Source: http://www.sos.state.tx.us/texreg/archive/November32017/Adopted%20Rules/7.BANKING%20AND%20SECURITIES.html
Timestamp: 2018-01-17 05:07:58
Document Index: 541028118

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The Finance Commission of Texas (the commission) adopts the repeal of 7 TAC, Part 1, Chapter 4, Credit Card Surcharge Appeal Procedures. Chapter 4 consists of Subchapter A, containing §§4.101 - 4.106, relating to contested case procedure for credit card surcharge violations occurring on or before August 31, 2013.
The commission adopts the repeal without changes to the proposed text as published in the September 1, 2017, issue of the Texas Register (42 TexReg 4379).
The purpose of the adopted repeal is to delete obsolete rules contained in 7 TAC, Chapter 4. The commission has determined that Chapter 4 is no longer necessary, as the enforcement of the credit card surcharge prohibition has been transferred to the Office of the Attorney General (OAG).
Through August 31, 2017, Texas Finance Code, §339.001(c) stated that the commission had exclusive jurisdiction to enforce and adopt rules relating to §339.001. As enacted by the 85th Texas Legislature, Senate Bill (SB) 560 amended the credit card surcharge prohibition in §339.001 by transferring enforcement authority from the Office of Consumer Credit Commissioner (OCCC) to the OAG. Effective September 1, 2017, the bill relocates these provisions to §604A.0021 of the Texas Business and Commerce Code, which will ensure consistent enforcement with the existing debit card surcharge prohibition contained in §604A.002 also enforced by the OAG.
The repeal is adopted under Texas Finance Code, §11.304, which authorizes the commission to adopt rules to enforce Chapter 14 and Title 4 of the Texas Finance Code. Effective September 1, 2017, SB 560 amended the credit card surcharge prohibition in §339.001 by transferring enforcement authority from the OCCC to the OAG and relocating the prohibition to the Texas Business and Commerce Code.
The statutory provisions affected by the adopted repeal are contained in Texas Business and Commerce Code, §604A.0021 (formerly Texas Finance Code, §339.001).
TRD-201704236
The Finance Commission of Texas (commission) adopts amendments to §§89.102, 89.207, 89.208, 89.301, 89.302, 89.304, 89.306, 89.310, 89.403, 89.404, 89.502, 89.503, 89.504, 89.506, 89.507, 89.601, and 89.702; adopts new §89.303 and §89.405; and adopts the repeal of §§89.303, 89.405, and 89.406, in 7 TAC, Chapter 89, concerning Property Tax Lenders.
The commission adopts the amendments to §§89.102, 89.207, 89.208, 89.301, 89.302, 89.304, 89.306, 89.310, 89.403, 89.404, 89.503, 89.506, 89.601, and 89.702; adopts new §89.303 and §89.405; and adopts the repeal of §§89.303, 89.405, and 89.406 without changes to the proposed text as published in the September 1, 2017, issue of the Texas Register (42 TexReg 4379).
The commission adopts the amendments to §§89.502, 89.504, and 89.507 with changes to the proposed text as published in the September 1, 2017, issue of the Texas Register (42 TexReg 4379). The changes are a result of the comments received as outlined in the following paragraphs, as well as changes to make these provisions clearer.
The commission received three written comments on the proposal from the following parties: Kohm and Associates, PC, Sombrero Capital, and the Texas Property Tax Lienholders Association (TPTLA). Additionally, an oral comment was received from the TPTLA.
Two of the written comments express general support for the rule amendments as proposed, but made some recommendations regarding the amended pre-closing disclosure requirements in §89.504 and §89.506. The other comments also made recommendations regarding the amended disclosure requirements. Some of the comments included recommendations on the following issues that were not addressed in the proposal: (1) the prohibition on a property tax loan for property financed by a below market rate loan under Texas Tax Code, §32.06(a-8)(1); (2) the limitation on fees for filing a release under current 7 TAC §89.602; and (3) waiver of the right of rescission under Texas Tax Code, §32.06(d-1).
The commission's responses to the official comments received are included after the purpose discussions following each respective rule provision receiving comments. The comments on below market rate loans, lien release fees, and the right of rescission are discussed after the purpose discussions for the rules that are part of this action.
In general, the purpose of the adoption regarding 7 TAC, Chapter 89 is to implement changes resulting from the commission's review of the chapter under Texas Government Code, §2001.039. The notice of intention to review 7 TAC Chapter 89 was published in the Texas Register on June 16, 2017 (42 TexReg 3167). The commission received four comments in response to that notice. The comments on the notice of intention to review were submitted by the Hunter-Kelsey of Texas, LLC, Propel Financial Services, Sombrero Capital, and the Texas Property Tax Lienholders Association. The responses to the official comments on the rule review notice were included as part of the adopted rule review, as published in the Texas Register on September 1, 2017 (42 TexReg 4481).
The adopted rule changes generally relate to the following issues: disclosures provided by property tax lenders (including an updated version of the required pre-closing disclosure), licensing processes, fees charged by property tax lenders, and technical corrections. Additionally, certain sections have been repealed in order to replace them with new, reorganized rules.
The agency circulated an early draft of proposed changes to interested stakeholders. The agency then held a stakeholder meeting where attendees provided oral precomments. In addition, the agency received seven informal written precomments. Certain concepts recommended by the precommenters were incorporated into the proposal, and the agency appreciates the thoughtful input provided by stakeholders.
Adopted amendments to §89.102 add definitions of the terms "residential property tax loan" and "commercial property tax loan." The definition of "residential property tax loan" states that the term refers to a property tax loan that includes a lien on residential property owned and used for personal, family, or household purposes. Property designated as "Category A (Real Property: Single-Family Residential)" is presumed to be residential property unless the property tax lender obtains an affidavit from the property owner stating that the property is owned and used for a business or investment purpose, not for personal, family, or household purposes. The definition of "commercial property tax loan" states that the term refers to a property tax loan that is not a residential property tax loan. The new definitions of "residential property tax loan" and "commercial property tax loan" are intended to provide consistent terminology in provisions related to disclosures and closing costs. The term "residential property tax loan" is also used to specify the scope of the limitation on closing costs, as discussed later in this adoption in the description of amendments to §89.601(a).
