutive, monthly, and substantially equal in amount; or
(B) the first scheduled installment of which is due later than one month and 15 days after the date of the contract.
(10) Licensee--Any person who has been issued a motor vehicle sales finance license pursuant to Texas Finance Code, Chapter 348.
(11) Principal balance subject to finance charge--The principal balance used in the determination or calculation of the time price differential charge.
(A) Sales tax advanced transaction--In a sales tax advanced transaction, the principal balance subject to a finance charge is computed by:
(i) adding:
(I) the cash price of the vehicle;
(II) the amount of the authorized itemized charges;
(III) sales tax;
(IV) an authorized and properly disclosed documentary fee;
(V) an amount authorized under Texas Finance Code, §348.404(b); and
(ii) subtracting from the results under clause (i) of this subparagraph the amount of the retail buyer's down payment in money, goods, or both.
(B) Sales tax deferred transaction--In a sales tax deferred transaction, the principal balance subject to a finance charge does not include the deferred sales tax. The principal balance subject to a finance charge is computed by:
(i) adding:
(I) the cash price of the vehicle (excluding sales tax);
(II) the amount of the authorized itemized charges (excluding sales tax);
(III) an authorized and properly disclosed documentary fee;
(IV) an amount authorized under Texas Finance Code, §348.404(b); and
(ii) subtracting from the results under clause (i) of this subparagraph the amount of the retail buyer's down payment in money, goods, or both.
(12) Regular payment contract--Any contract that is not an irregular payment contract.
(13) Scheduled installment earnings method--The scheduled installment earnings method is a method to compute the finance charge by applying a daily rate to the unpaid principal balance as if each payment will be made on its scheduled installment date. A payment received before or after the due date does not affect the amount of the scheduled reduction in the unpaid principal balance. Under this method, a finance charge refund is calculated by deducting the earned finance charges from the total finance charges. If prepayment in full or demand for payment in full occurs between payment due dates, a daily rate equal to 1/365th of the annual rate is multiplied by the unpaid principal balance. The result is then multiplied by the actual number of days from the date of the previous scheduled installment through the date of prepayment or demand for payment in full to determine earned finance charges for the abbreviated period. In addition to the earned finance charges calculated in this paragraph, the creditor may also earn a $150 acquisition fee for a heavy commercial vehicle, or a $25 fee for other vehicles, so long as the total of the earned finance charges and the acquisition fee do not exceed the finance charge disclosed in the contract. The creditor is not required to refund unearned finance charges if the refund is less than $1.00. The scheduled installment earnings method may be used with either an irregular payment contract or a regular payment contract. The computation of finance charges must comply with the U.S. rule as defined in Appendix J of 12 C.F.R. Part 226 (Regulation Z).
(14) Sales tax advanced transaction--A retail installment transaction in which a retail seller remits the entire amount of the sales tax to the appropriate taxing authority within 20 working days of the sale.
(15) Sales tax deferred transaction--A retail installment transaction in which a retail seller or a qualified related finance company collects sales tax from the retail buyer and remits the tax under Tax Code, §152.047 to the Comptroller of Public Accounts.
(16) Seller--The seller of the motor vehicle. This term is synonymous with the term "retail seller."
(17) Sum of the periodic balances method (Rule of 78s).
(A) Under this method, the finance charge refund is calculated as follows:
(i) Subtract an acquisition fee not greater than $150 for a heavy commercial vehicle, or $25 for other vehicles, from the total finance charge.
(ii) Multiply the amount computed in clause (i) of this subparagraph by the refund percentage computed below. The result is the finance charge refund.
(iii) Compute the refund percentage by:
(I) Computing the sum of the unpaid monthly balances under the contract's schedule of payments beginning:
(-a-) On the first day, after the date of the prepayment or demand for payment in full; that is, the date of a month that corresponds to the date of the month that the first installment is due under the contract; or
(-b-) If the prepayment or demand for payment in full is made before the first installment date under the contract, one month after the date of the second scheduled payment of the contract occurring after the prepayment or demand;
(II) Dividing the result in subclause (I) of this clause by the sum of all of the monthly balances under the contract's schedule of payments.
(B) As an alternative for heavy commercial vehicles, as defined in the Texas Finance Code, the sum of the periodic balances method may be computed as follows:
(i) Multiply the total finance charge by a refund percentage determined as follows:
(I) Compute the sum of the unpaid monthly balances under the contract's schedule of payments beginning:
(-a-) On the first day, after the date of the prepayment or demand for payment in full; that is, the date of a month that corresponds to the date of the month that the first installment is due under the contract; or
(-b-) If the prepayment or demand for payment in full is made before the first installment date under the contract, one month after the date of the second scheduled payment of the contract occurring after the prepayment or demand;
(II) Divide the result in subclause (I) of this clause by the sum of all of the monthly balances under the contract's schedule of payments.
(ii) From the result derived in clause (i) of this subparagraph, deduct an acquisition fee not to exceed $150.
(C) The creditor is not required to give a finance charge refund if it would be less than $1.00.
(D) The sum of the periodic balances method may not be used with an irregular payment contract.
(18) True daily earnings method--The true daily earnings method is a method to compute the finance charge by applying a daily rate to the unpaid principal balance. The daily rate is 1/365th of the equivalent contract rate. The earned finance charge is computed by multiplying the daily rate of the finance charge by the number of days the actual unpaid principal balance is outstanding. Payments are credited as of the time received; therefore, payments received prior to the scheduled installment date result in a greater reduction of the unpaid principal balance than the scheduled reduction, and payments received after the scheduled installment date result in less than the scheduled reduction of the unpaid principal balance. The computation of finance charges must comply with the U.S. rule as defined in Appendix J of 12 C.F.R. Part 226 (Regulation Z).
(19) U.S. Rule--The ruling of the United States Supreme Court in Story v. Livingston, 38 U.S. (13 Pet.) 359, 371 (1839) that, in partial payments on a debt, each payment is applied first to finance charge and any remainder reduces the principal. Under this rule, accrued but unpaid finance charge cannot be added to the principal and interest cannot be compounded.
(20) Vehicle--A motor vehicle as defined by Texas Finance Code, §348.001(4).
§84.104.Knowledge of Laws and Regulations Required.
(a) Each officer and director of a licensee must be familiar with Texas Finance Code, Chapter 348 and its implementing regulations.
(b) Employees and agents of a licensee are responsible for being familiar with the provisions of Texas Finance Code, Chapter 348 and its implementing regulations that are related to their duties and responsibilities, as provided by the licensee through training or an internal system of controls. An employee or agent may demonstrate compliance with this section through adherence to the training or internal system of controls provided by the licensee.
