Source: http://www.sos.state.tx.us/texreg/archive/September12017/Adopted%20Rules/7.BANKING%20AND%20SECURITIES.html
Timestamp: 2018-01-16 13:33:24
Document Index: 16786395

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The Finance Commission of Texas (commission) adopts new 7 TAC, Part 1, Chapter 7, §§7.101 - 7.105, concerning the Texas Financial Education Endowment Fund.
The commission adopts the new §§7.101 - 7.105 without changes to the proposed text as published in the June 30, 2017, issue of the Texas Register (42 TexReg 3327).
In general, the purpose of the adopted new rules is to provide rules for the administration of the Texas Financial Education Endowment (TFEE) fund created by Texas Finance Code, §393.628. The new rules place into regulation existing commission policy, including the TFEE Grant Administration and Advisory Policy Manual, and commission approval of award amounts and grantees for each grant cycle. Additionally, certain rules provide clarification and guidance regarding gifts, donations, and fund management.
The TFEE was enacted by the 82nd Texas Legislature in 2011 to support statewide financial capability and consumer credit building activities and programs. The Office of Consumer Credit Commissioner (OCCC) and grant coordinator, assisted by the Grant Advisory Committee (GAC), have developed policies and procedures approved by the commission to administer the TFEE fund. These policies have been continually updated and refined to provide more efficiency in the TFEE grant program and in fund management. This adoption codifies the core policies into regulation, while maintaining the commission's flexibility to approve particular award amounts, grantees, and policy improvements for each grant cycle.
The individual purposes of each adopted new rule are outlined in the following paragraphs.
Section 7.103 outlines the TFEE grant program, with provisions regarding grant cycle timing, eligible grant applicants, the grant application, commission approval of award amounts and grantees, the grant agreement, and grantee compliance. Additional subsections describe reporting and monitoring requirements, as well as reimbursement procedure. Adopted new §7.103 maintains the TFEE Grant Administration and Advisory Policy Manual, while providing further clarity for applicants and grantees.
Section 7.105 provides guiding principles for the management of the TFEE fund. Adopted new §7.105 references the statutory location and manner of investment for the TFEE fund.
The new rules are adopted under Texas Finance Code, §393.628(f), which authorizes the commission to adopt rules to administer the Texas Financial Education Endowment.
The statutory provisions affected by the adoption are contained in Texas Finance Code, Chapters 14 and 393.
TRD-201703201
The Finance Commission of Texas (commission) adopts amendments to §9.1, concerning Application, Construction, and Definitions, and §9.12, concerning Default, in 7 TAC, Chapter 9, concerning Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings.
The commission adopts the amendments to §9.1 and §9.12 without changes to the proposed text as published in the June 30, 2017, issue of the Texas Register (42 TexReg 3329).
The commission received one written comment on the proposal from the Consumer Service Alliance of Texas (CSAT). The commission's responses to the official comment received are included after the purpose discussions following each respective rule provision receiving comments.
The purpose of the adopted amendments is to clarify the procedures used by the finance agencies to dispose of a contested case in the event of default. The finance agencies are the Texas Department of Banking (DOB), the Texas Department of Savings and Mortgage Lending (SML), and the Office of Consumer Credit Commissioner (OCCC). The updates are necessary to reflect new default procedures enacted by the State Office of Administrative Hearings (SOAH), which became effective on January 1, 2017.
The adopted amendments to the default rules provide the finance agencies with specific procedures for resolving default cases that are remanded back to the agencies by SOAH. The agencies already have a default rule that applies to in-house contested case hearings.
The finance agencies circulated an early draft of proposed changes to interested stakeholders. The agencies received two informal written precomments. Certain recommendations by the precommenters were incorporated into the proposal and those suggestions have been maintained for this adoption.
The purpose of the adopted amendment to §9.1 is to clarify that an agency must follow the requirements of new subsection (b) of §9.12 for disposing of a default in a contested case hearing conducted by SOAH.
Regarding §9.1, the rule currently states that the SOAH rules of procedure govern contested case hearings conducted by SOAH. To create analogous procedures for resolving default cases remanded back to the agencies, the adopted amendment to §9.1 states that new §9.12(b) also governs contested case hearings conducted by SOAH.
Regarding §9.12, the adopted amendments maintain the current rule language in relettered subsection (a). An additional phrase is added to the beginning of subsection (a), specifying that the procedures in this subsection apply to hearings conducted by an administrative law judge employed or contracted by an agency.