Adopted amendments to §89.207 specify records that property tax lenders are required to maintain. These amendments ensure that the Office of Consumer Credit Commissioner (OCCC) can review a licensee's records to verify compliance with applicable law. First, an amendment to §89.207(3)(A)(viii) specifies that a property tax lender must maintain any affidavits signed by the borrower applicable to the property tax loan, in addition to signed agreements and disclosures required by the current rule. This would include an affidavit regarding the use of commercial property, as described in the definition of "residential property tax loan" in §89.102(10). Second, an amendment to §89.207(3)(B) specifies that the current requirement regarding the right of rescission refers to maintaining the notice of the right of rescission, as required by Regulation Z, 12 C.F.R. §1026.23. Third, an adopted amendment to §89.207(3)(H) provides that if a property tax loan is satisfied through a foreclosure, the property tax lender must maintain the foreclosure deed, instead of the release of lien required by the current rule. This amendment is in response to an official comment on the notice of intention to review, which requests clarification on this issue. In the case of a foreclosure, there might not be a release of lien. Fourth, an adopted amendment to §89.207(3)(I)(ii) specifies that a property tax lender must maintain receipts and invoices for attorney's fees charged under Texas Finance Code, §351.0021(a)(6), which authorizes a reasonable post-closing fee for title examination and preparation of an abstract of title by an attorney, a title company, or a property search company authorized to do business in this state.
An adopted amendment to §89.208(h) explains that the annual percentage rate (APR) disclosed in a property tax loan advertisement must be calculated in accordance with the adopted amendment to §89.502(2). This amendment ensures that the method of calculating APR is consistent throughout the rules governing property tax lenders, as discussed later in this adoption in the description of amendments to §89.502. It will also ensure that potential borrowers receive information that will enable them to make an informed borrowing decision.
An adopted amendment to §89.301 adds a definition of "parent entity," specifying that this term refers to a direct owner of a licensee or applicant. This definition clarifies the provisions on mergers and license transfers in §89.303 and §89.304, discussed later in this adoption, and is consistent with other OCCC licensing rules.
Also in §89.301, an amendment to adopted §89.301(3)(A) (former §89.301(2)(A)) amends the definition of "principal party" for sole proprietorships. The amendment removes the statement that proprietors include spouses with a community property interest. In addition, an amendment to §89.302(1)(A)(iv)(I) removes the requirement to disclose community property interests and documentation regarding separate property status, and replaces it with a requirement to disclose the names of the spouses of principal parties if requested. The agency currently spends considerable time requesting information from license applicants to determine the status of spouses' property interests, and explaining these concepts to applicants. These amendments will help streamline the licensing process and reduce regulatory burden. The amendments will also make the application process simpler and more straightforward for applicants. In specific cases where the spouse is a principal party, the OCCC would be able to request additional information about the spouse under current §89.302(1)(C)(i)-(ii).
Section 89.303 has been repealed and replaced with a new rule, with the intent to clarify the requirements when a licensee transfers ownership. Previously, §89.303 described what constitutes a transfer of ownership requiring the filing of a transfer application. The adopted new rule largely maintains the requirements under the former rule, but it provides two different paths the transferee can take for a transfer of ownership: either an application to transfer the license, or a new license application on transfer of ownership. The amendments outline what the application has to include, the timing requirements, and which parties are responsible at different points in the transfer process. Subsection (a) describes the purpose of the new section. Subsection (b) defines terms used throughout the section. In particular, subsection (b)(3) defines the phrase "transfer of ownership," listing different types of changes in acquisition or control of the licensed entity. Subsection (c) specifies that a license may not be sold, transferred, or assigned without the written approval of the OCCC, as provided by Texas Finance Code, §351.163. Subsection (d) provides a timing requirement, stating that a complete license transfer application or new license application on transfer of ownership must be filed no later than 30 days after the transfer of ownership. Subsection (e) outlines the requirements for the license transfer application or new license application on transfer of ownership. These requirements include complete documentation of the transfer of ownership, as well as a complete license application for transferees that do not hold an existing property tax lender license. Subsection (e)(5) explains that the application may include a request for permission to operate. Subsection (f) provides that the OCCC may issue a permission to operate to the transferee. A permission to operate is a temporary authorization from the OCCC allowing a transferee to operate while final approval is pending for an application. Subsection (g) specifies the transferee's authority to engage in business if the transferee has filed a complete application including a request for permission to operate. It also requires the transferee to immediately cease doing business if the OCCC denies the request for permission to operate or denies the application. Subsection (h) describes the situations where the transferor is responsible for business activity at the licensed location, situations where the transferee is responsible, and situations where both parties are responsible.
In §89.304, concerning Change in Form or Proportionate Ownership, conforming changes are adopted corresponding to adopted new §89.303. Throughout subsections (b) and (c), references have been added to the new license application on transfer of ownership. In addition, amendments in subsection (b) clarify situations where a merger is a transfer of ownership. The amendments specify that if a licensee is a party to a merger that results in a new or different surviving entity other than the licensee, then the merger is a transfer of ownership, and the licensee must file a license transfer application or new license application. The amendments to subsection (b) are intended to clarify the current rule text and are consistent with the OCCC's current policy.
Adopted amendments to §89.306 clarify the circumstances in which a licensee must notify the OCCC of changes to information in the original license application. The amendments specify that the requirement to provide updated information within 14 days applies before a license application is approved. Adopted new §89.306(b) provides that a licensee must notify the OCCC within 30 days if the information relates to the names of principal parties, criminal history, regulatory actions, or court judgments. Adopted new §89.306(c) specifies that each applicant or licensee is responsible for ensuring that all contact information on file with the OCCC is current and correct, and that it is a best practice for licensees to regularly review contact information.
An adopted amendment to §89.310(c) provides that a license applicant must pay a fee to a party designated by the Texas Department of Public Safety (DPS) for processing fingerprints, replacing a statement that the fee will be paid to the OCCC. This amendment conforms the rule to the method by which applicants currently provide fingerprint information through DPS's Fingerprint Applicant Services of Texas (FAST) program.
