# IN THE SUPREME COURT O F TEX AS

4 4 4 4 4 4 4 4 4 4 4 4 

## N O



## . 10-0121

4 4 4 4 4 4 4 4 4 4 4 4


# T H E 

# F IN A N C E 

# C O M M IS S IO N O F 

# T E X A S 

# , T H E 

# C R E D IT 

# U N IO N 

# C O M M IS S IO N O F 

# T E X A S 

# , A N D 

# T E X A S 

# B A N K E R S 

# A S S O C IA T IO N 

# , P E T IT IO N E R S 

# ,

v

. 

# V A L E R IE 

# N O R W O O D 

# , E L IS E 

# S H O W S 

# , M A R Y A N N 

# R O B L E S



# - V A L D E Z 

# , B O B B Y 

# M A R T IN 

# , P A M E L A 

# C O O P E R 

# , A N D 

# C A R L O S 

# R IV A S 

# , R E S P O N D E N T S

4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4



## O N 

## P E T I T I O N F O R 

## R E V I E W F R O M T H E 

## C O U R T O F 

## A P P E A L S F O R T H E 

## T H I R D 

## D I S T R I C T O F 

## T E X A S



### 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4



## Argued Septem ber 13, 2011

J U S T I C E 

## H E C H T 

## d el i v ere d the opinion of the Court, in which C H I E F 

## J U S T I C E 

## J E F F E R S O N 

## , J U S T I C E 

## G R E E N 

## , J U S T I C E 

## W I L L E T T 

## , J U S T I C E 

## G U Z M A N 

## , J U S T I C E 

## L E H R M A N N 

## , J U S T I C E 

## B O Y D 

## , and J U S T I C E 

## D E V I N E 

## joined, and in Parts I and I I of which J U S T I C E 

## J O H N S O N 

## joined.

J U S T I C E 

## J O H N S O N 

## issued an opinion concur ring in part and dissenting in part, and dissenting from the judg ment.

The separ ation of the power s of g overnme nt into three distinct, rival branc hes — leg islative,
executive, and judicial — is “the absolutely centr al g uara ntee of a just Gover

nment.” Checks and

1



## balanc es among the branc hes protec t the individual. I t is the separ ation of power s, for example, that

establishes bi lls of rights as rules of l aw rather than mere ly hol l o w wo rds, which is all they are in

M o r r i s o n v

. O l s o n , 4 8 7 U

. S

. 6 5 4 , 6 9 7 ( 1 9 8 8 ) ( S c a l i a , J

. , d i s s e n t i n g )

. 1

## most countries wher e power is vested in a few

. As J ames Madison famously decla red in Fede ralist 2



## No. 47 : “No political truth is cer tainly of g rea ter intrinsic value, or is stamped with the authority of

m o re enlig htened patrons of liberty , than [t his:] The acc umulation of all power s, leg islative , executive, and judiciary , in the same hands

. . . may justly be pronounce d t h e v ery definition of

ty ranny .” 3


## The principle of separation of power s is foundational for fede ral and state go vernme nts in
this country

and firmly

embedde d in our nation’s history . The Te x as Constitut ion mandates:

The powe rs o f t h e Gover nment of the State of Texas shall be divided into three distinct depart m en t s , eac h of which shall be confide d to a separ ate body of mag istracy , to wit: Those which are L eg islative to one; those which are Ex ecutive to another , and t hose which are J udicial to another ; and no person, or collection of persons, being o f o n e of these depar tments, shall exercise any power proper ly attache d to either of the others, except in the instance s here in expressly permitted. 4



## Ex ceptions to the constitutionally mandated separ ation of power s are never to be implied in the least;
they must be “expressly

permitted” by

the Constitut ion itself. 5



## A 2003 amendment to the Constit ution authorized the L eg islature to deleg at e t o a state

ag ency the power to interpre t cer tain provisions of the Texas Constit ution g overning home equity
lending , a power that the Constit ution’s separ ation-of- power s provision unquestionably allocate s to

I d

. ( “ W i t h o u t a s e c u r e s t r u c t u r e o f s e p a r a t e d p o w e r s , o u r B i l l o f R i g h t s w o u l d b e w o r t h l e s s , a s a r e t h e b i l l s 2

o f r i g h t s o f m a n y n a t i o n s o f t h e w o r l d t h a t h a v e a d o p t e d , o r e v e n i m p r o v e d u p o n , t h e m e r e w o r d s o f o u r s

. ” )

.

T H E F E D E R A L IS T N O

. 4 7 ( J a m e s M a d i s o n )

. 3

T E X

. C O N S T

. a r t

. I I , § 1

. 4

I d

. W e d o n o t c o n s i d e r w h e t h e r e x c e p t i o n s , e v e n e x p r e s s l y p e r m i t t e d b y t h e C o n s t i t u t i o n , c a n s e l e c t i v e l y s h i f t 5
p o w e r a m o n g t h e d e p a r t m e n t s o f g o v e r n m e n t w i t h o u t i n f r i n g i n g o n o t h e r c o n s t i t u t i o n a l g u a r a n t e e s , s u c h a s d u e p r o c e s s , e q u a l p r o t e c t i o n , a n d t h e o p e n c o u r t s g u a r a n t e e o f t h e T e x a s C o n s t i t u t i o n

.


### 2

## the J udiciary

. We must deter mine in this case the extent of this exception and specific ally , whether 6



## ag ency interpre tations made under this authority are bey ond judicial revie w. We conclude they are

not.

Of the sever al ag ency interpre tations challeng ed in this case , the court of appea ls decide d that

some are valid and other s invalid. We ag ree in part and disag ree in part, and r ender judgme nt. 7



## I

I n the State of Texas, the homestead has alway s been protec ted from forc ed sale, not mere ly
by statute as in most states, but by the Constit ution. The 1869 and 1876 Constit utions allowed three 8


## exceptions, and others have been added by amendments. Ex ceptions for cer tain home equity loans 9 1 0



## and for reve rse mortg ag es, finally adopted by constitutional amendment in 1997, eff ective J anuar

y 1,

W

. O r a n g e

- C o v e C o n s o l

. I n d e p

. S c h

. D i s t

. v

. A l a n i s , 1 0 7 S

. W

. 3 d 5 5 8 , 5 6 3 ( T e x

. 2 0 0 3 ) ( “ T h e f i n a l a u t h o r i t y 6
t o d e t e r m i n e a d h e r e n c e t o t h e C o n s t i t u t i o n r e s i d e s w i t h t h e J u d i c i a r y

. ” ) ( c i t i n g M a r b u r y v

. M a d i s o n , 5 U

. S

. ( 1 C r a n c h ) 1 3 7 , 1 7 6

- 1 7 8 ( 1 8 0 3 ) , a n d L o v e v

. W i l c o x , 2 8 S

. W

. 2 d 5 1 5 , 5 2 0 ( T e x

. 1 9 3 0 ) )

.

3 0 3 S

. W

. 3 d 4 0 4 ( T e x

. A p p

. – A u s t i n 2 0 1 0 )

. 7

T E X

. C O N S T

. a r t

. V I I , § 2 2 ( 1 8 4 5 ) ; T E X

. C O N S T

. a r t

. V I I , § 2 2 ( 1 8 6 1 ) ; T E X

. C O N S T

. a r t

. V I I , § 2 2 ( 1 8 6 6 ) ; T E X

. 8 C O N S T

. a r t

. X I I , § 1 5 ( 1 8 6 9 ) ; T E X

. C O N S T

. a r t

. X V I , § 5 0 ( 1 8 7 6 )

. I n t h e R e p u b l i c o f T e x a s , h o m e s t e a d p r o t e c t i o n w a s
s e c u r e d b y s t a t u t e

. A c t a p p r o v e d J a n

. 2 6 , 1 8 3 9 , 3 d C o n g

. , R

. S

. , 1 8 3 9 R e p u b

. T e x

. L a w s 1 2 5 , 1 2 5

- 2 6 , r e p r i n t e d i n 2 H

. P

. N

. G a m m e l

, T h e L a w s o

f T e x a s 1 8 2 2

– 1 8 9 7 a t 1 2 5 , 1 2 5

- 2 6 ( A u s t i n , G a m m e l B o o k C o

. 1 8 9 8 )

.

T h e 1 8 6 9 C o n s t i t u t i o n a l l o w e d e x c e p t i o n s f o r p u r c h a s e m o n e y , t a x e s , a n d l a b o r a n d m a t e r i a l s e x p e n d e d o n 9
t h e p r o p e r t y

. T E X

. C O N S T

. a r t

. X I I , § 1 5 ( 1 8 6 9 )

. T h e 1 8 7 6 C o n s t i t u t i o n r e c o g n i z e d t h e f i r s t t w o e x c e p t i o n s a n d l i m i t e d
t h e t h i r d

. T E X

. C O N S T

. a r t

. X V I , § 5 0 ( 1 8 7 6 )

.

A 1 9 9 5 a m e n d m e n t a d d e d t w o e x c e p t i o n s , o n e f o r a n o w e l t y o f

p a r t i t i o n i m p o s e d a g a i n s t t h e e n t i r e t y o f t h e 10
p r o p e r t y b y a g r e e m e n t o r c o u r t o r d e r ( a s i n d i v o r c e ) , a n d t h e o t h e r f o r r e f i n a n c i n g a l i e n o n t h e p r o p e r t y

. T E X

. C O N S T

. a r t

. X V I , § 5 0 ( a ) ( 3 ) , ( 4 )

. A 1 9 9 7 a m e n d m e n t a d d e d e x c e p t i o n s f o r c e r t a i n h o m e e q u i t y l o a n s a n d f o r r e v e r s e m o r t g a g e s

. I d

. § 5 0 ( a ) ( 6 ) , ( 7 )

. A 2 0 0 1 a m e n d m e n t a d d e d a n e x c e p t i o n f o r c o n v e r t i n g o r r e f

i n a n c i n g a l i e n o n a m a n u f a c t u r e d h o m e

. I d

. § 5 0 ( a ) ( 8 )

.


### 3

## 1998, wer e extremely controve rsial, in part beca use of ag e-old conce rns t h at l en d er s would be 1 1



## unfair and borrowe rs unwise, eroding the protec tion the homestead is intended to aff ord. So long 1 2



## leer y of any impairment to the homestead, Texas was the fiftieth state in the Union to permit home
equity lending

. 1 3



## To assure that the compromises finally struck would withstand future political pressure s on

the L eg islature, leng thy , elabor ate, detailed provisions, rema rkable even for our State’s Constitu ti o n,

wer e included in Article XVI , Section 50 and made nonsever able. A homestead may be subject 1 4 1 5



## to forc ed sale to repa

y a home equity loan onl y i f t h e l o an meets the require ments of Section 50,

T e x

. H

. R

. J

. R e s

. 3 1 , 7 5 t h L e g

. , R

. S

. , 1 9 9 7 T e x

. G e n

. L a w s 6 7 3 9 ( a d o p t e d a t t h e g e n e r a l e l e c t i o n o n N o v

. 4 , 11 1 9 9 7 , b y a v o t e o f 6 9 8 , 8 7 0 t o 4 7 4 , 4 4 3 )

.

P r o f e s s o r J a m e s P a u l s e n h a s p r o v i d e d a n e x c e l l e n t d e s c r i p t i o n o f t h e l o n g h i s t o r y l e a d i n g u p t o t h e 12

a m e n d m e n t

. J a m e s W

. P a u l s e n , I n t r o d u c t i o n : T

h e T e x a s H o m e E q u i t

y C o n t r o v e r s

y i n C o n t e x t , 2 6 S T

. M A R Y ’ S L

. J

. 3 0 7 ( 1 9 9 5 )

.

L a S a l l e B a n k N a t ’ l A s s ’ n v

. W

h i t e , 2 4 6 S

. W

. 3 d 6 1 6 , 6 1 8 ( T e x

. 2 0 0 7 ) ( p e r c u r i a m ) ( “ F o r o v e r 1 7 5 y e a r s , 13
T e x a s h a s c a r e f

u l l y p r o t e c t e d t h e f

a m i l y h o m e s t e a d f

r o m f o r e c l o s u r e b y l i m i t i n g t h e t y p e s o f l i e n s t h a t c a n b e p l a c e d

u p o n h o m e s t e a d p r o p e r t y

. T e x a s b e c a m e t h e l a s t s t a t e i n t h e n a t i o n t o p e r m i t h o m e
- e q u i t y l o a n s w h e n c o n s t i t u t i o n a l

a m e n d m e n t s v o t e d o n b y r e f e r e n d u m t o o k e f

f e c t i n 1 9 9 7

. ” ) ; s e e a l

s o H o u s e R e s e a r c h O r g

. , B i l l A n a l y s i s , T e x

. H

. J

. R

. 3 1 , 7 6 t h L e g

. , R

. S

. , a t 5 ( 1 9 9 7 )

.