(c) This section applies to the listed parties to the extent that the individual has contact with retail buyers or potential retail buyers, or has responsibility for compliance with Texas Finance Code, Chapter 348, or its implementing regulations governing the licensee's business.
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 18, 2008.
TRD-200802044
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: May 8, 2008
Proposal publication date: February 29, 2008
For further information, please call: (512) 936-7611
7 TAC §§84.201 - 84.208, 84.210
The Finance Commission of Texas (commission) adopts the repeal of 7 TAC §§84.201 - 84.208 and §84.210, concerning Installment Sales Contract Provisions. The repeal is adopted without changes to the proposal as published in the February 29, 2008, issue of the Texas Register (33 TexReg 1677).
The commission has determined that these rules more effectively belong in different locations within Chapter 84 in order to better track the organization of Texas Finance Code, Chapter 348. Therefore, the repeal of these rules is being adopted and new (relocated) rules are adopted elsewhere in this issue of the Texas Register . Due to pending amendments, §84.209 will be relocated as a part of rule proposals in the near future.
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 adopted 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 April 18, 2008.
TRD-200802049
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: May 8, 2008
Proposal publication date: February 29, 2008
For further information, please call: (512) 936-7611
The Finance Commission of Texas (commission) adopts new §84.401, concerning Acquisition of Contract or Balance, with regard to motor vehicle sales finance dealers licensed by the Office of Consumer Credit Commissioner. The new rule is adopted with changes to the proposal published in the February 29, 2008, issue of the Texas Register (33 TexReg 1677).
The purpose of this new operational rule 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. Subsequent to the proposal, the agency has made revisions resulting from internal agency review. The explanation for these changes is provided below the following paragraph outlining the individual purpose of the rule.
Section 84.401 outlines a person's authority to acquire a retail installment sales contract or an outstanding balance, requiring either a license or exemption under Texas Finance Code, Chapter 348.
Since the proposal, proposed subsection (b) from §84.612 published in the February 29, 2008, issue of the Texas Register (33 TexReg 1678) has been relocated to become §84.401(b). The language of §84.401(b) contained in this adoption is identical to that in proposed §84.612(b); however, it was determined that the securitization concept would more appropriately be included under the Acquisition of Contract or Balance section, as opposed to its proposed (and former) location under Implementation Provisions of Licensing.
The commission received no written comments on the proposal.
This 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.
§84.401.Acquisition of Contract or Balance.
(a) A person may not acquire a retail installment sales contract or an outstanding balance under a retail installment sales contract unless the person holds a license under Texas Finance Code, Chapter 348 or is exempt from licensing under Texas Finance Code, Chapter 348.
(b) Securitization of transactions. In the case of securitized transactions, such as a transaction in which motor vehicle retail installment sales contracts are held in trust or similar structure with participatory interests in the structure transferred to investors, the licensing requirements may be fulfilled either by the trust or other securitization entity or by the servicer that is responsible for servicing the contracts included in the securitized entity.
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 18, 2008.
TRD-200802045
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: May 8, 2008
Proposal publication date: February 29, 2008
For further information, please call: (512) 936-7611
The Finance Commission of Texas (commission) adopts new §§84.601 - 84.616, concerning Licensing, with regard to motor vehicle sales finance dealers licensed by the Office of Consumer Credit Commissioner. The new rules are adopted with changes to §§84.602, 84.604, 84.605, 84.610, 84.612, and 84.615, and without changes to §§84.601, 84.603, 84.606 - 84.609, 84.611, 84.613 - 84.614, and 84.616, as published in the February 29, 2008, issue of the Texas Register (33 TexReg 1678).
The commission received one written comment on the proposal from McGinnis, Lochridge & Kilgore, L.L.P. on behalf of GMAC LLC. The commenter requests changes to three interrelated sections concerning the issue of disclosure of principal parties for new applications, transfer requirements, and notification of changes in ownership for parties beyond the parent level. The specific comments regarding each rule are addressed following the individual purpose of the provision at issue.
These rules regarding licensing are 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 rules are substantially similar to the rules being repealed, as found in 7 TAC §§84.101 - 84.113, concerning Sales Finance Licenses. The commission's adopted repeal of these sections is published elsewhere in this issue of the Texas Register.
The agency is also adopting two new rules within the relocated Licensing subchapter (Subchapter F): §84.615, concerning Applications and Notices as Public Records, and §84.616, concerning License Display.
With regard to the relocated licensing rules (§§84.601 - 84.616; former Subchapter A, new Subchapter F), some of the provisions within the rules have been reorganized and refined in order to better group information that is part of the license application, with a separate grouping for other filings submitted with the application (e.g., fingerprints, contract forms, entity documents). In addition, the references to paper forms have been eliminated and the acceptance of approved alternative formats or electronic submissions has been added throughout the licensing rules to modernize the application process and provide licensees with more options when completing the application.
The purpose of each relocated rule tracks the original purpose language used when each rule was originally adopted. Additional explanation is provided under sections where substantive changes in language have been incorporated into the proposed new rules. Any remaining changes to relocated sections consist of revisions to formatting, grammar, punctuation, spelling, section references, and other technical corrections. If no additional explanation is provided other than the main purpose of the rule, then the only changes made from the prior version of a rule being repealed to the new rule being adopted are technical and nonsubstantive in nature.
The following paragraphs outline the individual purposes of each rule. New rules will include the designation "(new rule)" after the section number, while relocated rules will be listed with their former location "(former §84.XXX)" listed after the new section number. In addition to the changes made to certain rules in response to the official comment received, the agency has made further revisions resulting from informal comments received and from internal agency review. The explanations for all changes made since the proposal are provided below the purposes for the revised sections.
Section 84.601 (former §84.101) provides definitions to be used in the licensing subchapter. In response to informal comments received regarding the proposal, subparagraph (J) concerning certain privately-held entities with complex ownership structures has been added to the definition of "principal party" under §84.601(5). This subparagraph allows the designation of three officers or similar employees with significant involvement in the entity's Chapter 348 activities upon approval by the commissioner. This clarification is intended to place in regulation the agency's practice of obtaining information from appropriate principal parties while working with the increased complexity of entity ownership structures.
Section 84.602 (former §84.102) describes the procedure for filing a new application for a motor vehicle sales finance license, including instructions regarding what forms to use, what information is necessary on the application, and what information must be filed with the application. Section 84.602 has been revised and reorganized to conform with the agency's current practice and also to streamline the application process.