Adopted amendments to §89.403 clarify the agency's procedure for providing delinquency notices to licensees that have failed to pay an annual assessment fee. The amendments specify that notice of delinquency is considered to be given when the OCCC sends the notice by mail to the address on file with the OCCC as a master file address, or by e-mail to the address on file with the OCCC (if the licensee has provided an e-mail address).
An adopted amendment to §89.404 contains a technical correction to ensure that the rule refers to "the prior calendar year's loan activity."
Adopted new §89.405 specifies the criminal history information collected by the OCCC, outlines factors the OCCC will consider when reviewing criminal history information, and describes grounds for denial, suspension, and revocation of a property tax lender license. This section replaces former §89.405 and §89.406, which have been repealed. Subsection (a) describes the OCCC's collection of criminal history record information from law enforcement agencies. Subsection (b) identifies the criminal history information that the applicant must disclose. Subsection (c) describes the OCCC's denial, suspension, and revocation based on crimes that are directly related to the licensed occupation of property tax lender. Subsection (c)(1) lists the types of crimes that the OCCC considers to directly relate to the duties and responsibilities of being a property tax lender, including the reasons the crimes relate to the occupation, as provided by Texas Occupations Code, §53.025(a). Subsection (c)(2) contains the factors the OCCC will consider in determining whether a criminal offense directly relates to the duties and responsibilities of a licensee, as provided by Texas Occupations Code, §53.022. Subsection (c)(3) provides the mitigating factors the OCCC will consider to determine whether a conviction renders an applicant or licensee unfit, as provided by Texas Occupations Code, §53.023. Subsection (d) describes the OCCC's authority to deny a license application if it does not find that the financial responsibility, experience, character, and general fitness of the applicant are sufficient to command the confidence of the public and warrant the belief that the business will be operated lawfully and fairly, as provided by Texas Finance Code, §351.104(a)(1). Subsection (e) explains that the OCCC will revoke a license on the licensee's imprisonment following a felony conviction, felony community supervision revocation, revocation of parole, or revocation of mandatory supervision, as provided by Texas Occupations Code, §53.021(b). Subsection (f) identifies other grounds for denial, suspension, or revocation, including convictions for specific offenses described by statutory provisions cited in the rule.
The adopted amendments to §§89.502, 89.503, 89.504, and 89.506 contain updated disclosure requirements for property tax loans. These amendments include a new version of the pre-closing disclosure required under Texas Tax Code, §32.06(a-4)(1), which provides that the commission will "prescribe the form and content of an appropriate disclosure statement to be provided to a property owner before the execution of a tax lien transfer." The former version of this disclosure, located at §89.506(a), is a one-page form with information about what a property tax loan is, the possibility of foreclosure, and OCCC contact information. The new pre-closing disclosure in this adoption adds an itemization of the costs of a property tax loan, and for residential property tax loans, it includes the annual percentage rate (APR). The adopted amendments to §89.502 describe a standardized method for property tax lenders to calculate the APR.
In light of Billings, the commission believes that it is an appropriate time to revisit the content of the required pre-closing disclosure, and to add information about costs and APR. The Texas Legislature recognized that much of this information is important to disclose to borrowers when it added Texas Finance Code, §351.0023 in SB 247 (2013). That section requires property tax loan advertisements and solicitations to disclose information such as the terms of repayment and APR. In addition, the agency understands that most property tax lenders are already providing this information to borrowers in some form between application and closing. Another purpose of the adopted amendments is to provide a standardized method for disclosing this information that is already being provided, which further helps borrowers make an informed borrowing decision.
Adopted amendments to §89.502 add definitions of the terms "amount financed," "annual percentage rate," "finance charge," and "total of payments." The amount financed, finance charge, and total of payments are all used to calculate the APR. The definitions are intended to provide a standardized, uniform method of calculating the APR for a property tax loan. When this information is disclosed to borrowers through a standardized method, this enables borrowers to shop among lenders, enhancing competition. These terms are used in calculating the amounts on the amended pre-closing disclosure, as described later in the discussion of the adopted amendments to §89.504 and §89.506.
Under the adopted definition at §89.502(2), the APR would be calculated based on the methods described in Regulation Z, 12 C.F.R. §1026.22, which contains a standardized method for calculating APR that is generally used in consumer credit transactions. For this reason, the APR can provide residential borrowers with a benchmark for comparing property tax loans to other loan products that may serve their needs.
One of the key components used in calculating the APR is the finance charge. Generally, the finance charge is the cost of credit as a dollar amount. Regulation Z, 12 C.F.R. §1026.4(a). Other things being equal, a higher finance charge will result in a higher APR. The adopted definition in §89.502(3) explains that the finance charge includes all interest and closing costs paid to the property tax lender or an affiliated business. The term "affiliated business" is defined in current §89.102(1), and includes a business that shares common management with a property tax lender, shares more than 10% common ownership with a property tax lender, or is controlled by a property tax lender through a controlling interest greater than 10%. At the stakeholder meeting, one stakeholder pointed out that certain property tax lenders impose internal costs that they retain, while other property tax lenders pass costs on to affiliated businesses. The stakeholder noted that if a property tax lender can exclude costs paid to the affiliated businesses from the finance charge, this will enable the property tax lenders using affiliated businesses to disclose a lower APR than property tax lenders imposing internal costs, even if the costs are substantially the same for the borrower. In response to this stakeholder statement, the new definition of "finance charge" in §89.502(3) specifies that the finance charge includes interest and closing costs paid to an affiliated business. This definition will ensure that a prospective borrower can accurately compare rates between a property tax lender that generally retains fees for services performed at closing, and a property tax lender that passes fees on to an affiliated business.
Since the proposal, a change has been made to the definition of "finance charge" in §89.502(3) to divide parts of the definition into lettered subparagraphs, and to add a statement that the finance charge excludes an amount to pay off an existing property tax loan in the case of a refinance. This change is intended to make the definition clearer, and to conform to changes in §89.504(a)(6)(A) and (a)(8)(D), discussed later in this adoption.
The adopted amendments to §89.503(b) and (c) add the Calibri font to the list of typefaces considered to be readable, and specify that the text of the disclosure must generally be at least as large as 11 points in the Calibri font. These amendments reflect the updated pre-closing disclosure, which was prepared in the Calibri font for improved readability and design.