S e e J

. A l t o n A l s u p , P i t

f a l l s ( a n d P r a t f a l l s ) o f T e x a s H o m e E q u i t

y L e n d i n g , 5 2 C O N S U M E R F IN

. L

. Q

. R E P

. 4 3 7 , 14 4 3 7 ( 1 9 9 8 ) ( “ T h e n e w h o m e e q u i t y a m e n d m e n t w a s

. . . a n e m o t i o n a l l y c o n t e s t e d a n d s t u b b o r n l y c o m p r o m i s e d b i l l

. . . s u b j e c t t o a m a z e o f

2 5 , o r m o r e , e x a c t i n g c o n d i t i o n s r e g u l a t i n g t h e l o a n a m o u n t , r e c o u r s e a n d e n f o r c e a b i l i t y , f

e e s a n d

c h a r g e s , p e r m i t t e d l o a n t e r m s , a n d t h e l e n d e r ’ s l o a n o r i g i n a t i o n a n d c l o s i n g p r a c t i c e s

. A n d i t w a s n o t h a p p e n s t a n c e t h a t t h e s e e x a c t i n g c o n d i t i o n s

. . . w e r e e m b e d d e d f i r m l y i n t h e c o n s t i t u t i o n i t s e l f w i t h o u t t h e b e n e f

i t o f e n a b l i n g l e g i s l a t i o n t h a t u s u a l l y a c c o m p a n i e s a c o n s t i t u t i o n a l a m e n d m e n t t o p r o v i d e a n i n t e r p r e t a t i v e f r a m e w o r k f

o r i t s i m p l e m e n t a t i o n

. R a t h e r , i t r e p o r t e d l y w a s l e g i s l a t i v e t a c t i c s b y r e l u c t a n t p r o p o n e n t s t o p u t a n y f u t u r e a t t e m p t o f f

e l l o w l e g i s l a t o r s t o

m o d e r a t e t h e s e r e q u i r e m e n t s t o t h e r i g o r s o f t h e i d e n t i c a l c o n s t i t u t i o n a l a m e n d m e n t p r o c e s s ( i

. e

. , r e q u i r i n g a s u p e r
m a j o r i t y a p p r o v a l o f b o t h h o u s e s a n d a s u c c e s s f u l v o t e r r e f

e r e n d u m )

. ” )

. W i t h j u s t u n d e r 6 , 0 0 0 w o r d s a n d o v e r 1 5 0 s u b

p a r t s , S e c t i o n 5 0 i s b y f a r t h e l o n g e s t , m o s t c o m p l e x s e c t i o n o f t h e T e x a s C o n s t i t u t i o n

.

T E X

. C O N S T

. a r t

. X V I , § 5 0 ( j ) ( “ S u b s e c t i o n ( a ) ( 6 ) a n d S u b s e c t i o n s ( e )

- ( i ) o f t h i s s e c t i o n a r e n o t s e v e r a b l e , 15

a n d n o n e o f t h o s e p r o v i s i o n s w o u l d h a v e b e e n e n a c t e d w i t h o u t t h e o t h e r s

. ” )

.


### 4

## altera

ble only by a vote of the people. The co n s t i t u t i onal amendment did not provide for 1 6


## implementing leg islation or for administrative interpre tation or ru l e-ma king. L oan terms and
conditions, notices to borrowe rs, and a ll applicable r eg ulations were set out in Section 50 itself. 1 7



## But not, of course , with perf ect clar ity

. And for lender s, Section 50 presc ribed a Dra conian

conseque nce of noncompliance , whether intentional or inadver tent: not mere ly the loss of the rig ht

of forced sale of the hom estea d, but forf eiture of all principal and interest. On October 7, 1998, 1 8



## sever al m o nths afte r t he amendment to Section 50 took eff ect, four s tate reg ulatory ag encie s with
authority over lender s jointly issued a Regulatory C o mm entar y on Equity Lending Procedure s

. 1 9


## Noting that the details “[i] nhere nt in an issue as complex as home equity ” lending had not been and

could not be “fully addre ssed within the text of the amendment” to Section 50, the ag encie s soug ht

to “provide g uidance to lender s and consumers conce rning the reg ulatory views of the meaning and

T E X

. C O N S T

. a r t

. X V I , § 1 ( p r o p o s e d c o n s t i t u t i o n a l a m e n d m e n t s )

. 16

E x i g e n c y s u p p l a n t e d w i s d o m

. S e e M ’ C u l l o c h v

. M a r y l a n d , 1 7 U

. S

. ( 4 W h e a t

. ) 3 1 6 , 4 0 7 ( 1 8 1 9 ) ( “ A 17

c o n s t i t u t i o n , t o c o n t a i n a n a c c u r a t e d e t a i l o f a l l t h e s u b d i v i s i o n s o f w h i c h i t s g r e a t p o w e r s w i l l a d m i t , a n d o f a l l t h e m e a n s b y w h i c h t h e y m a y b e c a r r i e d i n t o e x e c u t i o n , w o u l d p a r t a k e o f t h e p r o l i x i t y o f a l e g a l c o d e , a n d c o u l d s c a r c e l y b e
e m b r a c e d b y t h e h u m a n m i n d

. I t w o u l d , p r o b a b l y , n e v e r b e u n d e r s t o o d b y t h e p u b l i c

. I t s n a t u r e , t h e r e f o r e , r e q u i r e s , t h a t

o n l y i t s g r e a t o u t l i n e s s h o u l d b e m a r k e d , i t s i m p o r t a n t o b j e c t s d e s i g n a t e d , a n d t h e m i n o r i n g r e d i e n t s w h i c h c o m p o s e t h o s e
o b j e c t s , b e d e d u c e d f

r o m t h e n a t u r e o f t h e o b j e c t s t h e m s e l v e s

. ” ) ; E x p a r t e D a v i s , 5 7 4 S

. W

. 2 d 1 6 6 , 1 6 9 n

. 4 ( T e x

. C r i m

. A p p

. 1 9 7 8 ) ( “ P r o c e d u r a l d e t a i l s s h o u l d n o t b e w r i t t e n i n t o c o n s t i t u t i o n s , b u t s t a t e c o n s t i t u t i o n s s h o u l d p r o v i d e f o r

r e a s o n a b l e p r o c e d u r a l r e g u l a t i o n s b y l e g i s l a t i v e e n a c t m e n t

. ” )

.

T e x

. H

. R

. J

. R e s

. 3 1 , § 1 , 7 5 t h L e g

. , R

. S

. , 1 9 9 7 T e x

. G e n

. L a w s 6 7 3 9 , 6 7 4 1 ( p r o p o s i n g T E X

. C O N S T

. a r t

. X V I , 18 § 5 0 ( a ) ( 6 ) ( Q ) ( x ) , s t a t i n g t h a t “ t h e l e n d e r

. . . s h a l l f o r f e i t a l l p r i n c i p a l a n d i n t e r e s t

. . . i f t h e l e n d e r

. . . f a i l s t o c o m p l y

w i t h t h e l e n d e r ’ s

. . . o b l i g a t i o n s

. . . w i t h i n a r e a s o n a b l e t i m e a f t e r t h e l e n d e r

. . . i s n o t i f i e d b y t h e b o r r o w e r o f t h e l e n d e r ’ s f

a i l u r e t o c o m p l y ” )

.

O F F IC E O F C O N S U M E R C R E D IT C O M M ’ R E T A L

. , R E G U L A T O R Y C O M M E N T A R Y O N E Q U IT Y L E N D IN G 19
P R O C E D U R E S 1 ( O c t

. 7 , 1 9 9 8 ) [ h e r e i n a f t e r R e g u l a t o r

y C o m m e n t a r

y ] , a v a i l a b l e a t h t t p : / / w w w

. f c

. s t a t e

. t x

. u s / h o m e i n f

o / h o m e q 2

. p d f a n d h t t p : / / w w w

. o c c c

. s t a t e

. t x

. u s / p a g e s / L e g a l / c o m m e n t a r y

. h t m ( l a s t v i s i t e d J u n e 1 7 , 2 0 1 3 )

.


### 5

## eff

ect” of the amendment. But the ag encie s war ned that “a court may or m ay n o t d ef er to this 2 0


## interpre tation.” 2 1



## A few wee ks later, the Attorney Gene ral wrote in an opinion that “the amendment has g iven
rise to numerous que stions reg arding its construction” and

does not aut h o ri ze the leg islature to enac t g ener al implementing leg islation or empower a state ag ency to adopt interpre tive rules. Consequently , the state is fac ed with an environment of uncer tainty as to how lender s, builders, insurers, borrowe rs, and other s may

proper ly neg otiate enf

orce able home e quity

loans. 2 2



## Fur thermore , the Attorney

Gene ral c ontinued,
[t ]he L eg islature has no authority to interpre t or decla re a matter of constitutional construction, nor may it deleg ate such authority to an administrative ag ency

. To do so, absent express constitutional authorization, would be to usurp the power s of the judiciary in violation of the separ ation of power s principles set out in article I I , section 1 of the Texas Constit ution.

. . . [ A] s section 50 now stands, neither the leg islature nor any state ag ency has the power to decla re definitively what it means. The ultimate power to construe constitutional provisions lies solely with the courts. 2 3



## “As a rule, court decisions apply retrospe ctively ,” and thus a lender fac ed the prospec t that its loans 2 4



## could be forf

eited long afte r they wer e made, based on judicial decisions in case s in which it was not

I d

. a t 1

. 20

I d

. S e e S t r i n g e r v

. C e n d a n t M o r t g

. C o r p

. , 2 3 S

. W

. 3 d 3 5 3 , 3 5 7 ( T e x

. 2 0 0 0 ) ( n o t i n g t h a t t h e R e g u l a t o r y 21 C o m m e n t a r

y “ i s a d v i s o r y a n d n o t a u t h o r i t a t i v e ” )

.

T e x

. A t t ’ y G e n

. O p

. N o

. D M

- 4 9 5 ( 1 9 9 8 )

. 22

I d

. ( i n t e r n a l q u o t a t i o n m a r k s a n d f o o t n o t e s o m i t t e d )

. S e e C i t y o f D a l l a s v

. S t e w a r t , 3 6 1 S

. W

. 3 d 5 6 2 , 5 6 8 23 ( T e x

. 2 0 1 2 ) ( “ A g e n c i e s , w e h a v e h e l d , l a c k t h e u l t i m a t e p o w e r o f c o n s t i t u t i o n a l c o n s t r u c t i o n

. ” ) ( c i t i n g C e n t

. P o w e r & L i g h t C o

. v

. S h a r

p , 9 6 0 S

. W

. 2 d 6 1 7 , 6 1 8 ( T e x

. 1 9 9 7 ) )

.

C e n t e x H o m e s v

. B u e c h e r , 9 5 S

. W

. 3 d 2 6 6 , 2 7 7 ( T e x

. 2 0 0 2 )

. 24



### 6

## even involved. The risk was understanda bly viewe d as having a dampening eff ect on the home
equity lending marke t.

To solve the problem, the Attorney Gene ral advised that “the constitution could be amende d

t o give to an executive ag ency judicial-ty pe interpre tive power s with respe ct to the home equit y

am en d m en t

. ” Consequently , in 2003 the L eg islature proposed, and the people adopted, S ection

2 5


## 50(u), whic h states:

The leg islature may by statute deleg ate one or more state ag encie s the power to interpre t Subsections (a) (5 )- (a )( 7 ), (e) -(p) , and (t), of this section. An act or omission does not violate a provision included in those subsectio ns if the act or omission conforms to an interpre tation of the provision that is:
(1) in effe ct at the time of the act or omission; and
(2) made by a state ag ency to which the power of interpre tat i o n is deleg ated as provided by this subsec tion or by an appe llate court of this state or the United States. 2 6



## The ref ere nced subsections which the leg islatively desig nated state ag encie s are empower ed to
interpre t contain essentially all t h e p ro v i s ions g overning home equity lending

. Thus, the first

sentenc e addre sses the perc eived need for a less cumber some interpre tative proce ss than t hat

aff orded by litigation. The second sentenc e cre ates a safe harbor for l enders, relieving them of

T e x

. A t t ’ y G e n

. O p

. N o

. D M

- 4 9 5

. T h e A t t o r n e y G e n e r a l a d d e d : “ W e d o n o t a d v i s e y o u o n t h e w i s d o m o f 25
t h i s o r a n y o t h e r p a r t i c u l a r a c t i o n

. ”

T e x

. S

. J

. R e s

. 4 2 , 7 8 t h L e g

. , R

. S

. , 2 0 0 3 T e x

. G e n

. L a w s 6 2 1 9 , 6 2 2 5 ( a d o p t e d a t t h e g e n e r a l e l e c t i o n o n S e p t

. 26 1 3 , 2 0 0 3 , b y a v o t e o f

8 6 2 , 0 0 9 t o 4 5 5 , 7 0 7 )

. T h e a m e n d m e n t a l s o a d d e d S e c t i o n 5 0 ( a ) ( 6 ) ( Q ) ( x ) ( a )

- ( f ) , 2 0 0 3 T e x

. G e n

. L a w s a t 6 2 2 2 , s p e c i f

y i n g w a y s i n w h i c h l e n d e r s c a n r e c t i f y n o n c o m p l i a n c e a f

t e r t h e f a c t a n d s o a v o i d f

o r f e i t u r e o f p r i n c i p a l a n d i n t e r e s t

. V e r y g e n e r a l l y , r e c t i f i c a t i o n m a y r e q u i r e r e p a y m e n t o f o v e r c h a r g e s , r e d u c t i o n i n t h e a m o u n t o f
t h e l i e n , m o d i f

i c a t i o n o f t e r m s , d e l i v e r y o f d o c u m e n t s r e q u i r e d t o b e f u r n i s h e d , a b a t e m e n t o f i n t e r e s t a n d o t h e r
o b l i g a t i o n s , a n d a $ 1 , 0 0 0 c r e d i t w i t h a n o f f e r t o r e f i n a n c e o n t h e s a m e t e r m s a t n o c o s t

. T E X

. C O N S T

. a r t

. X V I , § 5 0 ( a ) ( 6 ) ( Q ) ( x ) ( a )

- ( f

)

.


### 7

## liability for any constitut i o n al v i o lations as long as ag ency interpre tations are followed. But 2 7


## importantly , i t does so not mere ly by excusing a violation; it states t hat no violation even occur s.

A lender ’s compliance with a n ag ency interpre tation of Section 50, even a wrong interpre tation, is
compliance with Section 50 itself.

I n anticipation of the people’ s adoption of the 2003 amendments, the L eg islature deleg ated
interpre tative authority under Section 50(u) t o t h e Fi n ance Commi ssion and the Credit Union

Commi ssion (“the Commissions ”), subjec t to the Administ rative Proc edure Act. By statute: 2 8



## The finance c ommissi on is responsible for ove rsee ing and coordinating the Texas Depa

rtment o f Ba n k ing, the Depa rtment of S aving s and Mortgag e L ending , and the Offic e of Consumer Credit Commi ssioner and serve s as the primary point of

acc ountability for ensuring that state depository and lending instit utions function as
a sy stem, considering the broad scope of the financ ial service s industry

. The financ e commission is the policy -making b o dy for those financ e ag encie s and is not a separ ate state ag ency

. The financ e commiss i o n s h all car ry out its functions in a
manner that protec ts consumer interests, maintains a safe and sound banking sy stem, and incr ease s the ec onomic prosper ity of the state. 2 9

F o l l o w i n g j u d i c i a l i n t e r p r e t a t i o n s a l s o i n s u l a t e s l e n d e r s f r o m l i a b i l i t y , b u t t h a t a s p e c t o f t h e p r o v i s i o n i s n o t 27

a t i s s u e i n t h i s c a s e

.