Section 84.602(1)(C)(viii) has been added, clarifying that, if a parent entity is a different type of legal business entity than the applicant, the parent entity's owners and principal parties should be disclosed according to the parent's entity type.
The addition of clause (v) to §84.602(2)(A) specifically states that fingerprints must be submitted to the agency, regardless of whether an individual has previously submitted fingerprints to a different state agency, as statutory provisions require direct submission and prevent disclosure to others.
Section 84.602(2)(C)(ix) has been added and provides applicants with the option to submit a "certificate of formation" as defined in the Texas Business Organizations Code, as long as the certificate includes the required information for the applicant's business entity type.
While the proposal contained a 5% disclosure requirement for owners and principal parties under §84.602(1)(C), informal comment received was in favor of the 10% disclosure requirement, as formerly provided in §84.102. Upon reevaluation, the agency has decided to maintain the 10% requirement, which the agency believes will continue to provide the appropriate amount of disclosure.
The commenter submits the same interrelated concerns in reference to §§84.602(1)(C), 84.604, and 84.605. In general, the commenter believes that providing information beyond the parent level (e.g., remote investors) would present a problem for large motor vehicle finance companies. For each section, the commenter offers two alternative additions. With regard to the disclosure of owners and principal parties for new license applications under §84.602(1)(C), the commenter states "the detailing of every investor with a 10% or more interest in remote owners is problematic for a large organization."
As part of the commenter's suggested Alternative 1 for §84.602(1)(C), entities may file their most recent Form 10-K, as submitted to the Securities and Exchange Commission, in lieu of the information requested beyond the parent level under §84.602(1)(C). Upon the agency's review of Form 10-Ks submitted in the past (already required under §84.602(2)(C)(iii)), the Form 10-Ks reviewed did not contain most of the information necessary to fulfill the disclosure requirement.
The second sentence of the commenter's Alternative 1 provides for the allowance of other governmental filings, "if substantially equivalent in coverage and reliability to the information requested under" §84.602(1)(C). If another government filing were to include the necessary information, the agency would certainly accept it. Thus, the concept contained in the second sentence of the commenter's Alternative 1 has been added, utilizing much of the suggested wording. New clause (ix) states: "Alternative filings for all entity types. The commissioner may also accept other filings submitted to a governmental authority that the commissioner deems to have information substantially equivalent in coverage and reliability to a filing under clauses (i) - (viii) of this subparagraph." The commission declines the commenter's Alternative 2, as it would result in an ambiguous standard where licensees would be required to establish parties who are "not regularly involved in the licensee's Texas licensed operations."
The agency believes that the disclosure requirements contained in this adoption are reasonable, generally resulting in merely names and titles of parties beyond the parent level, along with a diagram of the entity's structure. It is the agency's understanding that its requirements are similar to those of other state and federal regulators in this regard. The agency must balance the information needed for franchised and independent dealers as well as for large motor vehicle finance companies. Therefore, while the commission declines to adopt the commenter's changes to §84.602 in their entirety, the commission has added new §84.602(1)(C)(ix), providing for the option of alternative filings upon the commissioner's approval.
Section 84.603 (former §84.103) outlines the procedures for licensees to add new registered offices.
Section 84.604 (former §84.104) describes the procedures for filing an application for transfer of a motor vehicle sales finance license, including the filing requirements.
Section 84.604 has been revised, with appreciable additions to clarify the circumstances for each entity type and situation as to when a transfer will be required. Subsections (d) and (e) of former §84.104 have been combined and revised into §84.604(e) in order to provide a more cohesive explanation of the requirements when one party is seeking permission to operate under another party's license.
Regarding §84.604, the commenter states that "compliance with the requirement of filing an application for a transfer of an interest in an investor beyond its parent companies will still be problematic, because the licensee subsidiary often would not know of such transfers or have the information required." As a practical matter, the agency certainly would not require a licensee to provide transfer information of which it had no knowledge. The agency must, however, balance the transfer requirements of franchised and independent dealers and that of large motor vehicle finance companies, along with the agency's need for information regarding the beneficial ownership structure of its regulated entities.
In response to the commenter's concern, subsection (b) regarding level of ownership has been added to §84.604. Generally, this subsection puts into regulation the agency's practice in that a transfer application will not be required for a change of ownership above the grandparent level. Section 84.604(b) is intended to clarify that the grandparent level is the maximum level of ownership required for a transfer. More specifically on point with respect to the commenter is subsection (b)(1), which explains that only in certain narrow circumstances will a transfer beyond the parent level be required. Concerning corporations and limited liability companies, §84.604(b)(1) clarifies that, unless the commissioner deems a transfer necessary under subsection (a)(7), a transfer will only be required in situations resulting in a change of ownership of 51% or more of the parent entity or controlling stockholder or member. In other words, absent the two situations referenced in subsection (b)(1), a transfer application is not required for a change of ownership above the parent entity of the applicant.
As with the disclosure requirements contained in §84.602, the agency believes that the transfer requirements contained in this adoption are reasonable. Moreover, the agency believes that the current rules (even prior to this adoption) have reached a level of clarity that appears to be working well for both applicants and the agency's licensing section. The agency believes that the commenter's alternative filing requirement added to §84.602(1)(C) would not be viable in the transfer context of §84.604. Thus, while the commission declines the changes suggested by the commenter, the commission believes that the clarification contained in new subsection (b)(1) addresses the concern of the commenter.
Section 84.605 (former §84.105) describes what action the licensee must take when it changes the proportion of ownership in, or the form of, the licensed entity and lists the time frame within which the licensee must notify the commissioner.
As described under §84.602 and §84.604, the commenter offers the same concerns and alternative solutions for §84.605, if it is correct that "proposed §84.605 would require a licensee to advise the Commissioner whenever a cumulative change in ownership or remote ownership of a person other than the licensee and its immediate parent occurs . . . ." In response to the commenter, §84.605 does not require notification of a change in proportionate ownership beyond the parent level. Accordingly, since the commenter's concern does not apply to §84.605, the commission declines the changes recommended by the commenter.
Since the proposal, the notification percentage contained in §84.605(c)(1) has been increased from 5% to 10%. The agency believes that this change will best maintain consistent disclosure throughout the licensing rules. In addition, as some privately-held entities also file Form 10-Ks or 10-Qs, conforming changes have been made by deleting the words "publicly-held corporation" and replacing them with "legal entity" in §84.605(c)(1), along with related technical corrections.
Section 84.606 (former §84.107(a)) requires each applicant to supplement its application upon request by the agency.