The adopted amendments to §89.504 describe the content of the amended pre-closing disclosure. These amendments generally maintain the elements that are required to be in the disclosure under current §89.504, while providing additional disclosures. Adopted amendments at §89.504(a)(1) - (4) require the pre-closing disclosure to include the parties' contact information, and for a residential property tax loan, require the disclosure to state the name and Nationwide Multistate Licensing System (NMLS) identification number of the residential mortgage loan originator. Under Texas Finance Code, §351.0515, an individual who acts as a residential mortgage loan originator for a property tax loan must be individually licensed with the OCCC. Disclosing the originator's name and NMLS ID number helps ensure that the property tax lender has complied with this requirement.
Adopted §89.504(a)(6) requires the pre-closing disclosure to include a section labeled "Loan Terms," including the funds advanced under Texas Tax Code, §32.06(e) (labeled as the "loan amount"), the contract interest rate, the term of the property tax loan in months, the monthly payment amount, the payment schedule, and a provision explaining whether there is a prepayment penalty.
Several precommenters requested guidance about whether prepaid interest could be included in the funds advanced listed on the pre-closing disclosure. The funds advanced are expressly limited by Texas Tax Code, §32.06(e), which states: "Funds advanced are limited to the taxes, penalties, interest, and collection costs paid as shown on the tax receipt, expenses paid to record the lien, plus reasonable closing costs." Interest paid to the property tax lender, including prepaid interest, is not part of the funds advanced under this section. Although this provision mentions interest, this refers to interest paid to the taxing unit as shown on the tax receipt. In response to the precommenters' request for guidance, adopted §89.504(a)(6)(A) explains that the funds advanced include the amounts described by Texas Tax Code, §32.06(e), and do not include prepaid interest. Prepaid interest is disclosed separately on the pre-closing disclosure, as explained later in the discussion of §89.504(a)(9). At the stakeholder meeting, one stakeholder explained that some property tax lenders include prepaid interest (other than discount points) in the principal balance of the loan, but do not charge interest upon the prepaid interest. This adoption does not specifically address this practice, but it would require the lender to exclude any prepaid interest from the loan amount on the pre-closing disclosure.
Adopted §89.504(a)(7) requires the pre-closing disclosure for a residential property tax loan to include a section labeled "Loan Calculations," containing the APR, amount financed, finance charge, and total of payments. One commenter suggests that this section be titled "Loan Calculations" instead of "Loan APR Calculation." In response to this comment, §89.504(a)(7) as adopted uses the title "Loan Calculations."
Adopted §89.504(a)(8) requires the pre-closing disclosure to include a section labeled "Loan Amount Itemization," containing itemizations of the amounts paid to taxing units, closing costs, and recording costs. At the stakeholder meeting, two stakeholders noted that some amounts may be paid to an entity other than a taxing unit (e.g., collection costs paid to a district clerk). In response to these statements, adopted §89.504(a)(8)(A)(i) explains that the itemization includes amounts paid to taxing units or other governmental entities as shown on the tax receipt.
Since the proposal, changes have been made to §89.504(a)(6)(A) and (a)(8)(D) in response to a comment. The commenter states that the pre-closing disclosure "should be altered to allow for a Refinance of an Existing Loan in the 'Loan Amount Itemization' section." In response to this comment, §89.504(a)(6)(A) as adopted explains that the funds advanced include any amount to pay off an existing property tax loan in the case of a refinance. In addition, §89.504(a)(8)(D) as amended specifies that these amounts must be listed, along with the name of each property tax lender to which an amount will be paid, in a subsection labeled "Refinance of current property tax loan."
Adopted §89.504(a)(9) requires the pre-closing disclosure to include a section labeled "Prepaid Interest," containing the total amount of any prepaid interest, itemized into per diem interest and discount points.
Adopted §89.504(a)(10) requires the following tax office notice in boldface type: "Your tax office may offer delinquent tax installment plans that may be less costly to you. You can request information about the availability of these plans from the tax office." This disclosure is based on Texas Finance Code, §351.0023(a), which requires this notice to be included on the first page of any solicitation materials in 12-point boldface type. Three precommenters stated that this notice is unnecessary on the pre-closing disclosure, arguing that it should apply only to advertisements and solicitations. The commission disagrees with this argument for two reasons. First, the pre-closing disclosure might be used as a solicitation, which would trigger the requirement in Texas Finance Code, §351.0023 to include the notice. Second, the notice provides potential borrowers with important information that they should consider before entering a property tax loan, as the legislature acknowledged by enacting Texas Finance Code, §351.0023.
Adopted §89.504(a)(23) contains updates to the OCCC's contact information in the pre-closing disclosure. In accordance with instructions from the Texas Department of Information Resources, the OCCC has updated its website and e-mail address with the "texas.gov" extension: occc.texas.gov and consumer.complaints@occc.texas.gov. Other revisions have been made to the text of the OCCC notice to provide more clarity to consumers regarding the role of the OCCC in resolving complaints.
Adopted amendments to §89.504(b) explain that the pre-closing disclosure must fit on two pages, but a property tax lender may attach additional pages if necessary to disclose additional taxing units, additional third parties receiving closing costs, or additional government units receiving recording expenses.
Adopted §89.504(c) explains that all information on the disclosure must be accurate, and the APR must be accurate within 1/8 of 1 percentage point. If the property tax lender learns that the information is inaccurate, then it must notify the property owner of the inaccuracy and provide an updated disclosure.
Since the proposal, changes have been made to §89.504(c) in response to comments. All three written comments address §89.504(c), and the provision was also addressed in the oral comment. All of the commenters expressed concern about the requirement in proposed §89.504(c) that the property tax lender must "promptly" notify the property owner of any inaccuracy. One commenter "proposes that a pre-closing re-disclosure only be required if the APR increases or if closing costs increase. To the extent the APR is unchanged or decreases and/or non-financial terms are changed, we propose requiring a re-disclosure be provided at closing." In an oral comment, the commenter gave the following example. The property tax lender provides an initial disclosure stating that there are $500 in closing costs, with $200 paid to a third party and $300 paid to the property tax lender. Before closing, the property tax lender learns that $300 will have to be paid to the third party, but the property tax lender determines that only $200 will be paid to it, resulting in the same $500 total closing costs and a slightly reduced APR compared to the initial disclosure. The commenter argued that the property tax lender should not be required to promptly provide an amended disclosure in this situation, because there is no increase in costs being paid by the property owner. Along the same lines, another commenter recommends: "Allow PTL to overstate APR initially, without having to re-disclose prior to closing, as long as the APR provided at closing is accurate." Finally, another commenter recommends that the commission allow the APR to be considered accurate if it is based on a finance charge that is either understated by $100 or less or overstated by any amount, based on the accuracy tolerances for mortgage loans under Regulation Z, 12 C.F.R. §1026.22(a)(4).