A c t o f M a y 2 5 , 2 0 0 3 , 7 8 t h L e g

. , R

. S

. , c h

. 1 2 0 7 , 2 0 0 3 T e x

. G e n

. L a w s 3 4 2 7 ( e f f e c t i v e S e p t

. 1 3 , 2 0 0 3 ) , 28

e n a c t i n g T E X

. F IN

. C O D E § § 1 1

. 3 0 8 & 1 5

. 4 1 3

.

S e c t i o n 1 1

. 3 0 8 s t a t e s : “ T h e f i n a n c e c o m m i s s i o n m a y , o n r e q u e s t o f a n i n t e r e s t e d p e r s o n o r o n i t s o w n m o t i o n , i s s u e i n t e r p r e t a t i o n s o f S e c t i o n s 5 0 ( a ) ( 5 )

- ( 7 ) , ( e )

- ( p ) , ( t ) , a n d ( u ) , A r t i c l e X V I , T e x a s C o n s t i t u t i o n

. A n i n t e r p r e t a t i o n

u n d e r t h i s s e c t i o n i s s u b j e c t t o C h a p t e r 2 0 0 1 , G o v e r n m e n t C o d e [ t h e A d m i n i s t r a t i v e P r o c e d u r e A c t ] , a n d i s a p p l i c a b l e t o a l l l e n d e r s a u t h o r i z e d t o m a k e e x t e n s i o n s o f c r e d i t u n d e r S e c t i o n 5 0 ( a ) ( 6 ) , A r t i c l e X V I , T e x a s C o n s t i t u t i o n , e x c e p t l e n d e r s r e g u l a t e d b y t h e C r e d i t U n i o n C o m m i s s i o n

. T h e f i n a n c e c o m m i s s i o n a n d t h e C r e d i t U n i o n C o m m i s s i o n s h a l l

a t t e m p t t o a d o p t i n t e r p r e t a t i o n s t h a t a r e a s c o n s i s t e n t a s f e a s i b l e o r s h a l l s t a t e j u s t i f i c a t i o n f o r a n y i n c o n s i s t e n c y

. ”

S i m i l a r l y , S e c t i o n 1 5

. 4 1 3 s t a t e s : “ T h e c o m m i s s i o n m a y , o n r e q u e s t o f a n i n t e r e s t e d p e r s o n o r o n i t s o w n m o t i o n , i s s u e i n t e r p r e t a t i o n s o f S e c t i o n s 5 0 ( a ) ( 5 )

- ( 7 ) , ( e )

- ( p ) , ( t ) , a n d ( u ) , A r t i c l e X V I , T e x a s C o n s t i t u t i o n

. A n i n t e r p r e t a t i o n

u n d e r t h i s s e c t i o n i s s u b j e c t t o C h a p t e r 2 0 0 1 , G o v e r n m e n t C o d e , a n d i s a p p l i c a b l e t o l e n d e r s r e g u l a t e d b y t h e
c o m m i s s i o n

. T h e F i n a n c e C o m m i s s i o n o f T e x a s a n d t h e c o m m i s s i o n s h a l l a t t e m p t t o a d o p t i n t e r p r e t a t i o n s t h a t a r e a s
c o n s i s t e n t a s f

e a s i b l e o r s h a l l s t a t e j u s t i f i c a t i o n f o r a n y i n c o n s i s t e n c y

. ”

T E X

. F IN

. C O D E § 1 1

. 0 0 2 ( a )

. 29



### 8

## The Credit Union Commi ssion, toge ther with its C o m m i s s i oner and the employ ees of the Credit

Union Depa

rtment, is responsible for “super vis[ ing] and reg ulat[i ng ] cre dit unions”. The Financ e 3 0



## Commi ssion and the Credit Union Commi ssion have eleve n and nine members, respe ctively , all
appointed by the Gover

nor with the advice and consent of the Senate, each fo r a s i x -y ear term. 3 1



## Both Commi ssions have g ener al rule-ma king power apar t from their deleg ated authority to interpre t

Section 50. 3 2



## The Commi ssions quickly published proposed interpre tations g ener ally following the
Regulatory Commentary , invited public comment, conducte d a pub lic hear ing, and issued final

i n t erpr etations eff

ective J anuar

y 8, 2004. Three wee ks later, six homeowner s (“th e

3 3



## Homeowne rs”) broug h t t h i s action ag ainst the Commi ssions, challeng ing sever al of the 3 4


## interpre tations. The Texas Ba nkers Ass o ci ation (the “TB A”) intervene d. By final summary

I d

. § § 1 5

. 1 0 1

- . 1 0 2

. 30

I d

. § § 1 1

. 1 0 1 ( a )

- ( b ) , 1 5

. 2 0 1 ( a )

- ( b )

. 31

I d

. § § 1 1

. 3 0 1 , 1 1

. 3 0 2 , 1 1

. 3 0 4 , 1 1

. 3 0 6 , 1 1

. 3 0 7 , 1 1

. 3 0 9 , 1 5

. 4 0 2 , 1 5

. 4 0 2 2 , 1 5

. 4 0 2 4 , 1 5

. 5 0 1

. 32

7 T E X

. A D M IN

. C O D E § § 1 5 3

. 1

- . 9 6

. I n t e r p r e t a t i o n s w e r e p u b l i s h e d N o v e m b e r 7 , 2 0 0 3 , a n d a d o p t e d D e c e m b e r 33 1 9 , 2 0 0 3

. 2 8 T e x

. R e g

. 9 6 5 6

- 9 6 5 3 ( 2 0 0 3 ) , 2 9 T e x

. R e g

. 8 4

- 9 6 ( 2 0 0 4 )

.

T h e H o m e o w n e r s a r e V a l e r i e N o r w o o d , E l i s e S h o w s , M a r y a n n R o b l e s
- V a l d e z , B o b b y M a r t i n , P a m e l a 3 4 C o o p e r , a n d C a r l o s R i v a s

. T h e o t h e r o r i g i n a l p l a i n t i f f , A s s o c i a t i o n o f

C o m m u n i t y O r g a n i z a t i o n s f o r R e f o r m N o w , h a s

w i t h d r a w n f

r o m t h e c a s e

.


### 9

## judgme nt, the trial court invalidated many of the interpre t at ions. A divided court of appea ls 3 5



## aff irmed in part a

nd reve rsed in par

t. 3 6



## As the case comes to us, the substantive disputes over the Commi ssions’ interpre tations have

been w innowed to three :

First : Section 50(a) (6)( E) caps “fe es to any person that are nece ssary to orig inate, evalua te,
maintain, rec ord, insure, or service the extension of cre dit” at three perc ent of principal. Fe es do not

include “any interest”. Did the Commi ssions corr ectly g ive “intere st” the same meaning as Section 3 7


## 301.002(a) (4) of the Texas Financ e Code, which includes fee s paid to the lender , there by removing 3 8



## l en d er fees from the cap? The court of appea ls held they did not. The statutory defin i t i o n o f 3 9

T h e c o u r t i n v a l i d a t e d t h e i n t e r p r e t a t i o n d e f i n i n g “ i n t e r e s t ” e x c l u d e d f r o m t h e f

e e c a p i m p o s e d b y S e c t i o n 35 5 0 ( a ) ( 6 ) ( E ) , 7 T E X

. A D M IN

. C O D E § 1 5 3

. 1 ( 1 1 ) , a n d r e l a t e d i n t e r p r e t a t i o n s , i d

. § § 1 5 3

. 5 ( 3 ) , ( 4 ) , ( 6 ) , ( 8 ) , ( 9 ) , a n d ( 1 2 )

. T h e c o u r t d e n i e d t h e H o m e o w n e r s ’ c h a l l e n g e s t o i n t e r p r e t a t i o n s a l l o w i n g m a i l i n g o f c o n s e n t a n d c l o s i n g b y a b o r r o w e r ’ s

a t t o r n e y
- i n
- f

a c t , i d

. § § 1 5 3

. 1 5 ( 2 )

- ( 3 ) , a n d a l l o w i n g a r e b u t t a b l e p r e s u m p t i o n o f t i m e l y d i s c l o s u r e b y m a i l b e f o r e c l o s i n g , i d

. § § 1 5 3

. 5 1 ( 1 ) , ( 3 )

. T h e s e t h r e e r u l i n g s r e m a i n a t i s s u e

. O t h e r i n t e r p r e t a t i o n s i n v a l i d a t e d b y t h e t r i a l c o u r t

— i d

. § § 1 5 3

. 1 2 ( 2 ) , 1 5 3

. 1 3 ( 4 ) , 1 5 3

. 1 8 ( 3 ) , 1 5 3

. 2 0 , 1 5 3

. 2 2 a n d 1 5 3

. 8 4 ( 1 )

— h a v e s i n c e b e e n a m e n d e d o r r e p e a l e d b y t h e C o m m i s s i o n s a n d a r e n o l o n g e r a t i s s u e

. 3 1 T e x

. R e g

. 5 0 8 0

- 5 0 8 5 , 9 0 2 2

- 9 0 2 3 ( 2 0 0 6 ) ; 3 3 T e x

. R e g

. 5 2 9 5

- 5 2 9 7 , 9 0 7 4

- 9 0 7 8 ( 2 0 0 8 )

.

3 0 3 S

. W

. 3 d 4 0 4 ( T e x

. A p p

. – A u s t i n 2 0 1 0 )

. 36

T h e e x c e r p t e d p r o v i s i o n i s s t r u c t u r e d a s f o l l o w s

. S e c t i o n 5 0 ( a ) s t a t e s t h a t a h o m e s t e a d i s p r o t e c t e d f r o m 3 7 f o r c e d s a l e w i t h c e r t a i n e x c e p t i o n s

. O n e e x c e p t i o n i s a h o m e e q u i t y l o a n t h a t m e e t s t h e r e q u i r e m e n t s o f S e c t i o n 5 0 ( a ) ( 6 )

. O n e s u c h r e q u i r e m e n t , i n S e c t i o n 5 0 ( a ) ( 6 ) ( E ) , i s t h a t t h e l o a n “ d o e s n o t r e q u i r e t h e o w n e r o r t h e o w n e r ’ s s p o u s e t o p a y , i n a d d i t i o n t o a n y i n t e r e s t , f e e s t o a n y p e r s o n t h a t a r e n e c e s s a r y t o o r i g i n a t e , e v a l u a t e , m a i n t a i n , r e c o r d , i n s u r e , o r s e r v i c e t h e e x t e n s i o n o f c r e d i t t h a t e x c e e d , i n t h e a g g r e g a t e , t h r e e p e r c e n t o f t h e o r i g i n a l p r i n c i p a l a m o u n t o f t h e e x t e n s i o n o f

c r e d i t [

. ] ”

S e c t i o n § 3 0 1

. 0 0 2 ( a ) ( 4 ) p r o v i d e s : “ I n t h i s s u b t i t l e

. . . ‘ I n t e r e s t ’ m e a n s c o m p e n s a t i o n f o r t h e u s e , f

o r b e a r a n c e , 38

o r d e t e n t i o n o f m o n e y

. T h e t e r m d o e s n o t i n c l u d e t i m e p r i c e d i f f e r e n t i a l , r e g a r d l e s s o f h o w i t i s d e n o m i n a t e d

. T h e t e r m d o e s n o t i n c l u d e c o m p e n s a t i o n o r o t h e r a m o u n t s t h a t a r e d e t e r m i n e d o r s t a t e d b y t h i s c o d e o r o t h e r a p p l i c a b l e l a w n o t t o c o n s t i t u t e i n t e r e s t o r t h a t a r e p e r m i t t e d t o b e c o n t r a c t e d f o r , c h a r g e d , o r r e c e i v e d i n a d d i t i o n t o i n t e r e s t i n c o n n e c t i o n

w i t h a n e x t e n s i o n o f c r e d i t

. ”

7 T E X

. A D M IN

. C O D E § 1 5 3

. 1 ( “ T h e s e w o r d s a n d t e r m s h a v e t h e f o l l o w i n g m e a n i n g s w h e n u s e d i n t h i s s e c t i o n , 39

u n l e s s t h e c o n t e x t i n d i c a t e s o t h e r w i s e :

. . . ( 1 1 ) I n t e r e s t — i n t e r e s t a s d e f i n e d i n t h e T e x a s F i n a n c e C o d e § 3 0 1

. 0 0 2 ( 4 )

a n d a s i n t e r p r e t e d b y t h e c o u r t s

. ” )

. S e e a l s o i d

. § 1 5 3

. 5 ( 3 ) ( “ C h a r g e s t h a t a r e I n t e r e s t

. C h a r g e s a n o w n e r o r a n o w n e r ’ s



### 1 0

## interest, the c ourt rea soned, is as broa d as it is to protec t borrowe rs from usury

. The broa der the 4 0



## conce pt of interest, the g rea ter the protec tion. But “[i] n the home equity lending co n t ex t ,
i ncorpor ating the extremely broad usury definition of interest would defe at the purpose of th e

constitutional provision imposing a fee cap in the first place .” Br oadening “intere st” in Section 4 1


## 50(a) (6)( E) reduc es protec tion. By “exclud[i ng ] basica lly all fee s char g ed by the lender fr o m the
cap” , the court conclude d, “[t] he Commi ssions’ interpre tati o n