The adopted amendments also add a new subsection (b) to §9.12. Subsection (b) specifies the default procedures that apply to hearings conducted by SOAH. The amendments: (1) specify how an agency may notify a party of a contested case hearing, (2) require the agency to prove that it provided proper notice to the defaulting party, and (3) provide procedures for agencies to follow when resolving default cases. The amendments do not affect a party's right to a hearing or impose additional requirements on the party.
Subsection (b) states that an agency may request that an administrative law judge make a finding of default in a hearing conducted by SOAH. Subsection (b)(1) describes the mailing address and method of service that the agency must use to serve the notice of hearing. Subsection (b)(2) requires the agency to present adequate proof that it properly served the opposing party with the notice of hearing. Subsection (b)(3) describes the effect of default, which includes deeming admitted the allegations in the notice of hearing and granting the relief sought in the notice.
Subsection (b)(4) states that the agency may request that a defaulted case be dismissed and remand to the agency for informal disposition. Subsection (b)(5) describes the content of the final order that the agency may issue, after a default case is dismissed and remanded to the agency.
The official commenter recommended adding a provision stating that "(a)n order issued by an agency after default has no precedential or evidentiary value in a subsequent action against another licensee alleging the same, or similar, violations." The commission disagrees with this suggestion for the following reasons.
The commenter cites to a 1996 Texas Supreme Court case regarding the use of an uncontested judgment against a third party insurance company. See State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996). The commenter summarizes the Gandy holding as "a default judgment against licensee A has no precedential or evidentiary value against Licensee B in a subsequent, similar case." The agencies disagree with the commenter's interpretation of the Gandy case. The agencies believe the Gandy case supports a different, more narrow conclusion: that it would violate public policy to allow a defendant to enter into an uncontested judgment with a plaintiff and assign to the plaintiff the defendant's cause of action against his insurance company, using the judgment as evidence against the insurance company. Id. at 710 (citing International Proteins Corp. v. Ralston-Purina Co., 744 S.W.2d 932, 934 (Tex. 1988)).
The commenter also states that it would be unfair to give precedential value to default orders because they are not published and cannot be discovered or reviewed by licensees. In fact, a list of all OCCC and SML orders are published on their respective websites, and a copy of each order may be obtained by written request. Therefore, it is fair and consistent to give all final orders proper effect. It is the role of the administrative law judge, and reviewing courts, to determine the proper evidentiary and precedential value of individual orders.
Finally, the commenter states: "A case prepared, and a final order issued, without a fully adversarial trial should not be admissible as evidence against another licensee at a later date." The OCCC and SML issue hundreds of orders each year, but only a few after a full adversarial trial. Again, it is fair and consistent to give all final orders proper effect, which should be determined by an administrative law judge and reviewing courts.
Allowing a court to recognize the precedential or evidentiary value of default orders reduces the need to use substantial agency resources to relitigate facts and issues. This is consistent with the purpose of the default rule, which is to best utilize agency resources by efficiently disposing of defaulted cases.
Therefore, for the reasons outlined in the preceding paragraphs, the commission maintains the proposed language for this adoption and declines to add the commenter's suggestion.
The amendments are adopted under Texas Government Code, §2001.004(1), which requires all administrative agencies to adopt rules of practice stating the nature and requirements of all available formal and informal procedures.
The amendments are also adopted under specific rulemaking authority in the substantive statutes administered by the agencies. Texas Finance Code, §11.301 and §31.003(a)(5) authorize the finance commission to adopt rules necessary or reasonable to facilitate the fair hearing and adjudication of matters before the banking commissioner and the finance commission. Texas Finance Code, §151.102(a)(1) authorizes the finance commission to adopt rules necessary to implement and clarify Chapter 151. Texas Finance Code, §154.051(b) authorizes the Department of Banking to adopt rules concerning matters incidental to the enforcement and orderly administration of Chapter 154.
The statutory provisions affected by the adoption are contained in Texas Finance Code, Chapters 14, 154, 156, 157, 180, 393, 394, and Title 4, and Texas Occupations Code, Chapter 1956.
TRD-201703199
TRD-201703200
The Finance Commission of Texas (commission) adopts amendments to §§84.203 - 84.205, 84.302, 84.308, 84.309, 84.707 - 84.709, 84.804, and 84.808 in 7 TAC, Chapter 84, concerning Motor Vehicle Installment Sales.
The commission adopts the amendments to §§84.203 - 84.205, 84.302, 84.308, 84.309, 84.707 - 84.709, 84.804, and 84.808 without changes to the proposed text as published in the June 30, 2017, issue of the Texas Register (42 TexReg 3332).
The commission received one supportive written comment on the proposal from the Texas Independent Automobile Dealers Association (TIADA). The comment solely relates to amended §84.205, Documentary Fee, and supports the adopted changes stating that the "language accurately reflects the intent of HB 2949."
