Texas Administrative Code › Title 7 - BANKING AND SECURITIES › Part 6 - CREDIT UNION DEPARTMENT › Chapter 91 - CHARTERING, OPERATIONS, MERGERS, LIQUIDATIONS › Subchapter G - LENDING POWERS › Section 91.713 - Indirect Lending

Current through Reg. 49, No. 28; July 12, 2024
(a) Indirect
				  Lending Program. Credit unions may implement a program of indirect financing of
				  motor vehicles and other tangible personal property. As used in this chapter,
				  an indirect financing is the credit union's purchase of a member's retail
				  installment contract that is originated by a seller to finance the purchase of
				  the motor vehicle or other property.
(b) Contracts Treated as a Loan. For the
				  purposes of this chapter, a retail installment contract purchased under this
				  authority may be treated as a loan on the books and records of the credit union
				  and is subject to the same limitations and restrictions imposed upon loan
				  transactions. As with other lending, the credit union is responsible for making
				  the final underwriting decision. The seller may initially determine whether the
				  prospective buyer is a member or eligible for membership in the credit union,
				  but the final determination of membership eligibility is the credit union's
				  responsibility.
(c) Authorization.
				  Credit unions may purchase or hold retail installment contracts when authorized
				  by applicable law. The retail installment contract must provide for a rate or
				  amount of time price differential that does not exceed a rate or amount
				  authorized by applicable law.
(d)
				  Written Policies. The board of directors shall establish, implement, and
				  maintain prudent and reasonable written policies that are appropriate for the
				  size and complexity of the credit union's indirect lending program. The board
				  must also ensure that the credit union has sufficient staff with the expertise
				  to purchase, service, and monitor the program and the contract portfolio
				  consistent with safe and sound credit union practices. The policies must be
				  specific and detailed enough to foster prudent and compliant credit
				  practices.
(e) Third Party
				  Providers. A credit union may rely on services provided by third parties to
				  support its indirect lending activities. The board of directors must ensure
				  that the credit union exercises appropriate due diligence before entering into
				  third party arrangements, and maintains effective oversight and control
				  throughout the arrangement. This oversight and control should include a
				  periodic review of each material seller's retail installment contract
				  statistics to ensure compliance with credit union credit criteria and to avoid
				  undue concentrations of risk.
(f)
				  Subprime Indirect Lending. If a credit union conducts a program that includes
				  subprime indirect lending, it must perform comprehensive due diligence before
				  engaging in and during that type of activity. At a minimum, due diligence shall
				  focus on understanding the higher levels of credit, compliance, reputation, and
				  other risks involved, plus the likelihood that origination, servicing,
				  collections, operating, and capital costs will increase. The strategic decision
				  to engage in subprime indirect lending must also be supported by a sound
				  business plan that establishes measurable financial objectives as well as
				  limitations on growth, volume, and concentrations. For the purposes of this
				  section, "subprime indirect lending" refers to programs that target borrowers
				  with weakened credit histories typically characterized by payment
				  delinquencies, previous charge-offs, judgments, or bankruptcies. Such programs
				  may also target borrowers with questionable repayment capacity evidenced by low
				  credit scores or high debt-burden ratios.