. . . essentially rende rs [t he] cap
meaning less . . . contra

ry to the intent and plain meaning of the c onstitut ion.” 4 2



## Second : Section 50(a) (6)( N) provides that a l o an may be “close d only at the office of the

lender , an attorne y

at law, or a title company ”. Acc ording to the Commi ssions: 4 3

s p o u s e i s r e q u i r e d t o p a y t h a t c o n s t i t u t e i n t e r e s t u n d e r t h e l a w , f o r e x a m p l e p e r d i e m i n t e r e s t a n d p o i n t s , a r e n o t f e e s
s u b j e c t t o t h e t h r e e p e r c e n t l i m i t a t i o n

. ” ) ; i d

. § 1 5 3

. 5 ( 4 ) ( “ C h a r g e s t h a t a r e n o t I n t e r e s t

. C h a r g e s a n o w n e r o r a n o w n e r ’ s
s p o u s e i s r e q u i r e d t o p a y t h a t a r e n o t i n t e r e s t a r e f e e s s u b j e c t t o t h e t h r e e p e r c e n t l i m i t a t i o n

. ” ) ; i d

. § 1 5 3

. 5 ( 6 ) ( “ C h a r g e s t o O r i g i n a t e

. C h a r g e s a n o w n e r o r a n o w n e r ’ s s p o u s e i s r e q u i r e d t o p a y t o o r i g i n a t e a n e q u i t y l o a n t h a t a r e n o t i n t e r e s t

a r e f e e s s u b j e c t t o t h e t h r e e p e r c e n t l i m i t a t i o n

. ” ) ; i d

. § 1 5 3

. 5 ( 8 ) ( “ C h a r g e s t o E v a l u a t e

. C h a r g e s a n o w n e r o r a n o w n e r ’ s
s p o u s e i s r e q u i r e d t o p a y t o e v a l u a t e t h e c r e d i t d e c i s i o n f o r a n e q u i t y l o a n , t h a t a r e n o t i n t e r e s t , a r e f e e s s u b j e c t t o t h e t h r e e p e r c e n t l i m i t a t i o n

. E x a m p l e s o f t h e s e c h a r g e s i n c l u d e f e e s c o l l e c t e d t o c o v e r t h e e x p e n s e s o f a c r e d i t r e p o r t , s u r v e y , f l o o d z o n e d e t e r m i n a t i o n , t a x c e r t i f i c a t e , t i t l e r e p o r t , i n s p e c t i o n , o r a p p r a i s a l

. ” ) ; i d

. § 1 5 3

. 5 ( 9 ) ( “ C h a r g e s t o M a i n t a i n

. C h a r g e s p a i d b y a n o w n e r o r a n o w n e r ’ s s p o u s e a t t h e i n c e p t i o n o f a n e q u i t y l o a n t o m a i n t a i n t h e l o a n t h a t a r e n o t i n t e r e s t

a r e f e e s s u b j e c t t o t h e t h r e e p e r c e n t l i m i t a t i o n

. C h a r g e s t h a t a r e n o t i n t e r e s t t h a t a n o w n e r p a y s a t t h e i n c e p t i o n o f a n
e q u i t y l o a n t o m a i n t a i n t h e e q u i t y l o a n , o r t h a t a r e c u s t o m a r i l y p a i d a t t h e i n c e p t i o n o f a n e q u i t y l o a n t o m a i n t a i n t h e
e q u i t y l o a n , b u t a r e d e f e r r e d f o r l a t e r p a y m e n t a f

t e r c l o s i n g , a r e f

e e s s u b j e c t t o t h e t h r e e p e r c e n t l i m i t a t i o n

. ” ) ; i d

. § 1 5 3

. 5 ( 1 2 ) ( “ C h a r g e s t o S e r v i c e

. C h a r g e s p a i d b y a n o w n e r o r a n o w n e r ’ s s p o u s e a t t h e i n c e p t i o n o f a n e q u i t y l o a n f o r

a p a r t y t o s e r v i c e t h e l o a n t h a t a r e n o t i n t e r e s t a r e f e e s s u b j e c t t o t h e t h r e e p e r c e n t l i m i t a t i o n

. C h a r g e s t h a t a r e n o t i n t e r e s t t h a t a n o w n e r p a y s a t t h e i n c e p t i o n o f a n e q u i t y l o a n t o s e r v i c e t h e e q u i t y l o a n , o r t h a t a r e c u s t o m a r i l y p a i d a t t h e i n c e p t i o n o f a n e q u i t y l o a n t o s e r v i c e t h e e q u i t y l o a n , b u t a r e d e f e r r e d f o r l a t e r p a y m e n t a f

t e r c l o s i n g , a r e f

e e s s u b j e c t t o t h e t h r e e p e r c e n t l i m i t a t i o n

. ” )

. T h e R e g u l a t o r y C o m m e n t a r

y h a d s t a t e d : “ T h e w o r d ‘ i n t e r e s t ’ m e a n s i n t e r e s t a s d e f i n e d i n t h e T e x a s C r e d i t T i t l e a n d a s i n t e r p r e t e d b y t h e c o u r t s o f t h e s t a t e o f T e x a s

. ” S u p r a n o t e 1 9 , a t 3

.

3 0 3 S

. W

. 3 d a t 4 1 0 , 4 1 2

. 40

I d

. a t 4 1 1

. 41

I d

. a t 4 1 2

. 42

T h i s i s r e q u i r e d f

o r a h o m e e q u i t y l o a n t o f a l l w i t h i n t h e S e c t i o n 5 0 ( a ) ( 6 ) e x c e p t i o n

. 43



### 1 1

## This provision was intended to prohibit the coer cive closing of an equity loan at the

home of the owner. The re quirement that the c losing oc cur at the phy sical address of the lender , attorney , or title company eliminates the p o s s i b i lity of the closing

occur ring at the residenc e of the owner , and also eliminates confusion on the part of the owner who wishes to re scind an e quity loan. 4 4



## Neve rtheless, the Commissions i nterpre ted this provision to allow a borrowe r t o mail a lender the
require d consent to having a l i en place d on his homestead and to attend closing throug h his 4 5



## attorney -in-fa ct. Was this corr ect? The court of appea ls held it was, rea soning that when Section 4 6 4 7



## 50 prohibits the use of a power of attorney , it does so expressly — as in Section 50(a) (6)( Q)(iv) , to

fac ilitate obtaining a

judgme nt ag ainst a debtor. 4 8



## The use of power s of attorney to desig nate an attorney -in-fa ct to act on the desig nor’s behalf is a re cog nized principle of Te x as law. A s a re sult, it is neither inconsistent with the consti tution nor impermissibl e rule making for the Commissions to clar ify that this principle continues to apply in the context of home equity l o an cl o s ings, particula rly wher e the draf

ters expressly prohibited the use of power s of attorney in other home e quity

lending contexts, but not with reg ard to c losing the loa n. 4 9

2 9 T e x

. R e g

. 8 4 , 9 0 ( 2 0 0 4 )

. 44

7 T E X

. A D M IN

. C O D E § 1 5 3

. 1 5 ( 3 ) ( “ A l e n d e r m a y r e c e i v e c o n s e n t r e q u i r e d u n d e r S e c t i o n 5 0 ( a ) ( 6 ) ( A ) b y m a i l 45

o r o t h e r d e l i v e r y o f t h e p a r t y ’ s s i g n a t u r e t o a n a u t h o r i z e d p h y s i c a l l o c a t i o n a n d n o t t h e h o m e s t e a d

. ” )

. T h e C o n s t i t u t i o n , a t a r t

. X V I , S e c t i o n 5 0 ( a ) ( 6 ) ( A ) , p r o v i d e s t h a t a v a l i d v o l u n t a r y l i e n s e c u r i n g a h o m e e q u i t y l o a n c a n b e c r e a t e d o n l y

“ u n d e r a w r i t t e n a g r e e m e n t w i t h t h e c o n s e n t o f e a c h o w n e r a n d e a c h o w n e r ’ s s p o u s e ”

.

7 T E X

. A D M IN

. C O D E § 1 5 3

. 1 5 ( 2 ) ( “ A l e n d e r m a y a c c e p t a p r o p e r l y e x e c u t e d p o w e r o f a t t o r n e y a l l o w i n g t h e 46

a t t o r n e y
- i n
- f

a c t t o e x e c u t e c l o s i n g d o c u m e n t s o n b e h a l f o f t h e o w n e r

. ” )

.

T h e R e g u l a t o r

y C o m m e n t a r

y h a d s t a t e d : “ I f t h e t r a n s a c t i o n i s c l o s e d a t o n e o f [ t h e o f f i c e s s p e c i f

i e d i n S e c t i o n 47 5 0 ] , b u t l a c k s t h e c o n s e n t o f a s p o u s e o r o t h e r p a r t y , i t i s p e r m i s s i b l e t o o b t a i n t h a t i n d i v i d u a l ’ s c o n s e n t b y m a i l

. A p r o p e r l y e x e c u t e d p o w e r o f a t t o r n e y i s a c c e p t a b l e f o r d e s i g n a t i n g a n i n d i v i d u a l t o c l o s e t h e l o a n o n b e h a l f o f t h e o w n e r

. ” S u p r a n o t e 1 9 , a t 7

.

A n o t h e r r e q u i r e m e n t a h o m e e q u i t y l o a n m u s t s a t i s f y t o c o m e w i t h i n t h e S e c t i o n 5 0 ( a ) ( 6 ) e x c e p t i o n i s t h a t 48

“ t h e o w n e r o f t h e h o m e s t e a d n o t s i g n a c o n f e s s i o n o f j u d g m e n t o r p o w e r o f a t t o r n e y t o t h e l e n d e r o r t o a t h i r d p e r s o n t o c o n f e s s j u d g m e n t o r t o a p p e a r f o r t h e o w n e r i n a j u d i c i a l p r o c e e d i n g ”

. T E X

. C O N S T

. a r t

. X V I , § 5 0 ( a ) ( 6 ) ( Q ) ( i v )

.

3 0 3 S

. W

. 3 d a t 4 1 7 ( c i t a t i o n s o m i t t e d )

. 49



### 1 2

## Fur

ther, the court conclude d, al l owing a borrowe r to mail documents to a lender was not

unrea sonable. 5 0



## Third : Section 50(g ) requires that a loan n o t b e closed before the 12t h day afte r t he lender
“provide s” t he borrower the prescribed notice. Did the Commiss ions corre ctly interpre t Section 5 1


## 50(g ) to permit a rebuttable presumption that notice is rec eived, and there fore provided, three day s

afte r it is mailed? The court of appea ls conclude d that “[ t ] h e Commi ssions’ reg ulations mere ly 5 2


## interpre t the appropr iate way to deter mine whether [pr o v is io n o f notice] has occur red and to establish
compliance with the notice require ment. I t is for prec isely t h at t y pe of g uidance that the

Commi ssions were a

uthorized to iss ue interpr etations in the first place .” 5 3



## At the outset, we must d ec i d e t wo jurisdictional issues. First is whether Section 50(u)
deprive s the J udiciary of the power to revie w the Commi ssions’ interpre tations. Concluding that it

does not, we then deter

mine whether , as the dissent arg ues, the Homeowne rs lack standing to asser t

I d

. 50

T h e p r o v i s i o n r e a d s i n r e l e v a n t p a r t : “ A n e x t e n s i o n o f c r e d i t d e s c r i b e d b y S u b s e c t i o n ( a ) ( 6 ) o f t h i s s e c t i o n 51

m a y b e s e c u r e d b y a v a l i d l i e n a g a i n s t h o m e s t e a d p r o p e r t y i f t h e e x t e n s i o n o f c r e d i t i s n o t c l o s e d b e f o r e t h e 1 2 t h d a y a f

t e r t h e l e n d e r p r o v i d e s t h e o w n e r w i t h t h e f o l l o w i n g w r i t t e n n o t i c e o n a s e p a r a t e i n s t r u m e n t

. . . . ”

7 T E X

. A D M IN

. C O D E § 1 5 3

. 5 1 ( 1 ) , ( 3 ) ( “ ( 1 ) I f a l e n d e r m a i l s t h e c o n s u m e r d i s c l o s u r e t o t h e o w n e r , t h e l e n d e r 52

s h a l l a l l o w a r e a s o n a b l e p e r i o d o f t i m e f o r d e l i v e r y

. A p e r i o d o f t h r e e c a l e n d a r d a y s , n o t i n c l u d i n g S u n d a y s a n d f e d e r a l l e g a l p u b l i c h o l i d a y s , c o n s t i t u t e s a r e b u t t a b l e p r e s u m p t i o n f o r s u f f i c i e n t m a i l i n g a n d d e l i v e r y

. . . . ( 3 ) A l e n d e r m a y r e l y
o n a n e s t a b l i s h e d s y s t e m o f v e r i f i a b l e p r o c e d u r e s t o e v i d e n c e c o m p l i a n c e w i t h t h i s s e c t i o n

. ” )

. T h e R e g u l a t o r y C o m m e n t a r

y h a d s t a t e d : “ A l e n d e r s h o u l d e s t a b l i s h v e r i f i a b l e p r o c e d u r e s t o e n s u r e t h a t a n o w n e r r e c e i v e s t h e r e q u i r e d

n o t i c e w i t h i n t h e s p e c i f i e d t i m e f

r a m e

. I f a l e n d e r m a i l s t h e n o t i c e t o t h e o w n e r , t h e l e n d e r s h a l l a l l o w a r e a s o n a b l e p e r i o d o f t i m e f

o r d e l i v e r y

. A t h r e e d a y p e r i o d n o t i n c l u d i n g S u n d a y s a n d l e g a l h o l i d a y s , c o n s t i t u t e s a r e b u t t a b l e p r e s u m p t i o n f

o r s u f f i c i e n t m a i l i n g a n d d e l i v e r y

. ” S u p r a n o t e 1 9 , a t 1 1

.

3 0 3 S

. W

. 3 d a t 4 1 8 ( f

o o t n o t e o m i t t e d )

. 53



### 1 3

## their claims. Finding that the Homeowne rs have standing , we at last turn to eac h of the th ree

substantive challeng es to the Commissi ons’ interpre tations.