In general, the purpose of the rule changes in 7 TAC, Chapter 84 is to implement four bills that the Texas Legislature passed in the 2017 legislative session: HB 2339, HB 2949, SB 1052, and SB 1199. The adopted rule changes relate to the following issues: trade-in credit agreements, documentary fees, debt cancellation agreements, deferments, and depreciation benefit service contracts.
SB 1199 amends Texas Occupations Code, §1304.003, to authorize a depreciation benefit optional member program. The bill defines a depreciation benefit optional member program as "a service contract financed under Chapter 348 or 353, Finance Code, that pays to the buyer, as a credit toward the purchase of a replacement vehicle at a participating dealer, an amount less than or equal to the difference between the purchase price and actual cash value for a total constructive loss." These depreciation benefit service contracts will be subject to the same requirements that currently apply to service contracts under Chapter 1304 of the Occupations Code, including the requirement that the provider be registered with the Texas Department of Licensing and Regulation, the requirement to maintain a reimbursement insurance policy and a funded reserve account, disclosure requirements, and refunding requirements.
Prior to proposal, the agency circulated an early draft of these changes to interested stakeholders. The agency then held an online stakeholder meeting where attendees asked questions through a webinar. The agency did not receive any informal written precomments other than the questions received through the webinar.
The individual purposes of the amendments and new rule are provided in the following paragraphs.
An adopted amendment to §84.203(a) specifies that the rule on deferment charges does not apply to an amendment described by Texas Finance Code, §348.114(c), to defer all or part of one or more payments for a retail installment transaction that employs the true daily earnings method. In addition, throughout §84.203, the adoption deletes references to the maximum deferment charge for transactions using the true daily earnings method. These amendments to §84.203 implement SB 1052's amendments to Texas Finance Code, §348.114, which provide that the continuing accrual of time price differential in a transaction using the true daily earnings method is not a deferment charge.
During the stakeholder meeting, one attendee asked what is required for a deferment in a transaction using the true daily earnings method, other than the notice described in Texas Finance Code, §348.114(c), as added by SB 1052. This issue is outside the intended scope of the amendments to §84.203, which specify that §84.203 does not apply to this type of deferment. As amended by the adoption, §84.203 applies only to transactions using the add-on method or the scheduled installment earnings method. In response to the attendee's question, the agency recently issued a revised advisory bulletin on deferments, explaining that Texas Finance Code, §348.116 requires an amendment to a retail installment contract to be confirmed in a writing signed by the buyer, and requires the holder to deliver a copy of the confirmation to the buyer.
An adopted amendment to §84.204 adds a new subsection (j), providing that a retail seller may not include a benefit under a trade-in credit agreement in the "Dealership Allowance for Trade-In" section of the disclosure of equity standard form. This amendment is intended to avoid confusion in the calculation of the trade-in allowance, which is limited to the value of the trade-in vehicle. Under Texas Tax Code, §152.002(b)(5), "the value of a motor vehicle taken by a seller as all or a part of the consideration for sale of another motor vehicle, including any cash payment to the buyer under Section 348.404 or 353.402, Finance Code" is excluded from the total consideration for sales tax purposes. The Texas Comptroller of Public Accounts uses the term "trade-in allowance" to refer to the value of the vehicle for purposes of this exclusion from sales tax. Texas Comptroller of Public Accounts, Motor Vehicle Tax Guidebook at x, II-2 (2011). The benefit under a trade-in credit agreement is separate from the value of the trade-in vehicle itself. For this reason, the benefit under a trade-in credit agreement should not be included in the trade-in allowance shown on the disclosure of equity.
An adopted amendment to §84.205(b)(1) specifies that a documentary fee of $150 or less is presumed reasonable under Texas Finance Code, §348.006(f). In addition, throughout §84.205, the adoption deletes references to the requirement to provide a notification for a documentary fee that is greater than $50 but less than or equal to $150. These amendments implement HB 2949, which specifies that a retail seller is not required to notify the agency of an increased documentary fee if the seller charges a documentary fee that is less than or equal to an amount presumed reasonable by rule of the commission. $150 is the same amount that the agency presumes reasonable under §84.205(b)(2) prior to this adoption. The commission adopted $150 as a reasonable documentary fee amount in 2016. This amount was based on the agency's ongoing review of documentary fee cost analyses, as well as document-related costs for Texas motor vehicle dealerships. The rule's current requirement to provide both a notification and a cost analysis for a documentary fee over $150 would remain in place.