Note that former §84.107 has been separated into two distinct rules, in order to distinguish between situations where the agency requests information to supplement an application and where the applicant has a duty to supplement its application as a result of changed circumstances. (See §84.607 which follows.)
Section 84.607 (former §84.107(b)) requires each applicant, upon discovery of new or changed information, to supplement its application within 10 days of discovery of the new or changed information.
Section 84.608 (former §84.106) describes how an application for a motor vehicle sales finance license is processed, including a description of when an application is complete as well as an explanation of what may occur if an applicant fails to complete an application. In addition, this section describes the hearings process that occurs if the applicant contests the denial of its application.
Former §84.106(g) regarding applications and notices as public records has been removed from that section and is being proposed as new §84.615. Section 84.615 is being added as a separate section to maintain consistency throughout the rule chapters governing various licensees regulated by the agency. (See discussion under §84.615.)
Section 84.609 (former §84.108) describes the procedures for relocating a licensed office, including deadlines for notification to the commissioner.
Section 84.610 (former §84.109) describes how a licensee may change its license from active to inactive status and how a licensee may activate an inactive license. This section also clarifies the procedures for a licensee to voluntarily surrender its license, resulting in cancellation, as well as when a license will expire.
Subsections (c) and (d) have been revised, and subsection (e) has been added to §84.610 in order to clarify the procedures for a licensee to voluntarily surrender its license, resulting in cancellation, as well as when a license will expire.
Since the proposal, a technical correction has been made to §84.610(d) regarding license expiration. In the first sentence, the word "on" has been replaced with the word "after" to reflect the correct expiration date of "after July 31."
Section 84.611 (former §84.110) sets out the fees for new licenses, license transfers, fingerprint processing, license amendments, annual assessments, license duplication, and costs of hearings.
Section 84.612 (former §84.111) states the implementation provisions of licensing.
Section 84.613 (former §84.112) describes the effect of criminal history information on applicants and licensees, including what information must be provided on arrests, charges, indictments, and convictions. As per Texas Occupations Code, §53.022, subsection (c) of the rule outlines the factors the agency will consider in determining whether a conviction relates to the occupation of being a motor vehicle sales finance dealer.
Section 84.614 (former §84.113) is a companion rule to §84.613. Section 84.614 describes the crimes directly related to the fitness for holding a license, as well as mitigating factors that will be considered, as per Texas Occupations Code, §53.023.
Section 84.615 (new section; former §84.106(g)) states that, upon filing with the Office of Consumer Credit Commissioner, an application for a motor vehicle sales finance license or a notice submitted by an applicant or licensee becomes a state record and public information subject to the Texas Public Information Act. Section 84.615 is being added as a separate section to maintain consistency throughout the rule chapters governing various licensees regulated by the agency. Section 84.615 is modeled after several current regulations (i.e., §§83.311, 85.212, 85.307, 88.108, and 89.311).
In response to informal comments received regarding the proposal, the following has been added as the second sentence in §84.615: "In response to a public information request, to the extent permitted by Government Code, Chapter 552 and other applicable law, the OCCC will withhold information deemed confidential by law (e.g., social security numbers, criminal history information)." This clarifying sentence places the agency's practice into regulation and is intended to provide licensees a level of comfort by listing examples of confidential information that will not be disclosed in response to a public information request.
Section 84.616 (new rule) explains the requirement for displaying licenses. Section 84.616 is being added in order to conform with current practice and to maintain consistency throughout the rule chapters governing various licensees for which license display is required. Section 84.616 is modeled after current §83.402 and §89.402.
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.
§84.602.Filing of New Application.
An application for issuance of a new motor vehicle sales finance license must be submitted in a format prescribed by the commissioner at the date of filing and in accordance with the commissioner's instructions. The commissioner may accept the use of prescribed alternative formats in order to accept approved electronic submissions. Appropriate fees must be filed with the application, and the application must include the following:
(1) Required application information. All questions must be answered.
(A) Application for Motor Vehicle Sales Finance License.
(i) Location. A physical street address must be listed for the applicant's proposed licensed location. A post office box or a mail box location at a private mail-receiving service generally may not be used. If the address has not yet been determined or if the application is for an inactive license, then the application must so indicate.
(ii) Responsible person. The person responsible for the day-to-day operations of the applicant's proposed offices must be named.
(iii) Signature(s). Electronic signatures will be accepted in a manner approved by the commissioner.
(I) If the applicant is a proprietor, each owner must sign.
(II) If the applicant is a partnership, each general partner must sign.
(III) If the applicant is a corporation, an authorized officer must sign.
(IV) If the applicant is a limited liability company, an authorized member or manager must sign.
(V) If the applicant is a trust or estate, the trustee or executor, as appropriate, must sign.
(VI) If the applicant is a nonprofit organization, an authorized officer must sign.
(B) List of Registered Offices for a Motor Vehicle Sales Finance License. Each additional location, other than the licensed location shown on the Application for Motor Vehicle Sales Finance License, must be listed. The applicant should provide the assumed name (DBA), physical address, telephone number, and the person responsible for day-to-day operations for each registered office. A registered office is required for any additional assumed name that the licensee uses at a single location to engage in a Texas Finance Code, Chapter 348 transaction.
(C) Disclosure of Owners and Principal Parties.
(i) Proprietorships. The applicant must disclose who owns and who is responsible for operating the business. All community property interest must also be disclosed. If the business interest is owned by a married individual as separate property, documentation establishing or confirming separate property status must be provided.
(ii) General partnerships. Each partner must be listed and the percentage of ownership stated. If a general partner is wholly or partially owned by a legal entity and not a natural person, a narrative or diagram must be included that lists the names and titles of all meeting the definition of "managerial official," as contained in Texas Business Organizations Code, §1.002, and a description of the ownership of each legal entity must be provided. General partnerships that register as limited liability partnerships should provide the same information as that required for general partnerships.
(iii) Limited partnerships. Each partner, general and limited, must be listed and the percentage of ownership stated.
(I) General partners. The applicant should provide the complete ownership, regardless of percentage owned, for all general partners. If a general partner is wholly or partially owned by a legal entity and not a natural person, a narrative or diagram must be included that lists the names and titles of all meeting the definition of "managerial official," as contained in Texas Business Organizations Code, §1.002, and a description of the ownership of each legal entity must be provided.
(II) Limited partners. The applicant should provide a complete list of all limited partners owning 10% or more of the partnership.
(III) Limited partnerships that register as limited liability partnerships. The applicant should provide the same information as that required for limited partnerships.