In response to these comments, §89.504(c)(2) as adopted provides that a dollar amount on the disclosure will be considered accurate if it is not more than $10 above or below the actual amount charged under the terms of the property tax loan. The commission believes that this $10 amount is appropriate given the size of property tax loans and the amount of closing costs, which are generally limited to $900 under §89.601 for residential property tax loans. The $10 accuracy threshold strikes a balance between ensuring that property owners receive accurate information and allowing minor variances for changes that property tax lenders cannot predict. The commission disagrees with the recommendation that the finance charge be considered accurate if it is understated by $100 or overstated by any amount. This recommendation would not provide property owners with sufficiently accurate information about the cost of loans to enable them to make an informed borrowing decision.
Also in response to these comments, §89.504(c)(3) as adopted provides a general timing requirement, stating that the amended disclosure must be provided before the property owner executes a property tax loan contract. However, if the inaccuracy results in an increase of more than $10 to certain amounts paid by the property owner, or an increase of more than 1/8 of 1 percentage point to the APR, then the property tax lender must promptly provide the amended disclosure after learning of the inaccuracy. The commission believes that this timing requirement strikes an appropriate balance by ensuring that property owners have accurate disclosures at the time of closing, and that they promptly receive updated disclosures if they will have to pay more than originally disclosed.
Adopted amendments at §89.504(d) - (g) contain technical corrections and updated citations. This adoption maintains the current requirements for delivering the pre-closing disclosure. In particular, the adoption does not amend the timing requirement currently in §89.504(c)(2)(B), which provides that the disclosure must be delivered "within three business days from receipt of the property owner's application for a property tax loan, or within three business days from the date that the property tax lender first has knowledge of the property owner's agreement to enter into a property tax loan with the property tax lender." One precommenter stated that this requirement should be maintained for the pre-closing disclosure, while another suggests that the disclosure should be provided at least three days before closing. The commission believes that the current requirement of providing the disclosure within three days of the application provides the borrower with an appropriate amount of time to review the cost information, consider alternatives, and reach an informed borrowing decision. If any information on the disclosure changes and renders the disclosure inaccurate, the property tax lender would be required to notify the property owner and provide an updated disclosure under §89.504(c)(3).
As adopted, §89.504(e)(2)(F) maintains the previous provision on verification of delivery by email, stating that email delivery may be verified by a dated reply email or affirmative consent under the E-Sign Act, 15 U.S.C. §7001(c). Regarding this provision, one commenter states: "Do not burden consumers with regulation. Technology allows email senders to receive a confirmation receipt. The proposed rules require a response from customer by email and it is inappropriate to place a regulatory burden on customers." The commission disagrees with the suggestion that §89.504(e)(2)(F) places a regulatory burden on property owners. This provision describes methods by which the property tax lender can verify compliance with its legal responsibility to provide the disclosure statement to the property owner. This provision does not impose a requirement on property owners. The commission believes that it is appropriate to maintain this requirement, so that property tax lenders can verify delivery of electronic disclosures. In addition, the E-Sign Act provides a widely accepted method for electronic delivery of disclosures. The commenter's concern about providing email disclosures is partially addressed by the changes in adopted §89.504(c)(3), which allow certain amended disclosures to be provided at closing.
The adopted amendments to §89.506 contain the updated figures for the pre-closing disclosure, with one version for residential property tax loans and another for commercial property tax loans.
Adopted amendments to §89.507 describe the permissible changes to the pre-closing disclosure. As mentioned previously, at the stakeholder meeting, two stakeholders noted that some amounts may be paid to an entity other than a taxing unit (e.g., collection costs paid to a district clerk). In response to these statements, adopted §89.507(a)(5) allows the property tax lender to replace "Amounts paid to taxing units" with "Amounts paid to taxing units and governmental entities" if the property tax lender pays amounts to other governmental entities and these amounts are shown on the tax receipt.
Since the proposal, a change has been made to §89.507(a)(6) to allow the property tax lender to add or omit lines in the "Loan Amount Itemization" section as necessary to disclose any amounts to refinance an existing property tax loan. This change is intended to conform to changes in §89.504(a)(6)(A) and (a)(8)(D), discussed earlier in this adoption.
In addition, at the stakeholder meeting, one stakeholder suggested adding language to the pre-closing disclosure stating that the APR is not the same as the interest rate, while another stakeholder suggested that this disclosure should be optional. In response to these recommendations, adopted §89.504(a)(7) allows the property tax lender to add the following sentence to the APR line: "This is not your interest rate." Other permissible changes adopted in §89.507 include omitting the loan identification number, adding or omitting lines in the loan amount itemization to disclose all amounts paid to third parties, omitting the prepaid interest section if there is no prepaid interest charged, and adding any required disclosure of affiliated businesses under §89.504(g).
One commenter requests "a January 1, 2017 implementation date for the new forms and disclosures." The agency understands the commenter to be requesting a delayed implementation date of January 1, 2018. In response to this comment, the agency will allow a delayed implementation date of January 1, 2018, for property tax lenders to provide the amended version of the pre-closing disclosure under §89.504 and §89.506. From the rule's effective date until January 1, 2018, property tax lenders may provide property owners with either the previous version of the disclosure or the amended version. Starting on January 1, 2018, property tax lenders must provide the amended version.
An adopted amendment to §89.601(a) specifies that the limitations in the rule governing closing costs for property tax loans apply to residential property tax loans, as defined by §89.102(10), discussed earlier in this adoption. This amends the former requirement, which stated that the limitations applied to property tax loans secured by property designated as "Category A (Real Property: Single-Family Residential)," and homesteads designated as "Category E (Real Property: Farm and Ranch Improvements)" by the Property Classification Guide published by the Texas Comptroller of Public Accounts.