Adopted amendments to §84.302, §84.308, and §84.309 contain updated citations to the new Chapter 354 of the Texas Finance Code, as added by SB 1052. In addition, an amendment to §84.309(d) acknowledges that the agency may agree to extend the normal 45-day approval period for debt cancellation agreements for an additional 45 days. This amendment implements SB 1052, which permits the agency to agree to these deadline extensions in new Texas Finance Code, §354.005(b).
In §84.707, the adoption amends the recordkeeping requirements for retail sellers that assign retail installment contracts. The amended recordkeeping requirements relate to trade-in credit agreements and depreciation benefit service contracts.
In §84.707(d)(2), adopted new subparagraphs (N) and (O) identify records that a seller must maintain for trade-in credit agreements, including a copy of the agreement, refunding records, and documentation used to process a claim. These amendments ensure that the agency can verify the seller's compliance with Texas Finance Code, §348.125, as added by HB 2339. These recordkeeping requirements are generally similar to requirements for other ancillary products. If any claims are administered by a party other than the seller, the seller should be able to obtain these records from the administrator.
In §84.707(d)(2), adopted new subparagraph (P) requires the seller to maintain records relating to depreciation benefit service contracts, including evidence of the amount of any credit, and any documentation obtained by the seller to process a benefit. This amendment ensures that the agency can verify that any benefit under a depreciation benefit service contract is accurately reflected on the retail installment contract.
During the stakeholder meeting, attendees asked several questions about the recordkeeping requirements for depreciation benefit service contracts. One attendee asked how long records must be maintained. The depreciation benefit service contract records will be subject to the general requirement in Texas Finance Code, §348.517(b), and current §84.707(d)(6) and §84.708(e)(9) to maintain records for the later of four years from the date of the retail installment contract, or two years from the date of the final entry. Another attendee asked whether records are required to be maintained in electronic or paper form. The depreciation benefit service contract records will be subject to the general provisions in current §84.707(c) and §84.708(c), which allow a licensee to maintain records using a legible paper or manual recordkeeping system, an electronic recordkeeping system, an optically imaged recordkeeping system, or a combination of these. Another attendee asked which party is the "seller" for purposes of the recordkeeping rules. Throughout §84.707 and §84.708, the term "seller" refers to the seller of the motor vehicle, which is not necessarily the provider of the service contract. Service contract providers are subject to separate recordkeeping requirements under Texas Occupations Code, §1304.155.
In §84.707(d), adopted new paragraph (6) requires the seller to maintain a copy of any contractual liability reinsurance policy required for trade-in credit agreements under new Texas Finance Code, §348.125(c), as added by HB 2339. This new paragraph also requires the seller to maintain a register or be able to generate a report reflecting agreements that were satisfied or denied. These amendments ensure that the agency can verify the seller's compliance with Texas Finance Code, §348.125, as added by HB 2339.
In §84.708, the adoption amends the recordkeeping requirements for retail sellers that collect installments on retail installment contracts. The amended recordkeeping requirements relate to deferments, trade-in credit agreements, and depreciation benefit service contracts. In §84.708(e)(2), adopted new subparagraph (R) requires sellers to maintain written deferment agreements and deferment notices. These amendments ensure that the licensee can verify the seller's compliance with Texas Finance Code, §348.114, as amended by SB 1052. Other amendments throughout §84.708 conform to the previously discussed amendments to §84.707 relating to trade-in credit agreements and depreciation benefit service contracts.
In §84.709, the adoption amends the recordkeeping requirements for holders taking assignment of retail installment contracts. The amended recordkeeping requirements relate to deferments and debt cancellation agreements. In §84.709(e)(2), adopted new subparagraph (J) conforms to the previously discussed amendment to §84.708(e)(2) relating to deferments. In addition, an adopted amendment to §84.709(e)(3)(A)(v) specifies that a holder must maintain refunding records if it receives or issues a refund for certain ancillary products, including debt cancellation agreements.
In §84.804, the adoption amends a list of authorized itemized charges to include a charge for a trade-in credit agreement and a charge for a depreciation benefit service contract.
In §84.808(8), adopted new subparagraphs (F) and (G) specify that a benefit provided under a trade-in credit agreement or depreciation benefit service contract must be included in the downpayment and included in the line of the retail installment contract labeled "other (describe)." As discussed previously, the benefit under a trade-in credit agreement is separate from the value of the trade-in vehicle itself, and should not be included in the trade-in allowance. Disclosing the trade-in credit agreement benefit on the "other" line of the downpayment section helps ensure that the buyer understands the benefit amount and is not misled into believing that the benefit is part of the trade-in allowance. Similarly, disclosing a depreciation benefit on the "other" line of the downpayment section helps ensure that the buyer understands the benefit amount.