(iv) Corporations. Each officer and director must be named. Each shareholder holding 10% or more of the voting stock must be named if the corporation is privately-held. If a parent corporation is the sole or part owner of the proposed business, a narrative or diagram must be included that describes each level of ownership of 10% or greater.
(v) Limited liability companies. Each "manager," "officer," and "member" owning 10% or more of the company, as those terms are defined in Texas Business Organizations Code, §1.002, and each agent owning 10% or more of the company must be listed. If a member is a legal entity and not a natural person, a narrative or diagram must be included that describes each level of ownership of 10% or greater.
(vi) Trusts or estates. Each trustee or executor, as appropriate, must be listed.
(vii) Nonprofit organizations. Each officer must be listed.
(viii) All entity types. If a parent entity is a different type of legal business entity than the applicant, the parent entity's owners and principal parties should be disclosed according to the parent's entity type.
(ix) Alternative filings for all entity types. The commissioner may also accept other filings submitted to a governmental authority that the commissioner deems to have information substantially equivalent in coverage and reliability to a filing under clauses (i) - (viii) of this subparagraph.
(D) Application Questionnaire. All applicable questions must be answered. Questions requiring a "yes" answer must be accompanied by an explanatory statement and any appropriate documentation requested.
(E) Appointment of Statutory Agent and Consent to Service. The appointment of statutory agent and consent to service must be provided by each applicant. The statutory agent is the person or entity to whom any legal notice may be delivered. The agent must be a Texas resident and list an address for legal service. If the statutory agent is a natural person, the address must be a physical residential address. If the applicant is a corporation or a limited liability company, the statutory agent should be the registered agent on file with the Texas Secretary of State. If the statutory agent is not the same as the registered agent filed with the Secretary of State, then the applicant must submit certified minutes appointing the new agent.
(F) Personal Affidavit. Each individual meeting the definition of "principal party" as defined in §84.601 of this title (relating to Definitions) must provide a personal affidavit. All requested information must be provided.
(G) Personal Questionnaire. Each individual meeting the definition of "principal party" as defined in §84.601 of this title must provide a personal questionnaire. Each question must be answered. If any question, except question 1, is answered "yes," an explanation must be provided.
(H) Employment History. Each individual meeting the definition of "principal party" as defined in §84.601 of this title must provide an employment history. Each principal party should provide a continuous 10-year history, with no gaps, accounting for time spent as a student, unemployed, or retired. The employment history must also include the individual's association with the entity applying for the license.
(I) Statement of Experience. Each applicant should provide information that relates to the applicant's prior experience in the motor vehicle sales finance business. If the applicant or its principal parties do not have significant experience in the same type of business as planned for the prospective licensee, the applicant must provide a written statement explaining the applicant's relevant business experience or education, why the commissioner should find that the applicant has the requisite experience, and how the applicant plans to obtain the necessary knowledge to operate lawfully and fairly.
(J) Business Operation Plan. An applicant must attach a brief narrative to the application explaining:
(i) an estimate of how many motor vehicles will be financed by the applicant each year;
(ii) whether the applicant will hold the retail installment sales contracts or whether the applicant will assign its retail installment sales contracts;
(iii) whether the applicant will only be accepting contracts from another entity (assignor), and, if so, list the types of entities; and
(iv) whether the collections will occur at the licensed location.
(K) Statement Regarding Previous Installment Transactions. Each applicant must submit a statement that it has or has not made or collected on any retail installment sales contract or accepted the cash payment for a motor vehicle in one or more installments from September 1, 2002, to date. This includes any contracts signed by applicant as seller that are subsequently assigned to a third party. If the applicant is purchasing another dealership and has permission to operate under an existing license, as described in §84.604 of this title (relating to Transfer of License), the statement outlined by this subparagraph is not required. If the applicant has engaged in any of the referenced activities, the applicant must provide the following information:
(i) A list of all contracts used to finance the sale of a motor vehicle in one or more installments (whether the applicant was the original seller or whether the applicant became a holder). The list should include the name of the buyer, contract date, vehicle cash price, amount of down payment, net trade-in amount, total amount financed, payment frequency (monthly, semi-monthly, bi-weekly, weekly), total number of payments, and payment amount(s).
(ii) From the list provided by the applicant, copies of ten (10) complete files. The complete file includes, but is not limited to, the buyer's order, signed retail installment sales contract, payment history, certificate of title, and other documents related to that transaction. If there are fewer than ten (10) accounts, provide a complete copy of each file.
(L) Assumed Name Certificate. For any applicant that does business under an "assumed name" as that term is defined in Texas Business & Commerce Code, §36.02(7), an Assumed Name Certificate must be filed as provided in this subparagraph.
(i) Unincorporated applicants. Unincorporated applicants using or planning to use an assumed name must file an assumed name certificate with the county clerk of the county where the proposed business is located in compliance with Texas Business & Commerce Code, §36.10, as amended. An applicant must provide a copy of the assumed name certificate that shows the filing stamp of the county clerk or, alternatively, a certified copy.
(ii) Incorporated applicants. Incorporated applicants using or planning to use an assumed name must file an assumed name certificate in compliance with Texas Business & Commerce Code, §36.11, as amended. Evidence of the filing bearing the filing stamp of the Texas Secretary of State must be submitted or, alternatively, a certified copy.
(2) Other required filings.
(A) Fingerprints.
(i) For all persons meeting the definition of "principal party" as defined in §84.601 of this title, a complete set of legible fingerprints must be provided. All fingerprints should be submitted in a format prescribed by the OCCC and approved by the Texas Department of Public Safety and the Federal Bureau of Investigation.
(ii) For limited partnerships, if the Disclosure of Owners and Principal Parties under paragraph (1)(C)(iii)(I) of this section does not produce a natural person, the applicant must provide a complete set of legible fingerprints for individuals who are associated with the general partner as principal parties.
(iii) For entities with complex ownership structures that result in the identification of individuals to be fingerprinted who do not have a substantial relationship to the proposed applicant, the applicant may submit a request to fingerprint three officers or similar employees with significant involvement in the proposed business. The request should describe the relationship and significant involvement of the individuals in the proposed business. The agency may approve the request, seek alternative appropriate individuals, or deny the request.
(iv) For individuals who have previously been licensed by the OCCC and principal parties of entities currently licensed, fingerprints are not required.
(v) For individuals who have previously submitted fingerprints to another state agency (e.g., Texas Department of Transportation), fingerprints are still required to be submitted to the OCCC, as per Texas Finance Code, §14.152. Fingerprints cannot be disclosed to others, except as authorized by Texas Government Code, §560.002, as amended.