In two of the comments on the notice of intention to review, the commenters recommend limiting the scope of the closing cost rule's limitations to homestead property. Several stakeholders reiterated this recommendation at the stakeholder meeting and in written precomments on the proposal. In response to these comments and precomments, the adopted amendment to §89.601(a), read together with the new definition of "residential property tax loan" in §89.102(10), specifies that the closing cost limitations apply to all property tax loans including a lien on residential property, including all homestead property, as well as any property with a Category A designation, unless the property tax lender obtains an affidavit stating that the property is used for a business or investment purpose. Effectively, this means that the closing cost limitations in §89.601 would no longer apply to Category A property that is owned and used for a business purpose (e.g., rental property), as long as the property tax lender obtains and maintains the appropriate affidavit. All property tax loan closing costs are still required to be reasonable under Texas Tax Code, §32.06(e). The limitations for residential property tax loans in §89.601 are intended to strike an appropriate balance between consumer protection and industry cost recovery. The commission believes that these amendments help strike that balance. The commission disagrees with the suggestion that the rule should only apply to homestead property. Certain non-homestead property, such as a second home, is used as residential property for personal, family, or household use, and it is appropriate to ensure that these property owners can benefit from the consumer protections in §89.601.
Adopted amendments to §89.601(c)(4) deal with closing costs authorized for additional parcels of land. Previously, the rule provided that the property tax lender may charge up to $100, in addition to the general $900 maximum, for each additional parcel of residential property described by §89.601(a). In two of the comments on the notice of intention to review, the commenters recommended allowing the additional $100 in closing costs for each additional parcel of commercial property, for property tax loans that cover both residential and commercial property. Similarly, in one of the comments on the proposal, the commenter recommends clarifying that the property tax lender may charge up to $100 for each additional property, regardless of property category. Property tax loans that cover both residential and commercial property are subject to the limitations of §89.601, but the former rule authorized the additional $100 only for residential parcels. In response to these comments, the adopted amendments to §89.601(c)(4) remove language limiting the additional $100 authorization to residential parcels, effectively allowing $100 for each additional parcel regardless of whether it is residential or commercial. This is intended to reflect actual costs incurred by the property tax lender through closing for a property tax loan that includes both residential and commercial property.
Some precommenters recommended increasing the $100 per parcel amount in §89.601(c)(4). Two precommenters suggested a general $150 amount, while another suggested a $300 amount for commercial property. The commission recently adopted the $100 amount in 2015, following an extensive review of closing costs charged in connection with property tax loans. The commission believes that it is unnecessary to amend the $100 amount at this time.
Adopted §89.702(d)(3) allows a permissible change to the certified statement signed by the taxing unit. In a comment on the notice of intention to review, one commenter explained that Texas Tax Code, §33.445 authorizes tax lien transfers when a taxing unit files suit to foreclose a tax lien and joins a tax lien transferee. The commenter recommended allowing the certified statement's citation to §32.06 to be amended in this situation. In response to this comment, adopted §89.702(d)(3) allows a taxing unit to replace "Texas Tax Code, §32.06" with "Texas Tax Code, §33.445" if the transfer occurs in connection with the joinder of a tax lien transferee under Texas Tax Code, §33.445(a).
Some of the comments make additional recommendations on the following issues that were not addressed in the proposal: (1) the prohibition on a property tax loan for property financed by a below market rate loan under Texas Tax Code, §32.06(a-8)(1); (2) the limitation on fees for filing a release under current 7 TAC §89.602; and (3) waiver of the right of rescission under Texas Tax Code, §32.06(d-1). Because these issues are outside the subject matter included in the proposal, adopting this change would require a separate rulemaking action with a new publication for comment. See State Bd. of Ins. v. Deffebach, 631 S.W.2d 794, 801 (Tex. App.--Austin 1982, writ ref'd n.r.e.). However, the agency invites responses from stakeholders as discussed in the following paragraphs.
Regarding below market rate loans, two comments request guidance on what constitutes a below market rate loan for purposes of Texas Tax Code, §32.06(a-8)(1). In order to determine whether a future rule action on this issue is appropriate, the agency invites responses from stakeholders on the following questions: What types of real property financed by governmental or nonprofit loans have stakeholders encountered? What rates have stakeholders encountered in connection with these loans? Is it unclear whether these rates are below market rate? What would be the benefits and drawbacks of adopting a rule on this issue?
Regarding lien release fees, one commenter provided a list of real property record filing fees charged by a county, and requested an increase in the lien release fee under §89.602. In order to determine whether a future rule action on this issue is appropriate, the agency invites responses from stakeholders on the following questions: What costs have stakeholders encountered in filing a lien release? What are the actual costs charged by county clerks? What would be the benefits and drawbacks of amending the $110 maximum in 89.602(c)?
Regarding waiver of the right of rescission under Texas Tax Code, §32.06(d-1), one commenter recommends that the commission "clarify scenarios where a PTL may waive the 3 Day Right to Rescind," including "foreclosure due to tax sale" or a "significant financial penalty." The commission disagrees with this recommendation. Texas Tax Code, §32.06(d-1), provides: "A right of rescission described by 12 C.F.R. Section 226.23 applies to a transfer under this section of a tax lien on residential property owned and used by the property owner for personal, family, or household purposes." The situations where a borrower may waive the right of rescission are described in Regulation Z, 12 C.F.R. §226.23(e)(1) and §1026.23(e), which provide: "The consumer may modify or waive the right to rescind if the consumer determines that the extension of credit is needed to meet a bona fide personal financial emergency. To modify or waive the right, the consumer shall give the creditor a dated written statement that describes the emergency, specifically modifies or waives the right to rescind, and bears the signature of all the consumers entitled to rescind. Printed forms for this purpose are prohibited . . . ." Because Regulation Z and its official commentary specify the situations where a right of rescission may be waived, the commission believes that additional rules on this issue are unnecessary at this time.