II

The Commi ssions’ position on the eff ect of Section 50(u) is not entirely clea r. They contend

in th eir merits brief that Section 50(u) “alter [s] basic separ ation-of- power s principles by e mp o w e r in g

the Commi ssions wi t h d efinit ive interpre tative authority over the meaning of the home equity
lending provisions.” Consequentl y

— t h ey ar gue later in their brief — “judicial revie w of the 5 4


## substance of [t heir] interpretations oug ht to be exceptionally limit ed, if not wholly prohibited.” 5 5



## I n t h e s am e para g raph, howeve r, they asser t that Section 50(u) “plac es the Commi ssions’
interpre tations on equal footing wi t h t h ose issued by courts of appea ls”, which, of course , are 5 6


## subject to non-def

ere ntial, de novo judicial revie w — by the Supreme Court of Texas. I n the next

para g raph, the Commi ssions acknow ledg e that their authority is n o t ex clusive and that courts can
interpre t Section 50, too, and can construe the meaning of the Commi ssions’ interpre tations. The 5 7



## next sentenc e st ates: “Mor eover , courts would still serve the meaning ful function of ensuring that

any interpre tation promulg ated by the Commi ssions actua lly ‘interpr ets’ the Constit ution.” I f the 5 8



## sentenc e mea

ns that a cour

t can de termine that a

n interpre tation actually

misint erpr ets Section 50,

B r i e f o n t h e M e r i t s o f P e t i t i o n e r s F i n a n c e C o m m i s s i o n o f T e x a s a n d C r e d i t U n i o n C o m m i s s i o n o f T e x a s 54 [ h e r e i n a f t e r “ C o m m i s s i o n s ’ B r i e f ” ] 7

.

I d

. a t 1 4

. 55

I d

. 56

I d

. a t 1 4

- 1 5

. 57

I d

. a t 1 5

. 58



### 1 4

## it is not c lear how that differ s from judicial revie w that “oug ht to be

. . . wholly prohibited”; and if

the sentenc e means that courts can do something else that is still meaning ful, it is not clea r what that
is, exactly

. Another sentenc e later, the Commi ssio n s acknowledg e that their interpre tations are
subject to the Administrative Procedur e Act and “could

. . . be challeng ed for failure to substantially
comply with [t he Act ’s] proce dural require ments”. But the Commi ssions never explain why 5 9



## another provision of the Act — that “[t] he validity

. . . of a rule

. . . may be deter mined in an action

for de clar atory

judgme nt” — does not equa lly apply

. Finally , at oral arg ument, counsel for the 6 0 6 1



## Commi ssions stated that “for tunately , it isn’t even ne c e s s a r y to rea ch the question of whether judicial

revie w is totally excluded in this case beca use the Commi ssions’ challeng ed interpre tations satisfy

the ordinar

y defe renc e standa

rd” of revie w that should be applied. 6 2



## On the last point, the law is absolutely clea r. I f Section 50(u) prec ludes judicial revie w, then

the cou rt s h av e n o jurisdiction over the Homeowne rs’ challeng es, and we must dismiss the case

without rea ching the m erits. “W ithout jurisdiction the court cannot procee d at all in any cause ; it

may not assume jurisdiction for the pur pose of de ciding the merits of the c ase.” 6 3

I d

. 59

T E X

. G O V ’ T C O D E § 2 0 0 1

. 0 3 8 ( a )

. “ R u l e ” i s d e f i n e d a s “ a s t a t e a g e n c y s t a t e m e n t o f g e n e r a l a p p l i c a b i l i t y t h a t 60 ( i ) i m p l e m e n t s , i n t e r p r e t s , o r p r e s c r i b e s l a w o r p o l i c y

. . . . ” I d

. § 2 0 0 1

. 0 0 3 ( 6 ) ( A ) ( i )

. T h e p a r t i e s h a v e n o t a r g u e d t h a t t h e C o m m i s s i o n s ’ i n t e r p r e t a t i o n s s h o u l d n o t b e t r e a t e d a s r u l e s f o r p u r p o s e s o f S e c t i o n 2 0 0 1

. 0 3 8

.

T h e C o m m i s s i o n s a r g u e o n l y t h a t t h e H o m e o w n e r s l a c k s t a n d i n g t o b r i n g a d e c l a r a t o r y j u d g m e n t a c t i o n

. S e e 61 C o m m i s s i o n s ’ S u p p l e m e n t a l B r i e f A d d r e s s i n g J u r i s d i c t i o n 4

- 7 ; C o m m i s s i o n s ’ R e s p o n s e B r i e f A d d r e s s i n g J u r i s d i c t i o n 1

.

T r a n s c r i p t o f O r a l A r g u m e n t a t * 2 , F i n

. C o m m ’ n o f T e x a s v

. N o r w o o d , N o

. 1 0

- 0 1 2 1 ( T e x

. a r g u e d S e p t

. 1 3 , 62 2 0 1 1 ) , a v a i l a b l e a t h t t p : / / w w w

. s u p r e m e

. c o u r t s

. s t a t e

. t x

. u s / o r a l a r g u m e n t s / t r a n s c r i p t s / 1 0

- 0 1 2 1

. p d f

.

S i n o c h e m I

n t ’ l C o

. v

. M a l a y s i a I

n t ’ l S h i p p i n g C o r

p

. , 5 4 9 U

. S

. 4 2 2 , 4 3 1 ( 2 0 0 7 ) ( i n t e r n a l q u o t a t i o n m a r k s 63

o m i t t e d ) ( c i t i n g S t e e l C o

. v

. C i t i z e n s f o r B e t t e r E n v ’ t , 5 2 3 U

. S

. 8 3 , 9 4 ( 1 9 9 8 ) )

.



### 1 5

## [ T ] h e d en ial of a claim on the merits is not an alterna tive to dismiss al for want o f

jurisdiction mere ly beca

use t he ult imate result is the s ame because the assertion of jurisdiction “car

ries the c ourts bey ond the bounds of authorized judicial ac tion and thus offends f

undamental pr inciples of sepa ration of powe rs.” 6 4



## We must determine the ef fec t of Section 50(u).

The purpose of Section 50(u), the Commi ss i o n s agre e, was to remove marke t uncer tainty

over the exact mea n i n g of home equity lending provisions. This it did by allowing for 6 5



## administrativ e interpre tations of the provisions and g iving those interpre tations constitutional
authority , equating compliance with them to compliance with the Constit ution itself. J udicial revi ew

of the Commi ssions’ interpre tations does not impair Section 50(u)’ s purpose in the least, but rathe r,

assure s that t h e interpre tations adher e to the meaning of the constitutional provisions. To rea d

Section 50(u) as g iving the Commi ssions interpre tative authority that is absolute and unrevie wable

— as the Commi ssions at times seem to rea d this section — would defe at the purp o s e o f

constitutionaliz ing home equity lending proce dures in the first place : to shield them from political

pressure s in the leg islative and executive dep artments of g overnme nt. The Ex ecutive could

influence i n t er p re tations throug h its power to appoint members of the Commi ssions, and the

L eg islature could exert simil ar influe nce thr oug h statutes g overning the Commiss ions’ functions.

I ndeed, as we will see later, the L eg islature could direc tly alter the meaning of constitutional
provisions by amending statutes u s ed b y t h e Commi ssions to define constitutional terms

—

D a i m l e r C h r

y s l e r C o r

p

. v

. I n m a n , 2 5 2 S

. W

. 3 d 2 9 9 , 3 0 7 ( T e x

. 2 0 0 8 ) ( q u o t i n g S t e e l C o

. , 5 2 3 U

. S

. a t 9 4 )

. 64

C o m m i s s i o n s ’ B r i e f 1 8 ( “ I n d e e d , t h e e n t i r e p u r p o s e o f § 5 0 ( u ) ’ s d e l e g a t i o n o f i n t e r p r e t i v e a u t h o r i t y t o t h e 65 C o m m i s s i o n s w a s t o e n a b l e t h e a g e n c i e s t o c l a r i f y t h e r e s t r i c t i o n s s e t f

o r t h t h r o u g h o u t § 5 0 ( a ) ( 6 ) i n o r d e r t o i n c r e a s e
c e r t a i n t y a n d s p u r h o m e e q u i t y l e n d i n g

. ” )

.


### 1 6

## “intere st”, for example. I nstead of requiring a constitutional amendment t o ch ange home equity

lending proc ed u re s, a constitutional amendment would be require d to chang e the Commi ssions’
interpre tations. Nothing in Section 50(u) or the history of its adoption sug g ests that the fra mers and

ratifier s of the 2003 amendment to Sec tion 50 intended to upe nd the fundame ntal g oal of the 1997

amendment. 6 6



## Moreove r, so expansive a rea ding of Section 50(u) violates the require ment o f Ar t i cl e I I ,
Section 1 that exceptions to the separ ation of power s be expressly stated. Section 50(u) authorizes

the L eg islature to confe r interpre tative authority on desig nated ag encie s, but nothing more. I ndeed,

Section 50(u)( 2) expressly contemplates that the const i tutional provisions will be interpre ted not
only by the age ncies deleg ated that task but by state and fede ral courts as well, extending the safe

harbor to include all interpre tatio n s , admi nistrative and judicial. And as the Commi ssions arg ue,
Section 50(u) se ems to equate administrative i nterpre tations with those of appellate cour ts, which

— except for decisions of the United States Supreme Court — are su b j ec t t o re v i ew. Every
implication of Section 50(u) is that judicial revie w is n o t fo re cl o s ed, and that seems to be the

L egis l at u re’s understanding in subjecting the Commi ssions’ interpre tations to the Administrative

Procedur e Ac t, which provides f or judicial re view.

Acco rdi ng ly , we conclude that the C ommissi ons’ i nterpre tations of S ection 50 are subject
to judicial review

.

S e a r s v

. B a y o u d , 7 8 6 S

. W

. 2 d 2 4 8 , 2 5 1 ( T e x

. 1 9 9 0 ) ( “ [ I ] n c o n s t r u i n g a c o n s t i t u t i o n a l p r o v i s i o n , t h i s C o u r t 66 h a s a l w a y s g i v e n e f

f e c t t o t h e i n t e n t i o n o f t h e f r a m e r s a n d r a t i f

i e r s o f t h e p r o v i s i o n

. ” )

.


### 1 7

## III

I n the trial court and court of appea ls, and in the initial briefing and arg ument in this Court,

neither the Commi ssions nor the TBA sug g ested that the Homeowne rs lacke d standing to sue, and

the lower courts never raised the issue themselves. But afte r oral arg ument, the Court direc ted the
parties to brief the subject. Be cause standing is require d for subject-matter jurisdiction, it can be

— and if in doubt, must be — raised by a cour t on its own at any

time. 6 7


## Standing and other conce pts of justiciabilit y have been “deve loped to identify appropr iate 6 8



## occa sions for judicial action” and thus maintain the proper separ ation of g overnme ntal power s. As 6 9



## J ustice Fr ankfur

ter observe d, “[w]hether ‘justiciability ’ exis t s

. . . has most often turned on

evalua ting both the appropr iateness of the issues for decision by courts and the hardship of deny ing
judicial relief

.” We have e x plained the doc trine of standing as follows: 7 0



## The re quirement in this State that a plaintiff ha ve standing to assert a claim derive s from the Texas Constit ution’s separ ation of power s among the depar tments of g overnme nt, which denies the judiciary authority to decide issues in the abstrac t, and from the Open Courts provision, which provides court acc ess only to a “per son for an injury done him”. A court has no jurisdiction over a claim made by a plaintiff without standing to asser

t it. For standing , a plaintiff must be persona lly ag g rieve d; his alleg ed injury must be concr ete and particula rized, actua l o r i m m i nent, not hy pothetical. 7 1

T e x

. A s s ’ n o

f B u s

. v

. T

e x

. A i r C o n t r o l B d

. , 8 5 2 S

. W

. 2 d 4 4 0 , 4 4 5

- 4 4 6 ( T e x

. 1 9 9 3 )

. 67

“ T h e c e n t r a l c o n c e p t s o f t e n a r e e l a b o r a t e d i n t o m o r e s p e c i f i c c a t e g o r i e s o f j u s t i c i a b i l i t y

— – a d v i s o r y 68

o p i n i o n s , f

e i g n e d a n d c o l l u s i v e c a s e s , s t a n d i n g , r i p e n e s s , m o o t n e s s , p o l i t i c a l q u e s t i o n s , a n d a d m i n i s t r a t i v e q u e s t i o n s

. ” 1 3 C H A R L E S A L A N W R IG H T , E T A L

. , F E D E R A L P R A C T IC E A N D P R O C E D U R E § 3 5 2 9 ( 3 d e d

. 2 0 0 8 )

.