During the stakeholder meeting, one attendee asked how the initial charge for the trade-in credit agreement should be disclosed, and asked whether §84.808(8)(F) applies only to the transaction where the buyer receives a benefit under the agreement. To clarify, there are two retail installment transactions relevant to the trade-in credit agreement: the first transaction in which the buyer purchases the agreement, and the second transaction in which the buyer trades in the vehicle and receives a benefit under the agreement. In the first transaction, the initial charge for the trade-in credit agreement should be listed in the retail installment contract's itemization of amount financed, in the itemized charges not included in the cash price. This requirement is specified by Texas Finance Code, §348.005(4), as amended by HB 2339, and adopted §84.804(4)(R). For example, the seller may list the initial charge on line 4.O., "Other charges," of the model itemization of amount financed at §84.808(8)(A). In the second transaction, the benefit under the agreement should be disclosed in the retail installment contract's itemization of amount financed, on the "other" line of the downpayment section. Adopted §84.808(8)(F) applies only to the transaction where the buyer receives a benefit under the agreement.
During the stakeholder meeting, one attendee asked when licensees may start offering depreciation benefit service contracts. Trade-in credit agreements in connection with retail installment transactions are not authorized until HB 2339 goes into effect on September 1, 2017. Before offering a trade-in credit agreement, a seller must ensure that it is insured under a contractual liability reimbursement policy, as required by Texas Finance Code §348.125(c), as added by HB 2339.
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, §348.513 grants the commission the authority to adopt rules to enforce the motor vehicle installment sales chapter.
The rule changes in §84.205 concerning documentary fees are adopted under Texas Finance Code, §348.006(f), as amended by HB 2949, which authorizes the commission to adopt a rule establishing a documentary fee amount presumed to be reasonable, and Texas Finance Code, §348.006(h), which authorizes the commission to adopt rules necessary to enforce §348.006.
The statutory provisions affected by the adopted rule changes are contained in Texas Finance Code, Chapters 345, 348, and 354.
TRD-201703203
TRD-201703204
TRD-201703205
TRD-201703206
The Finance Commission of Texas (commission) adopts new §86.202 in 7 TAC, Chapter 86, concerning Retail Creditors.
The commission adopts new §86.202, without changes to the proposed text as published in the June 30, 2017, issue of the Texas Register (42 TexReg 3340).
The commission received no written comments on the proposed new rule.
In general, the purpose of the rule changes in 7 TAC, Chapter 86 is to implement a bill that the Texas Legislature passed in the 2017 legislative session: SB 1052. The adopted new rule relates to debt cancellation agreements for Chapter 345, Retail Installment Transactions.
SB 1052 moves provisions regarding debt cancellation agreements that require insurance from Chapter 348 to a new Chapter 354 of the Texas Finance Code. The bill allows these agreements to be provided in a Chapter 345 retail installment transaction for certain covered vehicles, including a motorcycle, all-terrain vehicle, snowmobile, camper, boat, or personal watercraft trailer. The bill also allows the OCCC to agree to extend the 45-day approval period for debt cancellation agreements by an additional 45 days, and it specifies refunding and recordkeeping requirements when a debt cancellation agreement terminates due to early payoff of a retail installment contract.
Adopted new §86.202 provides that a debt cancellation agreement for a retail installment contract involving the purchase of a covered vehicle described by Texas Finance Code, §354.001(2), including a motorcycle, recreational vehicle, all-terrain vehicle, camper, boat, personal watercraft, or personal watercraft trailer, is subject to the submission requirements and appeal procedures of §84.309. This new rule implements SB 1052, which allows debt cancellation agreements to be provided in a Chapter 345 retail installment transaction for certain covered vehicles, including a motorcycle, all-terrain vehicle, snowmobile, camper, boat, or personal watercraft trailer. The agency began accepting submissions of debt cancellation agreements for these Chapter 345 covered vehicles as of July 1, 2017.
Under adopted new §86.202, a person submitting a debt cancellation agreement for a Chapter 345 covered vehicle will be required to pay a filing fee under current §84.309(c).
The new rule 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, §348.513 grants the commission the authority to adopt rules to enforce the motor vehicle installment sales chapter.
This new rule is authorized under Texas Finance Code, §14.107, which authorizes the commission to establish reasonable and necessary fees for carrying out the commissioner's powers and duties under Chapter 348. The statutory provisions affected by the adopted new rule are contained in Texas Finance Code, Chapters 345, 348, and 354.
TRD-201703207