(B) Contract forms. The applicant must provide information regarding the retail installment sales contract forms it intends to use.
(i) Custom forms. If a custom contract form is to be prepared, a preliminary draft or proof that is complete as to format and content and which indicates the number and distribution of copies to be prepared for each transaction must be submitted.
(ii) Stock forms. If an applicant purchases or plans to purchase stock forms from a supplier, the applicant must include a statement that includes the supplier's name and address and a list identifying the forms to be used, including the revision date of the form, if any.
(C) Entity documents.
(i) Partnerships. A partnership applicant must submit a complete and executed copy of the partnership agreement. This copy must be signed and dated by all partners. If the applicant is a limited partnership or a limited liability partnership, provide evidence of filing with the Texas Secretary of State.
(ii) Corporations. A corporate applicant, domestic or foreign, must provide the following documents:
(I) a complete copy of the articles of incorporation and any amendments;
(II) a copy of the relevant portions of the bylaws addressing the required number of directors and the required officer positions for the corporation;
(III) a copy of the minutes of corporate meetings that record the election of all current officers and directors as listed on the Disclosure of Owners and Principal Parties, or a certification from the secretary of the corporation identifying the current officers and directors as listed on the Disclosure of Owners and Principal Parties;
(IV) if the statutory agent is not the same as the registered agent filed with the Texas Secretary of State:
(-a-) a copy of the minutes of corporate meetings that record the election of the statutory agent; or
(-b-) a certification from the secretary of the corporation identifying the statutory agent; and
(V) a certificate of good standing from the Texas Comptroller of Public Accounts.
(iii) Publicly-held corporations. In addition to the items required for corporations, a publicly-held corporation must file the most recent Form 10-K or 10-Q for the applicant or for the parent company.
(iv) Limited liability companies. A limited liability company applicant, domestic or foreign, must provide the following documents:
(I) a complete copy of the articles of organization;
(II) a copy of the relevant portions of the operating agreement or regulations addressing responsibility for operations;
(III) a copy of the minutes of company meetings that record the election of all current officers and directors as listed on the Disclosure of Owners and Principal Parties, or a certification from the secretary of the company identifying the current officers and directors as listed on the Disclosure of Owners and Principal Parties;
(IV) if the statutory agent is not the same as the registered agent filed with the Texas Secretary of State:
(-a-) a copy of the minutes of company meetings that record the election of the statutory agent; or
(-b-) a certification from the secretary of the company identifying the statutory agent; and
(V) a certificate of good standing from the Texas Comptroller of Public Accounts.
(v) Trusts. A copy of the relevant portions of the instrument that created the trust addressing management of the trust and operations of the applicant must be filed with the application.
(vi) Estates. A copy of the instrument establishing the estate must be filed with the application.
(vii) Foreign entities. In addition to the items required by this section, a foreign entity must provide:
(I) a certificate of authority to do business in Texas, if applicable; and
(II) a statement of where records of Texas retail installment transactions will be kept. If these records will be maintained at a location outside of Texas, the applicant must acknowledge responsibility for the travel costs associated with examinations in addition to the usual assessment fee or agree to make all the records available for examination in Texas.
(viii) Nonprofit organizations. The applicant must provide a copy of the relevant portions of the instrument creating the nonprofit organization addressing management of the organization and operations of the applicant. A nonprofit applicant must also provide a copy of its filing with the Internal Revenue Service or other evidence to verify that the applicant is a nonprofit organization exempt from taxation under Internal Revenue Code of 1986, §501(c)(3).
(ix) Formation document alternative. As an alternative to the entity-specific formation document applicable to the applicant's entity type (e.g., for a corporation, articles of incorporation), an applicant may submit a "certificate of formation" as defined in Texas Business Organizations Code, §1.002, if the certificate of formation provides the entity formation information required by this section for that entity type.
(3) Late filing. An applicant who desires to retroactively file a license application may do so by complying with Texas Finance Code, §349.303, and the rules adopted under this chapter.
§84.604.Transfer of License.
(a) Definition. As used in this chapter, a "transfer of ownership" does not include a change in proportionate ownership as defined in §84.605 of this title (relating to Change in Form or Proportionate Ownership). Transfer of ownership includes the following:
(1) an existing owner of a sole proprietorship relinquishes that owner's entire interest in a license or an entirely new entity has obtained an ownership interest in a sole proprietorship license;
(2) any purchase or acquisition of control of a licensed general partnership, in which a partner relinquishes that owner's entire interest or a new general partner obtains an ownership interest;
(3) any change in ownership of a licensed limited partnership interest:
(A) in which a limited partner owning 10% or more relinquishes that owner's entire interest;
(B) in which a new limited partner obtains an ownership interest of 10% or more;
(C) in which a general partner relinquishes that owner's entire interest; or
(D) in which a new general partner obtains an ownership interest (transfer of ownership occurs regardless of the percentage of ownership exchanged of the general partner);
(4) any change in ownership of a licensed corporation:
(A) in which a new stockholder obtains 10% or more of the outstanding voting stock in a privately-held corporation;
(B) in which an existing stockholder owning 10% or more relinquishes that owner's entire interest in a privately-held corporation;
(C) any purchase or acquisition of control of 51% or more of a company which is the parent or controlling stockholder of a licensed privately-held corporation; or
(D) any stock ownership changes that result in a change of control (i.e., 51% or more) for a licensed publicly-held corporation;
(5) any change in the membership interest of a licensed limited liability company:
(A) in which a new member obtains an ownership interest of 10% or more;
(B) in which an existing member owning 10% or more relinquishes that member's entire interest; or
(C) in which a purchase or acquisition of control of 51% or more of any company which is the parent or controlling member of a licensed limited liability company occurs;
(6) any acquisition of a license by gift, devise, or descent; and
(7) any purchase or acquisition of control of a licensed entity whereby a substantial change in management or control of the business occurs, despite not fulfilling the requirements of subsection (a)(1) - (6) of this section, and the commissioner has reason to believe that proper regulation of the licensee dictates that a transfer must be processed.
(b) Level of ownership. For purposes of this section, parent entity means a direct owner of the applicant. Grandparent entity means a direct owner of the applicant's parent entity.
(1) Corporations and limited liability companies. Unless subsection (a)(4)(C) or (a)(5)(C) of this section applies resulting in a change of ownership of 51% or more of the parent entity or controlling stockholder or member, or subsection (a)(7) of this section applies, a transfer application is not required for a change of ownership above the parent entity of the applicant.