I d

. 69

J o i n t A n t i

- F a s c i s t R e

f u g e e C o m m

. v

. M c G r a t h , 3 4 1 U

. S

. 1 2 3 , 1 5 6 ( 1 9 5 1 ) ( F r a n k f u r t e r , J

. , c o n c u r r i n g )

. 70

D a i m l e r C h r

y s l e r C o r

p

. v

. I n m a n , 2 5 2 S

. W

. 3 d 2 9 9 , 3 0 4

- 3 0 5 ( T e x

. 2 0 0 8 )

. 71



### 1 8

## “Ge nera lly ”, we rec ently wrote in Andrade v. NAACP of Austin , “a citizen lacks standing to
bring a lawsuit challeng ing the lawfulne ss of go vernme ntal acts.” But we added, “[t] he line 7 2



## betwee n a g ener alized g rieva nce and a particula

rized harm is difficult to draw , and it varies with the

claims made .” “[T] he prope r inquiry ”, we stated, “is whether the plaintiffs sue solely as citizens

7 3


## who insist that the gove rnment follow the law .” 7 4



## Andrade illust rate s that whether an injury is sufficie ntly “conc rete ”, “par ticularized”, “ac tual

or i mminent”, and “not hy pothetical” for standing depends on the context in which the claim is

asser ted. There , reg istered voters sued the Secre tary of State, asser ting that s h e ex cee ded her
authority in cer

tify ing the use of elec tronic voting machines that do not produce a contempora neous

paper rec ord of eac h vote. The plaintiffs alleg ed that the machines we re susceptible to being 7 5



## fra udulently manipulated and prone to malfunction, and that the lack of a paper rec ord of eac h vote,

made t h e moment the vote was cast, preve nted a deter mination whether the votes counted by the

machines wer e ac tually those that wer e cast. They complained that beca use t hey wer e forced to 7 6



## use the m ac h i n es while other voters wer e not, and their votes wer e less likely to be counted than
others’, their statutory rig ht to a rec ount and their constitutional rig ht to equal protec tion of the law

3 4 5 S

. W

. 3 d 1 , 7 ( T e x

. 2 0 1 1 )

. 72

I d

. a t 8 ( e m p h a s i s a d d e d )

. 73

I d

. 74

I d

. a t 6

. 75

I d

. a t 6 , 1 0

. 76



### 1 9

## was violated. Rely ing on the United States Supreme Court’s seminal decision in Bake r v. Carr , 7 7 7 8



## we c oncluded:

I f such impairment does produce a leg ally co gnizable injury , [t he plaintiffs] are among those who have sustained it. Be cause they asser t a plain, direc t and adequate interest in maintaining the eff ec t iveness of their votes, not mere ly a claim of the rig ht, possessed by ever

y citizen, to require th at the Gover nment be administered

acc ording to law, the voter s have standing to pursue their e qual protec tion claim. 7 9



## We noted that our analy sis could be differ ent for equal- protec tion complaints unrela ted to voting. 8 0



## I n the prese nt case , a unique consideration in deter mining the Homeowne rs’ standing is the

safe -har bor provision in Section 50(u), by which a home equity lender ’s conduct in compliance with

the Commi ssions’ interpre tations does not violate Se c ti o n 50 and there fore cannot injure a borrowe r.

For example, a lender may char g e fee s permitted by the Commi ssions’ in t erpretation of the

constitutional cap, even if the interpre tation is incorre ct, and the borrowe r is not only denied redr ess,

he has not even be en overcha rg ed. Even if the C ommissi ons’ i nterpre tations are later determined

to be wrong , they s t i l l , whi le in eff ect, substitut e for Section 50’s provisions. A home equity 8 1



## borrowe r cannot be injured by a lender ’s compliance with the Commi ssions’ interpre tations beca use
nothing illega l has occur

red. To have complied with the interpre tations is to have complied with the

Constit ution its elf.

I d

. 77

3 6 9 U

. S

. 1 8 6 , 2 0 7

- 2 0 8 ( 1 9 6 2 )

. 78

A n d r a d e v

. N

A A C P o f A u s t i n , 3 4 5 S

. W

. 3 d 1 , 6 , 1 0 ( T e x

. 2 0 1 1 ) ( i n t e r n a l q u o t a t i o n m a r k s o m i t t e d )

. 79

I d

. ( c i t i n g T

e x

. D e p ’ t

. o f T r a n s p

. v

. C i t y o f S u n s e t V

a l l e y , 1 4 6 S

. W

. 3 d 6 3 7 , 6 4 6

- 6 4 7 ( T e x

. 2 0 0 4 ) )

. 80

W e d o n o t c o n s i d e r t h e e f f e c t o f a n i n t e r p r e t a t i o n a d o p t e d i n v i o l a t i o n o f p r o c e d u r a l r e q u i r e m e n t s

. 81



### 2 0

## I njury lies only in the Commi ssions’ misint erpr etation of Section 50, and then only to a

person’ s interest in obtaining a home e quity loan in the future . To return to the fee example, onc e

a loan has closed and the fee s have been paid acc ording to the Commi ssio n s ’ i n t er p re t ations, no
injury has occur

red. I njury can exis t only in the prospec t of having to pay fee s that, though permitted
by the interpre tations, are e x cessive unde r Section 50.

Were this injury insufficient to confe r stand i n g t o challeng e the Commi ssions’
interpre tations, their authority to interpre t Section 50 would be final and absolute, not mere ly share d

with the J udici ar y

. Bu t the principle of st anding exis ts to protec t the s epar ation of powers, not to

defe at it. Standing opera

tes to preve nt the J udiciary from exercising authority that belong s to other
depar tments of g overnme nt, not to deprive the J udiciary o f its role in interpre ting law, espec ially

constitutional law. The requireme nt of standing cannot be used to alter the separ ation of powe rs.
And in any

event, we have c oncluded that the Commissions’ authority is not absolute.

I t follows that injury to the interest in obtaining a home equity loan resulting from the

Commi ssions’ alleg ed misint erpr etations of Section 50 is sufficie nt for standing

. The parties ag ree
(thoug h the Commi ssions still do not conce de that thei r i n terpre tations are subject to judicial

revie w). They disag ree only over whether the Homeowne rs have sufficie ntly pleade d the requisite

8 2



## interest. The Homeowners a lleg ed in their plea dings tha t eac h “took out a home equity loan” and

T h e C o m m i s s i o n s ’ R e s p o n s e B r i e f A d d r e s s i n g J u r i s d i c t i o n 1 ( s t a t i n g t h a t a n “ i n t e n [ t ] t o a c q u i r e a n a d d i t i o n a l 82 h o m e e q u i t y l o a n

. . . i s a l l t h a t i s r e q u i r e d t o e s t a b l i s h s t a n d i n g i n t h i s c a s e ” ) ; T e x a s B a n k e r s A s s o c i a t i o n ’ s P o s t

S u b m i s s i o n R e s p o n s e B r i e f 6 ( “ T h i s C o u r t s h o u l d h o l d t h a t , a s T e x a s h o m e o w n e r s e l i g i b l e t o o b t a i n f u t u r e h o m e e q u i t y f i n a n c i n g , t h e H o m e o w n e r s h a v e s t a n d i n g t o c h a l l e n g e t h e C o m m i s s i o n s ’ i n t e r p r e t a t i v e r u l e s

. ” ) ; H o m e o w n e r s ’ R e s p o n s e t o S u p p l e m e n t a l B r i e f o n J u r i s d i c t i o n 1 ( “ A l l p a r t i e s a g r e e t h a t i f [ H o m e o w n e r s ] h a v e a n i n t e r e s t i n o b t a i n i n g a h o m e
e q u i t y l o a n i n t h e f

u t u r e , t h e y h a v e s t a n d i n g

. . . . ” )

.


### 2 1

## that the Commi ssions “have adopted interpre tations and rules in violation of the Texas Constit ution

which interfe re with or impair, or threa ten to interfe re with or impair, a leg al rig ht or privile ge of

Plaintiff s

. ” The Commi ssions arg ue that “[a]dding one simple alleg ation

. . . should suffice to 8 3



## establish jurisdiction:

. . . an intent to acquir e an additional home equity loan.” The Homeowne rs 8 4


## respond that t h ei r p ro spective interest in home equity loans, sufficie nt for standing , is implicit in

their pleading s, liberally construed as they must be when standing is que stioned for the first time 8 5


## by an appe llate cour

t. The TB A ag ree s. 8 6 8 7

T h e C o m m i s s i o n s ’ a u t h o r i t y t o i n t e r p r e t S e c t i o n 5 0 i s s u b j e c t , u n d e r T E X

. F IN

. C O D E § § 1 1

. 3 0 8 & 1 5

. 4 1 3 , 83
t o t h e A d m i n i s t r a t i v e P r o c e d u r e A c t , w h i c h p e r m i t s j u d i c i a l r e v i e w o f a r u l e a d o p t e d b y a s t a t e a g e n c y “ i f i t i s a l l e g e d
t h a t t h e r u l e o r i t s t h r e a t e n e d a p p l i c a t i o n i n t e r f e r e s w i t h o r i m p a i r s , o r t h r e a t e n s t o i n t e r f e r e w i t h o r i m p a i r , a l e g a l r i g h t

o r p r i v i l e g e o f t h e p l a i n t i f f

. ” T E X

. G O V ’ T C O D E § 2 0 0 1

. 0 3 8 ( a )

. T h e H o m e o w n e r s ’ p l e a d i n g s t r a c k t h i s l a n g u a g e a n d
t h u s a l l e g e t h e i n

j u r y r e q u i r e d b y t h e A c t f o r j u d i c i a l r e v i e w

. T h e A c t d o e s n o t p u r p o r t t o s e t a h i g h e r s t a n d a r d t h a n t h a t

s e t b y t h e g e n e r a l d o c t r i n e o f s t a n d i n g , a n d i t c a n n o t b e l o w e r , s i n c e c o u r t s ’ c o n s t i t u t i o n a l j u r i s d i c t i o n c a n n o t b e e n l a r g e d b y s t a t u t e

. I

n r e A l l c a t C l a i m s S e r v

. , L

. P

. , 3 5 6 S

. W

. 3 d 4 5 5 , 4 6 2 ( T e x

. 2 0 1 1 ) ( “ I f t h e g r a n t o f j u r i s d i c t i o n o r t h e r e l i e f

a u t h o r i z e d i n t h e s t a t u t e e x c e e d s t h e l i m i t s o f [ t h e C o n s t i t u t i o n ] , t h e n w e s i m p l y e x e r c i s e a s m u c h j u r i s d i c t i o n o v e r t h e
c a s e a s t h e C o n s t i t u t i o n a l l o w s

. . . . ” )

. W e t r e a t t h e A c t ’ s r e q u i r e m e n t a s b u t a n o t h e r e x p r e s s i o n o f t h e g e n e r a l d o c t r i n e
o f s t a n d i n g

.

T h e C o m m i s s i o n s ’ S u p p l e m e n t a l B r i e f A d d r e s s i n g J u r i s d i c t i o n 8

. T h e C o m m i s s i o n s a l s o a r g u e t h a t t h e c a s e 84

s h o u l d n o t b e d i s m i s s e d b u t s h o u l d b e r e m a n d e d t o t h e t r i a l c o u r t f o r t h e H o m e o w n e r s t o a m e n d t h e i r p l e a d i n g s , a n d i n

r e m a n d i n g t h i s C o u r t “ s h o u l d a d d r e s s b o t h t h e s t a n d i n g r e q u i r e m e n t a n d t h e m e r i t s o f t h e [ H o m e o w n e r s ’ ] c l a i m s i n o r d e r t o p r o v i d e g u i d a n c e f

o r t h e t r i a l c o u r t ”

. I

d

. a t 9

. T h i s , t h e C o m m i s s i o n s c o n t e n d , “ i s t h e b e s t w a y t o c a p i t a l i z e u p o n ( a n d

a v o i d s q u a n d e r i n g ) t h e s u b s t a n t i a l j u d i c i a l r e s o u r c e s t h a t h a v e a l r e a d y b e e n s p e n t b y t h i s C o u r t , t h e l o w e r c o u r t s , a n d

a l l o f t h e p a r t i e s i n l i t i g a t i n g t h e s u b s t a n t i v e c h a l l e n g e t o t h e C o m m i s s i o n s ’ i n t e r p r e t a t i o n s o v e r t h e p a s t s e v e n y e a r s

. ” I d

.

H o m e o w n e r s ’ R e s p o n s e t o S u p p l e m e n t a l B r i e f o n J u r i s d i c t i o n 1 ( “ W h i l e t h e H o m e o w n e r s ’ l i v e p e t i t i o n d o e s

85

n o t e x p r e s s l y s t a t e e a c h H o m e o w n e r h a s a n i n t e r e s t i n o b t a i n i n g a h o m e e q u i t y l o a n i n t h e f u t u r e , t h i s i s f

a i r l y i m p l i e d i f t h e p e t i t i o n i s c o n s t r u e d l i b e r a l l y t o w a r d t h e p l e a d e r ’ s i n t e n t

. ” )

.

T e x

. A s s ’ n o

f B u s

. v

. T

e x

. A i r C o n t r o l B d

. , 8 5 2 S

. W

. 2 d 4 4 0 , 4 4 6 ( T e x

. 1 9 9 3 ) ( “ W h e n a n a p p e l l a t e c o u r t 86
q u e s t i o n s j u r i s d i c t i o n o n a p p e a l f o r t h e f i r s t t i m e

. . . a n d r e v i e w s t h e s t a n d i n g o f a p a r t y s u a s p o n t e , i t m u s t c o n s t r u e t h e p e t i t i o n i n f

a v o r o f t h e p a r t y [ s e e k i n g t o i n v o k e t h e c o u r t 's j u r i s d i c t i o n ] , a n d i f n e c e s s a r y , r e v i e w t h e e n t i r e r e c o r d t o d e t e r m i n e i f a n y e v i d e n c e s u p p o r t s s t a n d i n g

. ” )

.