The amendments are adopted under Texas Finance Code, §11.304, which authorizes the commission to adopt rules to ensure compliance with Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §351.007 grants the commission the authority to adopt rules to enforce Texas Finance Code, Chapter 351 and Texas Tax Code, §32.06 and §32.065.
The rule change in §89.207 is adopted under Texas Finance Code, §351.0023(f), which authorizes the commission to adopt rules to implement requirements on advertising. The rule changes in §§89.502, 89.503, 89.504, and 89.506 are adopted under Texas Tax Code, §32.06(a-4)(1), which authorizes the commission to adopt the form and content of the pre-closing disclosure statement. The rule changes in §89.601 are adopted under Texas Tax Code, §32.06(a-4)(2), which authorizes the commission to adopt rules relating to the reasonableness of closing costs, fees, and other permitted charges.
The statutory provisions affected by the adopted rule changes are contained in Texas Finance Code, Chapter 351 and Texas Tax Code, Chapter 32.
TRD-201704238
The rule change in §89.207 is adopted under Texas Finance Code, §351.0023(f), which authorizes the commission to adopt rules to implement requirements on advertising.
TRD-201704239
The amendments and new rule are adopted under Texas Finance Code, §11.304, which authorizes the commission to adopt rules to ensure compliance with Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §351.007 grants the commission the authority to adopt rules to enforce Texas Finance Code, Chapter 351 and Texas Tax Code, §32.06 and §32.065.
TRD-201704240
The repeal is adopted under Texas Finance Code, §11.304, which authorizes the commission to adopt rules to ensure compliance with Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §351.007 grants the commission the authority to adopt rules to enforce Texas Finance Code, Chapter 351 and Texas Tax Code, §32.06 and §32.065.
The statutory provisions affected by the adopted repeal are contained in Texas Finance Code, Chapter 351 and Texas Tax Code, Chapter 32.
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The repeals are adopted under Texas Finance Code, §11.304, which authorizes the commission to adopt rules to ensure compliance with Title 4 of the Texas Finance Code. Additionally, Texas Finance Code, §351.007 grants the commission the authority to adopt rules to enforce Texas Finance Code, Chapter 351 and Texas Tax Code, §32.06 and §32.065.
The statutory provisions affected by the adopted repeals are contained in Texas Finance Code, Chapter 351 and Texas Tax Code, Chapter 32.
TRD-201704246
The rule changes in §§89.502, 89.503, 89.504, and 89.506 are adopted under Texas Tax Code, §32.06(a-4)(1), which authorizes the commission to adopt the form and content of the pre-closing disclosure statement.
(3) Finance charge--The cost of a property tax loan expressed as a dollar amount. The finance charge includes all interest scheduled to be paid to the property tax lender, including prepaid interest, and includes all closing costs to be retained by the property tax lender or an affiliated business.
(A) The finance charge does not include amounts actually paid to a taxing unit for taxes, penalties, interest, and collection costs.
(B) In the case of a refinance of an existing property tax loan, the finance charge does not include the amount paid to the existing property tax lender to pay off the existing loan.
(C) A property tax lender may exclude recording expenses actually paid to a governmental unit from the finance charge.
(D) A property tax lender may exclude closing costs actually paid to third parties from the finance charge only if the costs are bona fide, reasonable in amount, and paid to a person that is not an affiliated business.
(4) Property tax lender--Has the meaning assigned by Texas Finance Code, §351.002(1). Another name for a "property tax lender" is a "transferee" as defined by Texas Tax Code, §32.06(a)(2), and these terms may be used synonymously.
(5) Property tax loan--Has the meaning assigned by Texas Finance Code, §351.002(2). Another name for a "property tax loan" is a "tax lien transfer," and these terms may be used synonymously.
(6) Tax lien transfer--Has the meaning assigned by Texas Finance Code, §351.002(2). Another name for a "tax lien transfer" is a "property tax loan," and these terms may be used synonymously.
(8) Transferee--Has the meaning assigned by Texas Finance Code, §351.002(1), and Texas Tax Code, §32.06(a)(2). Another name for a "transferee" is a "property tax lender," and these terms may be used synonymously.
(3) the property tax lender's name, principal business address, and OCCC license number;
(A) the funds advanced under Texas Tax Code, §32.06(e), which are limited to the taxes, penalties, interest, and collection costs paid as shown on the tax receipt, expenses paid to record the lien, reasonable closing costs, and any amount to pay off an existing property tax loan in the case of a refinance, and may not include any prepaid interest, labeled "Loan Amount (funds advanced on your behalf)";
(7) for a residential property tax loan, a section labeled "Loan Calculations" containing the following:
(D) in the case of a refinance of an existing property tax loan, a subsection labeled "Refinance of current property tax loan" listing:
(i) the total of amounts to pay off any existing property tax loan or loans;
(ii) the name of each property tax lender to which an amount will be paid to pay off an existing property tax loan; and
(iii) the amount to be paid to each property tax lender to pay off an existing property tax loan;
(11) a statement that the property owner currently has a lien against the owner's property for unpaid property taxes;
(12) a statement that the property owner can pay the taxing unit(s) directly;
(13) a statement that the property owner may authorize that the lien of the taxing unit(s) be transferred to the property tax lender;
(14) a statement that unless the property owner agrees in writing, the property tax lender may not make the property tax loan;
(15) a statement that the property tax loan may include unpaid property taxes, penalties, interest, and collection costs paid as shown on the tax receipt;
(16) a statement that the property tax lender may also assess closing costs and interest not to exceed 18% per year;
(17) a statement that the property tax loan is superior to any other preexisting lien on the property;
(18) a statement that if the property is a homestead, disabled persons are entitled to tax deferral under Texas Tax Code, §33.06;
(19) a statement that there may be alternatives available to the property owner instead of the property tax loan, (e.g., entering into a payment installment agreement with the taxing unit(s), financing options through an existing mortgage lender or other private lenders, borrowing from savings or family members);
(20) a statement that if the property owner does not pay, the property owner may lose the property;
(21) a statement that the tax lien may be considered a default by any mortgage holder with a lien on the same property, and the only way to correct the default is to pay off the taxes and have the lien released;
(22) a statement that any secured loan may be foreclosed if the loan is in default, and the cost of a foreclosure, either tax lien or mortgage, may be added to the amount owed by the property owner;
(24) a statement that the property owner may seek the advice of an attorney or another third party before signing a property tax loan; and
(25) a statement that the property owner should ask about the terms of any loan and should read any document before signing it.