(2) All entity types. A transfer application is not required for a change of ownership above the grandparent entity of the applicant.
(c) Approval of transfer. No motor vehicle sales finance license may be sold, transferred or assigned without written approval by the commissioner.
(d) Filing requirements. An application for transfer of a motor vehicle sales finance license must be submitted in a format prescribed by the commissioner at the date of filing and in accordance with the rules and instructions. The commissioner may accept the use of prescribed alternative formats in order to accept approved electronic submissions. Appropriate fees must be filed with the transfer application, and the application for transfer must include the following:
(1) Required application information.
(A) New licensees filing transfers. The information required for new license applications under §84.602 of this title (relating to Filing of New Application) must be submitted by new licensees filing transfers. The instructions in §84.602 of this title are applicable to these filings. In addition, evidence of transfer of ownership as described in subsection (d)(2) of this section must also be submitted.
(B) Existing licensees filing transfers. If the applicant is currently licensed and filing a transfer, the applicant must provide the information that is unique to the transfer event, including the Application for Motor Vehicle Sales Finance License, Application Questionnaire, Disclosure of Owners and Principal Parties, Appointment of Statutory Agent and Consent to Service, and List of Registered Offices for a Motor Vehicle Sales Finance License. The instructions in §84.602 of this title are applicable to these filings. Other information required by §84.602 of this title need not be filed if the information on file with the OCCC is current and valid. In addition, evidence of transfer of ownership as described in subsection (d)(2) of this section must also be submitted.
(2) Evidence of transfer of ownership. Documentation evidencing the transfer of ownership must be filed with the application and should include one of the following:
(A) a copy of the asset purchase agreement when only the assets have been purchased;
(B) a copy of the stock purchase agreement or other evidence of acquisition if voting stock of a corporate licensee has been purchased or otherwise acquired;
(C) any document that transferred ownership by gift, devise, or descent, such as a probated will or a court order; or
(D) any other documentation evidencing the transfer event.
(e) Permission to operate. No business under the license shall be conducted by any transferee until the application has been received, all applicable fees have been paid, and a request for permission to operate has been approved. In order to be considered, a permission to operate must be in writing. Additionally, the transferor must grant the transferee the authority to operate under the transferor's license pending approval of the transferee's new license application. The transferor must accept full responsibility to any customer and to the OCCC for the licensed business for any acts of the transferee in connection with the operation of the business. The permission to operate must be submitted before the transferee takes control of the licensed operation. The agreement shall set a definite period of time for the transferee to operate under the transferor's license. A request for permission to operate may be denied even if it contains all of the required information. Two companies may not simultaneously operate under a single license. If the OCCC grants a permission to operate, the transferor must cease operating under the authority of the license.
(f) Application filing deadline. Applications filed in connection with transfers of ownership may be filed in advance but must be filed no later than 10 calendar days following the actual transfer. Failure to meet the application filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.
§84.605.Change in Form or Proportionate Ownership.
(a) Organizational form. When any licensee or parent of a licensee desires to change the organizational form of its business (e.g., from proprietorship to corporation; or from corporation to limited partnership), the licensee must advise the commissioner in writing of the change within 10 calendar days by filing the appropriate transfer application documents as provided in §84.604 of this title (relating to Transfer of License). In addition, the licensee must submit a copy of the relevant portions of the organizational document for the new entity (e.g., articles of incorporation; or articles of conversion and partnership agreement) addressing the ownership and management of the new entity. Failure to meet the application filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.
(b) Merger. A merger of a licensee is a change of ownership that results in a new or different surviving entity and requires the filing of a transfer application pursuant to §84.604 of this title. A merger of the parent entity of a licensee that leads to the creation of a new entity or results in a different surviving parent entity requires a transfer application pursuant to §84.604 of this title. Mergers or transfers of other entities with a beneficial interest beyond the parent entity level only require notification within 10 calendar days. Failure to meet the application filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.
(c) Proportionate ownership.
(1) A change in proportionate ownership that results in the exact same owners still owning the business, and does not meet the requirements described in paragraph (2) of this subsection, does not require a transfer. Such a proportionate change in ownership does not require the filing of a transfer application, but does require notification when the cumulative ownership change to a single entity or individual amounts to 10% or greater. No later than 10 calendar days following the actual change, the licensee is required to notify the commissioner in writing of the change in proportionate ownership. This subsection does not apply to a legal entity that has filed with the OCCC the most recent Form 10-K or 10-Q filing of the licensee or of the parent entity, although a transfer application may be required under §84.604 of this title.
(2) A proportionate change in which an owner that previously held under 10% obtains an ownership interest of 10% or more, requires a transfer under §84.604 of this title.
(3) Failure to meet the notification filing deadline does not invalidate transactions unless the agency has obtained a contrary finding through the administrative process.
§84.610.License Status.
(a) Inactivation of active license. A licensee may cease operating under a motor vehicle sales finance license and choose to inactivate the license. A license may be inactivated by giving notice of the cessation of operations not less than 10 calendar days prior to the anticipated inactivation date. Registered offices will be designated as closed when a license is inactivated. Notification must be filed on the Amendment to Motor Vehicle Sales Finance License or an approved electronic submission as prescribed by the commissioner. The notice must include the new mailing address for the license, the effective date of the inactivation, and the fee for amending the license. A licensee must continue to pay the yearly renewal fees for an inactive license as outlined in §84.611 of this title (relating to Fees), or the license will expire.
(b) Activation of inactive license. A licensee may activate an inactive license by giving notice of the intended activation not less than 10 calendar days prior to the anticipated activation date. Registered offices must be listed and appropriate fees paid upon activation of a license. Notification must be filed on the Amendment to Motor Vehicle Sales Finance License or an approved electronic submission as prescribed by the commissioner. The notice must include the contemplated new address of the licensed office, the approximate date of activation, and the fee for amending the license as outlined in §84.611 of this title.
(c) Voluntary surrender of license. Subject to subsection (e) of this section, a licensee may voluntarily surrender a license by providing written notice of the cessation of operations, a request to surrender the license, and by submitting the license certificate. A voluntary surrender will result in cancellation of the license.
(d) Expiration. A license will expire after July 31 unless a fee is paid by the due date for license renewal. A licensee that pays the annual assessment fee will automatically be renewed even though a new license may not be issued.
(e) Surrendering to avoid administrative action. A licensee may not surrender a license after an administrative action has been initiated without the written agreement of the OCCC.
§84.612.Implementation Provisions of Licensing.