T e x a s B a n k e r s A s s o c i a t i o n ’ s P o s t

- S u b m i s s i o n R e s p o n s e B r i e f 2 ( “ T h e H o m e o w n e r s h a v e a l l e g e d t h e y a r e 87
T e x a s h o m e o w n e r s

. U n d e r t h e T e x a s C o n s t i t u t i o n t h e y a r e , t h e r e f o r e , t h e c l a s s o f p e o p l e e l i g i b l e t o o b t a i n h o m e e q u i t y f i n a n c i n g

— o r r e f

i n a n c i n g

. A s a r e s u l t , t h e y a r e s u b j e c t , p r o s p e c t i v e l y , t o t h e C o m m i s s i o n s ’ i n t e r p r e t a t i o n s o f t h e T e x a s C o n s t i t u t i o n ’ s h o m e e q u i t y l e n d i n g p r o v i s i o n s

. T h i s C o u r t c o u l d c o r r e c t l y c o n c l u d e t h e H o m e o w n e r s h a v e s t a n d i n g t o



### 2 2

## So do we. The Homeowne rs’ alleg ation that the Commi ssions’ interpre tations “thre aten to

interfe re with or impair [t heir] leg al rig ht[ s]” cannot be true unless they have a prospec tive interest

in considering home equity loans. And such interest is unquestionably aff ecte d by the Commi ssions’
interpre tations. The TBA confirms what should come as no surprise: that whene ver home equity

loans are made, “[b] eca

use t he banking indust ry has conformed it s practices to the C ommissi ons’
interpre tative rules to obtain t h e Texas Constit ution’s safe harbor protec tions, there is no doubt

Texas homeowner s will find the terms of home equity loans still g ov erned by the Commi ssions’

rules.” Even if the H omeowner s’ intere st were solely in refina ncing exis ting home equity loans, 8 8



## the re financ ing w ould have to satisfy the re quirements of Sec tion 50. 8 9



## The Homeowne rs need not alleg e a more imminent impairment to thei r ri gh ts or alleg e a

threa t with more specific ity

. Whil e the ce rtainty and extent of injury

would become clea

rer as the

time for closing a home equity loan approa ched, the terms wer e fi x ed, and the application of the

Commi ssions’ interpre tations beca me appar ent, to require a h o meowner to wait to that point to

c h a l l e n g e t h e C o m m i s s i o n s ’ i n t e r p r e t a t i v e r u l e s

. ” )

. A l t e r n a t i v e l y , t h e T B A j o i n s t h e C o m m i s s i o n s i n u r g i n g t h a t t h e C o u r t a l l o w t h e H o m e o w n e r s t o c u r e t h e i r p l e a d i n g s a n d a d d r e s s t h e s u b s t a n c e o f t h e H o m e o w n e r s ’ c h a l l e n g e s e i t h e r i n t h e p r o c e s s o f d o i n g s o o r a f t e r w a r d

. I

d

. a t 7

- 8 ( “ A l t e r n a t i v e l y , i f t h e C o u r t d e t e r m i n e s t h e H o m e o w n e r s h a v e n o t

e s t a b l i s h e d o n t h e t r i a l r e c o r d t h a t t h e i r c h a l l e n g e t o t h e C o m m i s s i o n s ’ i n t e r p r e t a t i v e r u l e s i s a l i v e c o n t r o v e r s y t h a t t h e y h a v e s t a n d i n g t o l i t i g a t e , T e x a s B a n k e r s A s s o c i a t i o n s u p p o r t s t h e C o m m i s s i o n s ’ r e q u e s t t h a t t h e C o u r t g i v e t h e H o m e o w n e r s t h e o p p o r t u n i t y t o d o s o

. I f t h e C o u r t i s n o t i n c l i n e d , a s t h e C o m m i s s i o n s p r o p o s e , t o d e c i d e t h e m e r i t s
o f t h e H o m e o w n e r s ’ c o n s t i t u t i o n a l c h a l l e n g e s b e f o r e r e s o l v i n g w h e t h e r t h e y h a v e s t a n d i n g t o l i t i g a t e t h o s e c l a i m s , t h e C o u r t c o u l d , a l t e r n a t i v e l y , a b a t e t h i s a p p e a l ; r e m a n d t o t h e t r i a l c o u r t t o a l l o w t h e H o m e o w n e r s t o a m e n d t h e i r p l e a d i n g s
o r p r e s e n t a d d i t i o n a l e v i d e n c e t o s u p p o r t s t a n d i n g a n d a l i v e c o n t r o v e r s y ; a n d t h e n , o n c e t h e y h a v e e s t a b l i s h e d t h o s e j u r i s d i c t i o n a l e l e m e n t s , l i f t t h e a b a t e m e n t a n d d e c i d e t h e m e r i t s o f t h e i r c o n s t i t u t i o n a l c h a l l e n g e s

. ” )

.

I d

. a t 6

- 7

. 88

T E X

. C O N S T

. a r t

. X V I , § 5 0 ( f ) ( “ A r e f i n a n c e o f d e b t s e c u r e d b y t h e h o m e s t e a d , a n y p o r t i o n o f w h i c h i s a n 89

e x t e n s i o n o f c r e d i t d e s c r i b e d b y S u b s e c t i o n ( a ) ( 6 ) o f t h i s s e c t i o n , m a y n o t b e s e c u r e d b y a v a l i d l i e n a g a i n s t t h e h o m e s t e a d u n l e s s t h e r e f i n a n c e o f t h e d e b t i s a n e x t e n s i o n o f c r e d i t d e s c r i b e d b y S u b s e c t i o n ( a ) ( 6 ) o r ( a ) ( 7 ) o f t h i s
s e c t i o n

. ” )

.


### 2 3

## challeng e an interpre tation would be to deny revie w or deny cre dit, or both. This case was filed more

than nine y ear s ag o. Chang es in values and rate s, and in lender s’ and borrowe rs’ i n d ividual

circ umstances, ordinarily require that loan closing s occur in a matter of wee ks, not y ear s. And hard
as it may be to fore tell obtaining a loan, pre dicting the terms is completely impossibl e.

I mportantly , impairment of the Homeowne rs’ rig hts is threa tened not only by having to close

a home equity loan under misint erpr etations of constitutional require ments but also by h av i ng to

decide whether to se ek cre dit in such a situation. The decision whether to a pply for a home equity

loan is ne cessa

rily influence d by its ter

ms, a nd to r eturn y et ag ain to the fe e ca p example, its cost.
Knowing that few er fee s are cappe d obviously discourag es borr ower s. The homeowne r who does

not intend to apply for a home equity loan and will probably not obtain one, all beca use of incorre ct
interpre tations of Section 50, is no less injured than the homeowner whose loan is closed under such

misint erpr etations. The influence of the Commi ssions’ interpre tations on whether even to apply for

a home e quity

loan is injury

enoug h to give the Homeowne rs standing

.
The dissent does not disag ree and “re cog niz e[ s] that the circ umstances befor e us are
unusual”, but reg ards the Homeowne rs’ alleg ation that the Commi ssions’ interpre tations “thre aten

9 0



## to interfe re with or impair [t heir] leg al rig ht[ s]” as insufficiently fac tual. We think that to insist on

g rea ter specific ity is unrea sonable, as we have explained. How the fee cap will opera te for any
particula r loan c annot be pr edicted w ith any acc urac y until the underwriting is c omplete. Nor c an

a prospec tive borrowe r predic t how he or she may be impacted by other misint erpr etations asser ted

P o s t a t

_ _ _ . 90



### 2 4

## by the Homeowne rs: the require ments that closing occur awa y from the bor

rowe r’s home and that

the borrowe r be shown to have the require d notice. The dissent sug g ests that the Homeowne rs could
alleg e that the asserted m isin t erpretations adver sely aff ecte d them when they obtained their home
equity loans in the past, if such wer e the case

. But the dissent misunderstands the nature and eff ect

of the safe -har

bor provision, char acte rizing it as “prote ct[ing] lender s from liability for their lending

actions much as statutes of limitations protect par ties from liability

for stale claims.” A lender ’s 9 1


## compl i an ce with a misint erpr etation of Section 50 is not an injury for which a borrowe r is barr ed

from seeking re d re s s ; it is no injury at all. I t would cer tainly be a perve rse application of the
standing doctrine to re quire plea ding of a non-e x istent injury

.
Section 50(u) cre ates an exceptional context in which to assess standing

. So do voting rig hts,

as we acknow ledg ed in Andrade

. I n that case , there was only a possibili ty that the plaintiffs would

vote in the future, and if they did, there was no proof at all that the machines to which they objected

would be used, would be improperly prog rammed, or would malfunction, or that their votes would

be inacc urate ly counted. Thoug h the standing doctrine would insist on a more substantial injury in

other contexts, voting rig hts prese nt a specia l situation. The same may be said of this case

. Section
50(u) is unique to the Texas Constit ution. I ts prec lusion of the injury ty pically require d for standing
require s application of the doctrine in context. The alterna tive, as we h ave noted, is to allow the

doctrine to be used to alter w hat it is designe d to maintain — the proper separ ation of powe rs.

P o s t a t

_ _ _ . 91



### 2 5

## To return to J ustice Fr ankfur ter’s observa tion, the substan ti v e is s u e s a r e cer tainly appropr iate

for jud i ci al decision — including whether judicial revie w of the Commi ssions’ interpre tations is
permitted — and the hardship of withholding decision i s s i gn ificant, g iven the parties’ unity in

urg ing a resolution on the merits. Having raised the issue of standing at the tail end of eig ht y ear s

of litigation, the Court must construe the rec ord liberally , and in the context of an exceptional
constitutional provision. Doing so, we c onclude that the H omeowner s have standing

.
IV

We come at last to the Homeowne rs’ substantive challeng es. We beg in by deter mining the

appropr iate standa

rd of r eview, the n move in turn to eac h challeng e.

A

“Construction of a statute by the admini s t ra t i v e ag ency char g ed with its enfor ceme nt is

entitled to serious consideration, so long as the construction is rea sonable and does not contra dict

the plain lang uag e of the statute.” The Commi ssions arg ue that courts must g ive at least this much 9 2



## defe rence t o their interpre tations of Section 50(u). But as the Commi ssions themselves asser t,

Section 50(u) puts their interpre tations “on equal footing with those issued by courts of appea ls”. 9 3



## As we ha ve explained, we ag ree that this rea ding of Section 50(u) is corr ect. This Court does not

defe r to a court of appea ls’ interpre tation of the Constit ution but revie ws it, as all matters of law, de

novo

. I ndeed, the courts of appea ls do not even defe r to eac h other’s constitutional interpre tations. 9 4

T a r r a n t A p

p r a i s a l D i s t

. v

. M o o r e , 8 4 5 S

. W

. 2 d 8 2 0 , 8 2 3 ( T e x

. 1 9 9 3 )

. 92

C o m m i s s i o n s ’ B r i e f 1 4

. 93

E

. g

. , H a r r i s C n t

y

. H o s p

. D i s t

. v

. T

o m b a l l R e g ’ l H o s

p

. , 2 8 3 S

. W

. 3 d 8 3 8 , 8 4 2 ( T e x

. 2 0 0 9 )

. 94



### 2 6

## By g iving ag ency interpre tations the same stature as those of appellate courts, Section 50(u) require s

that courts g ive the one no mor e def ere nce tha

n the other.

The Commi ssions arg ue that the history of Section 50(u) shows that t h ei r i n terpre tative

au t h o ri ty was intended to be “def initive”, but this is true only in compar ison to the Regulator y
Commentary , which was mere ly advisory , and issued prior to Secti o n 5 0(u). Nothing sug g ests their 9 5


## authority under Sec tion 50(u) is to be more de finitive than an a ppellate c ourt’s interpr etation.

The Com missions arg

ue that their i nterpret at i o n s are entitled to g rea ter defer ence beca use

Section 50(u)’ s deleg ation of authority is unique, but it is only the delegation itself that is unique,

not the interpre tative autho ri t y d elega ted. Nothing sug g ests that the fra mers and ratifier s had

any thing in mind other than ordinary constitutional interpre tation, assuming that a more expansive

power wer e even pos sible under the Constit ution. The Com missions arg ue that they wer e chosen

beca use of their expertise in lending marke ts, which should be entitled to defe renc e in any revie w.

But the power to interpre t the constitutional text is unrela ted to an ag ency ’s expertise in an industry ,

or to its regul at o ry p o wer, which is ordinarily quite broad. I n interpre ting Section 50, the

Commi ssions must g ive eff ect to the constitutional text , reg ardle ss of whether it comports with their
expertise or reg

ulatory judgme nt. The Commi ssions cannot use their authority under Section 50(u)

and the enabling leg islation to set policy

. They can do no more than interpre t the constitutional text , just as a cour

t would.

S t r i n g e r v

. C e n d a n t M o r t g

. C o r p

. , 2 3 S

. W

. 3 d 3 5 3 , 3 5 7 ( T e x

. 2 0 0 0 ) ( n o t i n g t h a t t h e C o m m i s s i o n s ’ R e g u l a t o r y 95 C o m m e n t a r

y r e l e a s e d p r i o r t o S e c t i o n 5 0 ( u ) ’ s e n a c t m e n t “ i s a d v i s o r y a n d n o t a u t h o r i t a t i v e ” )

.


### 2 7

## The Commi ssions contend that de novo revie w of th e ir in te rpre tations “under

mines the entire

purpose of [S ection 50(u)], as Texans could not rely upon the Commi ssions’ interpre tations with any

confide nce that they wer e valid, and that compliance there with w ould pr otect the enfor cea blilty of

their loan transac tions.” But this is simply not true. Under Section 50(u), compliance with any 9 6


## interpre tation or judicial decision, even one later overturne d, i s co m p liance with the Constit ution

itself. Review of the Commi ssions’ interpre tations may alter what lender s must do g oing forwa rd,

but it does not ex pose them to liability for pa st conduct.

I n essenc e, the Commi ssions arg ue for interpre tative authority that is not only unrevie wable
but g rea ter than tha t exercised by the J udiciary

. Such a g rant of power cannot be found in Sec tion
50(u). Rather, the Commissi ons’ interpre tative authority is the same as the J udiciary ’s, which we

have de scribed a s follows:

I n construing the Constit ution, as in construing statutes, the fundame ntal g uiding rule is to g ive eff

ect to the intent of the maker s and adopter s of the provision in question. We presume the lang uag e of the Constit ution was car efully selec ted, and we interpret words as t hey are g ener ally understood. We re ly

heavily on the literal text

. Howeve r, we may consider such matters as the history of the l egi s l ation, the conditions and spirit of the times, the preva iling sentiments of the pe ople, the evils intended to be r emedied, a nd the g ood to be ac complished. 9 7


## And their interpr etations are to be re viewed a s judicial decisions are

.

T h e C o m m i s s i o n s ’ B r i e f 1 9

. 96

H a r r i s C n t

y

. H o s p

. D i s t

. v

. T

o m b a l l R e g ' l H o s

p

. , 2 8 3 S

. W

. 3 d a t 8 4 2 ( c i t a t i o n s a n d i n t e r n a l q u o t a t i o n m a r k s 97

o m i t t e d )

.