(b) Page requirement. The disclosure statement must fit on one standard-size sheet of paper (8 1/2 by 11 inches) printed on both sides, or on two standard sheets of paper printed only on the front sides of each page. A property tax lender may attach additional pages if necessary to disclose additional taxing units, additional third parties receiving closing costs, additional governmental units receiving recording expenses, or additional information regarding amounts to pay off one or more existing property tax loans. The disclosure statement must be delivered in a manner that does not minimize its significance.
(2) Dollar amounts. For purposes of this subsection, a dollar amount on the disclosure will be considered accurate if it is not more than $10 above or below the actual amount charged under the terms of the property tax loan.
(3) Amended disclosure statement. At any time after delivering the disclosure statement, if the property tax lender learns that any information on the disclosure statement was inaccurate or did not correctly reflect the terms of the loan at closing, then the property tax lender must notify the property owner of the inaccuracy, and must send an amended, accurate disclosure statement to the property owner in a manner described by subsection (d) of this section. The amended disclosure statement must list the date on which it was revised.
(A) General timing requirement. The property tax lender must provide any amended disclosure statement to the property owner before the property owner executes any promissory note, loan agreement, deed of trust, contract, security deed, or other security instrument.
(B) Prompt disclosure for certain increased amounts. In addition to complying with subparagraph (A) of this paragraph, the property tax lender must provide the amended disclosure to the property owner promptly after discovering the inaccuracy if the inaccuracy results in:
(i) an increase of more than $10 to the total of payments, the closing costs, or the amount of any periodic payment, compared to the amount originally disclosed to the property owner; or
(ii) an increase of more than 1/8 of 1 percentage point to the annual percentage rate, compared to the amount originally disclosed to the property owner for a residential property tax loan.
(d) Delivery.
(1) Face-to-face interview before closing. In the case of a face-to-face interview, a property tax lender must provide a disclosure statement containing all of the elements outlined by subsection (a) of this section to the property owner at the time of the interview. A property owner present at the interview may sign an acknowledgment verifying receipt of the disclosure statement at that time.
(2) No face-to-face interview. If there is no face-to-face interview, a licensee must deliver a disclosure statement containing all of the elements outlined by subsection (a) of this section to the owner of the property.
(e) Verification of delivery.
(1) At time of face-to-face interview before closing. At the time of a face-to-face interview, verification that a disclosure was provided under this section is not required, but may be established by a signed and dated acknowledgment of the property owner obtained at the time of the interview.
(2) No face-to-face interview. If there is no face-to-face interview, the property tax lender must deliver the disclosure statement to the property owner as prescribed in subsection (d)(2) of this section.
(F) Verification of delivery by email. For disclosures delivered via email, a dated reply email indicating that the disclosure statement was successfully delivered to the property owner will constitute verification of delivery. Alternatively, a property owner's affirmative consent to electronic delivery of the disclosure in accordance with the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. §7001(c), will constitute a rebuttable presumption for sufficient delivery.
(f) Acknowledgment at time of closing. At the time of closing, a property tax lender may deliver an additional copy of the disclosure statement, but is not required to do so. The property tax lender must obtain a dated acknowledgment signed by the property owner stating that the property owner received the disclosure statement prior to closing. The acknowledgment of receipt may be included on the disclosure form as provided in §89.507(a)(11) of this title (relating to Permissible Changes).
(g) Disclosure of affiliated businesses. If a property tax lender regularly contracts with one or more affiliated businesses for services under Texas Finance Code, §351.0021(a)(4), (a)(5), (a)(6), (a)(7), (a)(8), or (a)(10) that are not performed by an employee of the property tax lender, then the disclosure statement must include a statement substantially similar to the following: "The property tax lender can impose certain additional charges after closing. Some of these charges may be paid to (INSERT NAME OF AFFILIATED BUSINESS OR BUSINESSES), which is affiliated with the property tax lender. The costs paid to the affiliated business cannot be for services performed by employees of the property tax lender."
(a) A property tax lender must use the required disclosure statement under Texas Tax Code, §32.06(a-4)(1) as prescribed by Figure: 7 TAC §89.506(a)(1) or Figure: 7 TAC §89.506(a)(2) of this title, but may consider making only limited technical changes, as provided by the following exclusive list:
(1) Substituting "transferee" for "property tax lender," or using pronouns such as "we" and "us";
(2) Substituting "borrower" for "property owner," or using pronouns such as "you" and "your";
(3) Substituting "tax lien transfer" for "property tax loan";
(6) Adding or omitting lines in the "Loan Amount Itemization" section as necessary to disclose all amounts paid to third parties and any amounts to refinance an existing property tax loan;
(11) Adding an optional, dated signature block at the very bottom of the second page of the disclosure form, which must include the following statement directly above the signature line of the property owner(s): "ACKNOWLEDGMENT OF RECEIPT: By signing below, I acknowledge only that I have received a copy of this disclosure prior to closing, this ___ day of _____, 20__."
(b) A mortgage servicer or the holder of a first lien may consider making the following types of changes to the model notice of delinquency under Texas Tax Code, §32.06(f-1) as provided by Figure: 7 TAC §89.506(b) of this title:
(1) Adding information related to information set forth in the model disclosures that is not otherwise prohibited by law;
(2) Substituting "property tax lender" for "transferee," or using pronouns such as "you" and "your";
(3) Substituting "borrower" for "property owner";
(4) Presenting the model clauses in any order, and combining or further segregating the model clauses, if the revised format does not significantly adversely affect the substance, clarity, or meaningful sequence of the disclosures;
(5) Inserting descriptive titles, headings, subheadings, numbering, captions, and illustrative or explanatory tables or sidebars may be used to distinguish between different levels of information or to provide emphasis; or
(6) Making other changes which do not affect the substance of the disclosures.
TRD-201704242
The rule changes in §89.601 are adopted under Texas Tax Code, §32.06(a-4)(2), which authorizes the commission to adopt rules relating to the reasonableness of closing costs, fees, and other permitted charges.
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