Effective date. The effective date of the statutory licensing requirement is September 1, 2002. After September 1, 2002, a motor vehicle seller may not engage in any retail installment sales transaction without a motor vehicle sales finance license granted under this title. Any motor vehicle seller engaging in a motor vehicle sales finance transaction prior to September 1, 2002, must comply with Texas Finance Code, §348.401 and §348.402, and 7 TAC, Part 1, Chapter 1, Subchapter P, as those provisions were in effect. Failure to comply with previously required registration provisions is grounds for denial of an application made under §84.608 of this title (relating to Processing of Application).
§84.615.Applications and Notices as Public Records.
Once a license application or notice is filed with the OCCC, it becomes a "state record" under Texas Government Code, §441.180(11), and "public information" under Government Code, §552.002. In response to a public information request, to the extent permitted by Government Code, Chapter 552 and other applicable law, the OCCC will withhold information deemed confidential by law (e.g., social security numbers, criminal history information). Under Government Code, §§441.190, 441.191 and 552.004, the original applications and notices must be preserved as "state records" and "public information" unless destroyed with the approval of the director and librarian of the State Archives and Library Commission under Government Code, §441.187. Under Government Code, §441.191, the OCCC may not return any original documents associated with a motor vehicle sales finance license application or notice to the applicant or licensee. An individual may request copies of a state record under the authority of the Texas Public Information Act, Government Code, Chapter 552.
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 18, 2008.
TRD-200802046
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: May 8, 2008
Proposal publication date: February 29, 2008
For further information, please call: (512) 936-7611
7 TAC §§84.801 - 84.807, 84.809
The Finance Commission of Texas (commission) adopts new §§84.801 - 84.807 and 84.809, concerning Retail Installment Sales Contract Provisions, with regard to motor vehicle sales finance dealers licensed by the Office of Consumer Credit Commissioner. The new rules are adopted with changes to §84.801, and without changes to §§84.802 - 84.807 and 84.809, as published in the February 29, 2008, issue of the Texas Register (33 TexReg 1687). The commission received no written comments on the proposal.
These rules regarding retail installment sales contract provisions are 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 rules are substantially similar to the rules being repealed, as found in 7 TAC, §§84.201 - 84.208 and 84.210, concerning Installment Sales Contract Provisions. The commission's adopted repeal of these sections is published elsewhere in this issue of the Texas Register.
The rules implement 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 contact is optional; however, should a licensee choose not to use the model contract, 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 new 7 TAC §84.802. Additionally, due to pending amendments, §84.209, Model Clauses, will be relocated as part of rule proposals in the near future.
The purpose of each relocated rule tracks the original purpose language used when each rule was originally adopted. Aside from one technical correction and changes to section references, the rules regarding retail installment sales contract provisions (from former Subchapter B, new Subchapter H) are merely being relocated.
The following paragraphs outline the individual purposes of each rule. Relocated rules will be listed with their former location "(former §84.XXX)" listed after the new section number. The agency has made one technical correction to §84.801 resulting from internal agency review. The explanation for this change made since the proposal is provided below the purpose for the affected section.
Section 84.801 (former §84.201) sets forth the purpose clause and discusses the benefits of plain language contracts. Section §84.801 explains the motor vehicle model contract provisions and states the intention that the provisions should constitute a complete plain language motor vehicle retail sales installment contract. 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, one technical correction has been made to §84.801, by replacing the word "tile" with the word "title," resulting in the correct phrase "of this title."
Section 84.802 (former §84.202) provides the procedures for licensees to submit non-standard contract submissions to the agency.
Section 84.803 (former §84.203) explains the relationship of federal law to the state requirements. The section describes how any conflicts or inconsistencies shall be resolved.
Section 84.804 (former §84.205) outlines the disclosure and contract provisions required by the Texas Finance Code.
Section 84.805 (former §84.206) outlines the disclosures required by Finance Commission rule.
Section 84.806 (former §84.207) details the required format, typeface, and font for model plain language motor vehicle retail installment sales contracts. The rule attempts to establish minimum allowable type sizes and typefaces. The rule also permits flexibility for labeling contracts through the use of titles and headings. The creditor has considerable flexibility in the formatting and arrangement of the information contained in the model clauses. The requirements are necessary to ensure that the contract will be easy for consumers to read and understand.
Section 84.807 (former §84.208) identifies the types of provisions that are typically included in a Chapter 348 motor vehicle retail installment sales contract. Creditors may determine which provisions are most applicable for their transactions. Creditors may omit provisions that are not applicable to a particular transaction. If a creditor desires to assess certain charges or exercise certain rights under the provisions, the creditor must contract for that fee or right. For example, if a creditor desires to assess a late charge, the creditor must provide for a late charge provision. Also, if a creditor desires to purchase collateral protection insurance because the buyer failed to keep required insurance, the creditor must include a contractual provision permitting the creditor to purchase the required insurance.
Section 84.809 (former §84.210) outlines permissible changes that can be made to a contract and still comply with the model provisions. This section provides licensees with flexibility in using the model clauses. Licensees may use additional documents in connection with the model documents contained in this rule. If a licensee incorporates additional documents, these additions may need to be submitted as non-standard forms if they do not employ the model clauses. Certain documents like the odometer statement, buyer's order, title application documents, notices to co-signer, buyer's guides, and similar documents do not need to be submitted as non-standard forms. Additional documents such as arbitration agreements, conditional delivery agreements, and guarantor agreements will need to be submitted for a readability review in accordance with new 7 TAC §84.802.
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.
§84.801.Purpose.
(a) The purpose of this subchapter is to provide model provisions and a model plain language contract in English for Texas Finance Code, Chapter 348 motor vehicle installment sales contract provisions. The establishment of model provisions for these transactions will encourage the use of simplified wording that will ultimately benefit consumers by making these contracts easier to understand. Use of the "plain language" model contract by a seller is not mandatory. The seller, however, may not use a contract other than a model contract unless the seller has submitted the contract to the commissioner in compliance with §84.802 of this title (relating to Non-Standard Contract Filing Procedures). The commissioner shall issue an order disapproving the contract if the commissioner determines the contract does not comply with this section or rules adopted under this section. A seller may not claim the commissioner's failure to disapprove a contract constitutes approval.
(b) These provisions are intended to constitute a complete plain language motor vehicle installment sales contract; however, a seller is not limited to the contract provisions contained in these rules.
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 18, 2008.
TRD-200802047
Leslie L. Pettijohn
Commissioner
Office of Consumer Credit Commissioner
Effective date: May 8, 2008
Proposal publication date: February 29, 2008
For further information, please call: (512) 936-7611