### 2 8

## B

Section 50(a) (6)( E) provides that a home equity borrowe r may not be requ i re d t o pay , “in

addition to any interest, fee s to any person that are nece ssary to orig inate, evalua te, maintain, rec ord,
insure, or service the extension of cre dit that exceed, in the ag g reg ate, three perc ent of the orig inal
principal amount of the extension of cre dit”. Acc ording to the Commi ssions, the m ea n i n g of

“intere st” is “as define d in the Texas Financ e Code § 301.002(4) and as interpre ted by the courts.” 9 8



## The fata l difficulty with the Commi ssions’ interpre tation is that it does not mere ly adopt the

substance of the statute at the time the interpre tation beca me eff ective; it adopts whateve r definition

of “in t er es t ” t h e L eg islature may enac t from time to time by amending Section 301.002(4). The

Commi ssions acknow ledg e that the L eg islature can chang e the eff ect of their interpre tation and the
meaning of Section 50(A)( 6)(E) simply by amending the statute, and this in fac t is what has 9 9


## happene d. When the interpre tation beca me eff ective in J anuar

y 2004, Section 301.002(4) stated: “I n

this subtitl e

. . . ‘I

ntere st’ means compensa tion for the use, forbe ara nce, or detention of money

. The

term does not include time price differ ential, reg ardle ss of how it is denominated.” The following 1 0 0



## y ear , the L eg islature amende d the provision to add a t hird sentenc e: “The term does not include

compensa tion or other amounts that are deter mined or stated by this code or other applicable law not

to constitute interest or that are permitted t o be contracte d for, ch ar ged , o r re ceive d in addition to

7 T E X

. A D M IN

. C O D E § 1 5 3

. 1 ( 1 1 )

. 98

T h e C o m m i s s i o n s ’ B r i e f 2 2

. T h e T B A a g r e e s

. B r i e f o n t h e M e r i t s o f T e x a s B a n k e r s A s s ’ n 1 3

. 99

A c t o f A p r i l 2 3 , 1 9 9 9 , 7 6 t h L e g

. , R

. S

. , c h

. 6 2 , § 7

. 1 8 , 1 9 9 9 T e x

. G e n

. L a w s 1 2 7 , 2 2 2

. 100



### 2 9

## interest in conne ction with an ex tension of cr edit.” I n eff ect, the Commissions, crea tures of the 1 0 1



## L eg islative Depa

rtment appointed by the Ex ecutive, have used thei r interpre tative power under

Section 50(u) to g ive the L eg islature the unfetter ed authority to alter as it chooses the constitutional

fee cap, a critica l pa

rt of the protec tions built into Sec tion 50. I n the Commiss ions’ view, they are

empower ed not only to interpre t Section 50(a) (6)( E) but, in so doing, to authorize the L egi s l at u re

to rede fine the provision’s terms. The Commi ssions’ interpre tation of the fee cap, ty ing its meaning

to a s tatute, utterly defe ats the clea r purpose of constitutionaliz ing it, which was to place the

limit ation bey ond the L eg islature’s power to ch an ge wi thout ratification by the voters. For this

rea son alone, the Commissions’ interpretation is invalid.

The Commi ssions nevert h el es s insist that “intere st” in Section 50(a) (6)( E) should mean
“compe nsation for the use, forbe ara nce, or detention of money ”, as define d in Section 301.002(4)

at the time the constitutional provision was adopted, and as un d er s t o o d under Texas law since at

least 1879. But that broad definition has g ener ally been used in the context of prohibiting usury

.

1 0 2



## Thus, for example, the 2005 amendment to Section 301.002(a) (4) excepts from the definition for the

first time c erta in le nder- char g ed fee s allowed by law. The ostensible purpose of that leg islation 1 0 3



## was to rela x restric tions on usury , but if “intere st” in Section 50(a) (6)( E) has the same meaning , the

A c t o f M a y 2 9 , 2 0 0 5 , 7 9 t h L e g

. , R

. S

. , c h

. 1 0 1 8 , § 2

. 0 1 , 2 0 0 5 T e x

. G e n

. L a w s 3 4 3 8 , 3 4 3 9

- 3 4 4 0

. 101

T E X

. R E V

. C IV

. S T A T

. A N N

. a r t

. 2 9 7 2 ( 1 8 7 9 ) ( “ ‘ I n t e r e s t ’ i s t h e c o m p e n s a t i o n a l l o w e d b y l a w o r f i x e d b y t h e 102
p a r t i e s t o a c o n t r a c t f

o r t h e u s e o r f

o r b e a r a n c e o r d e t e n t i o n o f m o n e y

. ” ) ; s e e a l s o B a t t a g l i a v

. A l e x a n d e r , 1 7 7 S

. W

. 3 d 8 9 3 , 9 0 7 ( T e x

. 2 0 0 5 ) ( “ ‘ I n t e r e s t ’ h a s l o n g b e e n d e f i n e d b y t h e L e g i s l a t u r e a s ‘ c o m p e n s a t i o n f o r t h e u s e , f

o r b e a r a n c e , o r d e t e n t i o n o f m o n e y

. ’ ” ( c i t a t i o n s o m i t t e d ) ) ; G a l v e s t o n & H o u s

. I n v

. C o

. v

. G r

y m e s , 6 3 S

. W

. 8 6 0 , 8 6 1 ( T e x

. 1 9 0 1 ) ( c i t i n g t h e s a m e t e x t i n T E X

. R E V

. C IV

. S T A T

. A N N

. a r t

. 3 0 9 7 ( 1 8 9 5 ) )

.

A c t o f M a y 2 9 , 2 0 0 5 , 7 9 t h L e g

. , R

. S

. , c h

. 1 0 1 8 , § 2

. 0 1 , 2 0 0 5 T e x

. G e n

. L a w s 3 4 3 8 , 3 4 3 9

- 3 4 4 0

. 103



### 3 0

## exception for such fee s place s them back under the three -per ce n t cap. Nothing sug g ests that the

L eg islature intended the 2005 amendment to do both.

The functions of “intere st” in apply ing the constitutional fee cap for home equity loans and
in prohibiting usury

are inversely

rela ted. I f the word is g iven the same meaning in both contexts,

then including lender -cha rg ed fee s in “inter es t ” s t reng thens usury laws and wea kens the fee cap,
though both are desig ned to protec t consumers. That this was the intent of the fra mers and ratifier s
of Section 50(a )(6) (E) is simply implausible.

The Commi ssions point out th at S ec t i on 50(u), g iving them interpre tative authority , was
adopted afte r they had alre ady sug g ested in their Regulatory Commentary that “intere st” in Section
50(a) (6)( E) should have the same meaning as in Section 301.002(a) (4) o f t h e Finance Code,
indicating that the L eg islature acquie sced in that view, as confirme d by the L eg islature’s later ref usal

to enac t bills that would have nar ro we d t h ei r i nterpre tation. But as we have seen, the L eg islature
quickly amen d ed S ec tion 301.002(a) (4). The L eg islature cannot be said to have acquie sced in

any thing other than t he C ommissi ons’ vi ew that it should b e au t horized to alter the constitutional
provision by

statute.

The Commi ssions’ position is that in capping “fe es to any pers o n t h at are nece ssary to
orig inate, evalua te, maintain, rec ord, insure, or service ” a home equity loan, the fra mers and ratifier s

intended to cap only fee s to any person other than the lender

. But had that been their intent, surely

the simplest and clea

rest way to express it would have been to use those four words, rathe r than the
oblique phrase , “in addition to any interest”. This is espec ially true beca use there is another , well3 1

## understood meaning of “intere st”: the amount equal to the loan principal multipl ied by the interest

rate . Applied to Section 50(a) (6)( E), that def inition allows “any

person” to mean just that.

We conclude that consistent with the history , purpose, and text of S ec t i o n 50(a) (6)( E),

“intere st” as used in that provision means the amount deter mined by multipl y ing the loan principal
by the intere st rate. 1 0 4



## C
Section 50(a) (6)( N) provide s that a loan may be “close d only at the office of the lende r, an
attorney at law, or a title c ompany ”. The Commi ssions a cknowledg e, and the Homeowne rs ag ree ,
that “[t] his provision was intended to prohibit the coer cive closing of an equity loan at the home of

the owner .” Neve rtheless, the Commi ssions’ interpre tations allow a borrowe r to mail the require d

1 0 5


## signe d consent to the lender and to close throug h an attorney -in-fa ct. Both these interpre tations 1 0 6 1 0 7


## permit coer cion in obta ining the require d consent and a power of attorney at the borrowe r’s home,
allowing the final closing to occur later at one of the presc ribed locat i o n s , there by defe ating the
purpose of

the provision.

T h i s n a r r o w e r d e f

i n i t i o n o f i n t e r e s t d o e s n o t l i m i t t h e a m o u n t a l e n d e r c a n c h a r g e f o r a l o a n ; i t l i m i t s o n l y 104

w h a t p a r t o f

t h e t o t a l c h a r g e c a n b e p a i d i n f r o n t

- e n d f

e e s r a t h e r t h a n i n t e r e s t p a i d o v e r t i m e

. I n s o d o i n g , i t i n c e n t i v i z e s l e n d e r s t o d e t e r m i n e b o r r o w e r s ’ c r e d i t w o r t h i n e s s m o r e c a r e f u l l y a n d h e l p s b o r r o w e r s b e t t e r a s s e s s t h e c o s t s o f c r e d i t

.

2 9 T e x

. R e g

. 8 4 , 9 0 ( 2 0 0 4 )

. 105

7 T E X

. A D M IN

. C O D E § 1 5 3

. 1 5 ( 3 ) ( “ A l e n d e r m a y r e c e i v e c o n s e n t r e q u i r e d u n d e r S e c t i o n 5 0 ( a ) ( 6 ) ( A ) b y m a i l 106

o r o t h e r d e l i v e r y o f t h e p a r t y ’ s s i g n a t u r e t o a n a u t h o r i z e d p h y s i c a l l o c a t i o n a n d n o t t h e h o m e s t e a d

. ” )

.

I d

. § 1 5 3

. 1 5 ( 2 ) ( “ A l e n d e r m a y a c c e p t a p r o p e r l y e x e c u t e d p o w e r o f a t t o r n e y a l l o w i n g t h e a t t o r n e y
- i n
- f a c t 107
t o e x e c u t e c l o s i n g d o c u m e n t s o n b e h a l f o f t h e o w n e r

. ” )

.


### 3 2

## Closing a loan is a proce ss. I t would clea rly be unrea sonable to interpre t Section 50(a) (6)( N)

to allow all the loan paper s to be signe d at the borrowe r’s house and then taken to the lender ’s office ,
wher e funding was finally authorized. Closing is not mere ly the final action, and in this context, to

aff ord the intended protec tion, it must include the initial action. Ex ecuting the require d consent or

a power of attorney are part of the closing proce ss and must occur on l y at one of the locations
allowed by

the constitutional provision.

Whether so stringe nt a restric tion is g ood policy is not an issue for the Commi ssions or this

Court to consider. That the issue should arise counsels ag ainst constitutionaliz ing minutiae, placing

them bey ond reg ulatory or leg islative adjustment. But the purpose of the provision is indisputable,

and the Commi ssions’ interpre tations in derog ation of that purpose can be justified only by rea ding
“closing ” to mean some aspec t of the closing proce ss. The court of appea ls conclude d that the use

of th e m ail to transmit documents and of a power of attorney to fac ilitate execution are so
commonplace that had the fra mers and ratifier s of Section 50 intended to pr eclude these prac tices,
they would have said so with more specific ity

. The co u rt p o i n t ed to Section 50(a) (6)( Q)(iv) , 1 0 8



## which prohibits using a borrowe r’s power of attorn ey to fac ilitate obtaining a judgme nt ag ainst a
debtor, should he defa

ult. But it is prec isely the common use of the mail and power s of attorney in
closing transac tions that g ives rise to the dang er of coer cion Section 50(a) (6)( N) was intended to

preve nt.

3 0 3 S

. W

. 3 d a t 4 1 7 ( c i t a t i o n s o m i t t e d )

.

108



### 3 3

## We conclude that the Commi ssi o n s ’ interpre tations of Section 50(a) (6)( N) contra dict the

purpose a nd text of the provision and a re the ref ore inva lid.

D
Finally , Section 50(g ) require s that a loan not be closed befor e the 12th day afte r the lender
provides the borrowe r the presc ribed notice. I n g iving meaning to “provide s”, the Commi ssions 1 0 9



## have deter

mined there is a rebuttable presumption that notice is rec eived three day s aft er it is

mailed. The Homeowne rs insist that a lender must establish actua l rec eipt of notice in eac h case

.

1 1 0



## But the Commi ssions’ interpre tation does not impair the constitutional require ment; i t m er el y

relieve s a lender of proving rec eipt unless rec eipt is challeng ed. We ag ree with the court of appea ls

that the interpre tation is but a rea sonable proce dure for establishing compliance with Section 50(g ).

* * *

The judgme nt of the court of appea ls is aff irmed in pa

rt and reve rsed in pa

rt, and judgme nt

is render ed .

Nathan L . Hec ht J ustice
Opinion delivere d: J une 21, 2013

T E X

. C O N S T

. a r t

. X V I , § 5 0 ( f )

. 109

7 T E X

. A D M IN

. C O D E § 1 5 3

. 5 1 ( 1 ) , ( 3 ) ( “ ( 1 ) I f a l e n d e r m a i l s t h e c o n s u m e r d i s c l o s u r e t o t h e o w n e r , t h e l e n d e r 110

s h a l l a l l o w a r e a s o n a b l e p e r i o d o f t i m e f o r d e l i v e r y

. A p e r i o d o f t h r e e c a l e n d a r d a y s , n o t i n c l u d i n g S u n d a y s a n d f e d e r a l l e g a l p u b l i c h o l i d a y s , c o n s t i t u t e s a r e b u t t a b l e p r e s u m p t i o n f o r s u f f i c i e n t m a i l i n g a n d d e l i v e r y

. . . . ( 3 ) A l e n d e r m a y r e l y
o n a n e s t a b l i s h e d s y s t e m o f v e r i f i a b l e p r o c e d u r e s t o e v i d e n c e c o m p l i a n c e w i t h t h i s s e c t i o n

. ” )

.



### 3 4